Managing your overheads
Key points in this article
- Keeping your advertising costs down
- Reviewing supplier agreements
- Looking at help
Business expenses are usually divided into two main groups: variable expenses and fixed overheads.
Variable expenses vary in proportion to your sales – so for example, the amount you spend on raw materials making tables will vary depending on the number of tables you actually make.
Overheads on the other hand are the fixed costs of running your business such as phones, office supplies, salaries, leases, insurance and power.
Managing your advertising
Businesses can easily waste thousands of dollars on advertising, so make sure you monitor your spend to understand and improve what's working – and stop what's not.
Scattergun advertising is usually a waste of money, so:
- stick to your marketing plan
- make sure your advertising is targeted
- avoid falling for the ‘great deals’ offered by advertising reps.
For every marketing initiative, work out how many extra sales you need to get a return. Choose cost-effective advertising forms first – would a classified ad work as well as a display ad, for example? Direct marketing is often easier to monitor and refine than mass advertising.
Aim to gain as much free publicity as you can
Negotiating with suppliers
Supplier relationships may need review from time to time. Having a long-term account with one supplier shouldn't stop you from getting other quotes, which you can then use in negotiations.
Put your insurance out to tender
If you think your insurance bill is getting high, introduce a competitive element by putting your insurance out to tender to an independent broker who is able to source cover from a range of suppliers.
Cost of leasing
If your lease creeps upwards, what can you do? If a landlord is willing to link your lease to turnover, this may be a win/win for both parties.
It removes a risk for you (if your turnover declines, so does your rent) and provides an opportunity for the landlord (if your business does well, the landlord gets a higher rent).
Technology solutions can be great for cutting overheads, and may speed up your operations as well as save money. Email is much cheaper and faster than printing and posting letters or newsletters.
Online buying and selling is also much faster and less labour intensive than conventional methods.
Look at reviewing your supplier agreements annually to see if there’s room to reduce costs
Looking for sources of help
Your staff can help brainstorm ways to cut costs effectively. Encourage them to treat the company’s money as if it were their own. For example, through a profit-sharing scheme which can help reduce the use of business equipment for personal use.
Accountants and professionals
Accountants and professionals typically deal with hundreds of businesses, so they’re in a good position to help you identify unusually high costs and suggest ways to reduce them.
They may also be able to:
- benchmark your costs against industry averages
- advise you on how your business is performing in comparison.
Cost reduction analysts
Cost reduction analysts usually work with medium to larger businesses and compare what you currently spend with the best prices they have identified.