If you own your own business, there are two ways to increase your profitability. You can drive revenues up or expenses down. While you ideally want to do both simultaneously, you often have greater control over the expense side of things.
Simple Ways to Reduce Costs
A dollar saved is a dollar earned. Keep this truth in the back of your mind as you approach cost reduction techniques within your business. Retaining an existing customer can cost up to 5 times less than acquiring a new one, making customer retention a crucial factor in maximizing profits. Punch card apps and other customer retention initiatives allow businesses to build customer loyalty and incentivize repeat purchases, ultimately leading to increased customer lifetime value. And while every organization is unique, you may find the following tips helpful in reducing costs without compromising your business.
1. Use the Right Materials
If you run a business with a physical location, like a restaurant, retail shop, healthcare office, etc., a pretty good chunk of your monthly costs go to maintaining the property and keeping your facilities in working order, such as purchasing supplies from Direct Medical Supplies. You can do yourself a huge favor by using the right materials from the start.
For example, let’s say you run a restaurant with a commercial kitchen. As you know, things can get messy in this environment. There’s water, spills, sticky substances, grease, steam, etc. If your kitchen is made of drywall and other basic materials, you’re going to have issues. Walls will start peeling and certain areas might even attract mold or mildew.
Try installing FDA-compliant restaurant wall panels instead. They’re low maintenance and easy to install. (Typically, you can expect to save 40 percent on material and 50 percent on labor costs when compared to other traditional methods.)
2. Hire Contractors
When you hire an employee, you’re forced to pay for more than just their salary. There’s payroll tax, benefits, etc. But when you hire contractors, you don’t have to worry about any of this. You simply pay the agreed-upon rate, and they have to cover their own taxes and benefits.
Another benefit of working with contractors over full-time employees is that you only pay them for the work they do. If you have a full-time employee making $1,000 per 40-hour week, you’re paying them $1,000 whether there’s 20 hours of work to be done or 40 hours. With a contractor, you only pay for the work that’s done. If you hit a slow week, you don’t have to overpay for labor you don’t need.
3. Structure Your Business Properly
Did you know that your business structure – i.e. the legal structure you choose when setting up your business – has a direct impact on your taxes and bottom line?
There are six basic business structures to choose from: sole proprietorship, partnership, limited liability partnership (LLP), limited liability corporation (LLC), corporation, and nonprofit. Each comes with its own taxation rules and requirements. Being aware of the different tax rates and requirements will allow you to make informed decisions on this front.
Choosing a business structure and taxation rules that are right for your business is important. For example, an LLC (Limited Liability Corporation) has specific advantages, but it’s also important to consider factors like how much does an LLC cost per year. There are six fundamental business structures available, each with specific criteria and tax laws. Making well-informed selections on this front will be possible if you are aware of the various tax rates and requirements.
4. Eliminate Superfluous Costs
Every business has superfluous costs that clog up cash flow without adding a ton of value in return. This can be small things (like running the AC too low and paying oversized energy bills) or large things (like selling a product that’s losing money). Whatever the case may be, you need to get serious about eliminating costs that hold you back.
5. Use Virtual Technology
We’re living in a new virtual world. Having an office and being in the same physical location as your team isn’t always necessary. If you don’t need a physical location to meet with customers and clients, you can probably go virtual. In doing so, you eliminate the need for an expensive lease or mortgage payment.
If nothing else, downsizing your office can save you money. Let’s say you’re spending $20 per square foot on office space. Going from a 2,000-square-foot office to a 1,000-square-foot office could save you $20,000 per month. And as far as increased costs go on the virtual side of things, you might only have to spend a few hundred dollars per month to get the right software stack in place.
Adding it All Up
Cost reduction strategies play a vital role in strengthening your company’s bottom line. Whether you’re struggling to make ends meet or are simply looking for ways to generate beefier profits, these tactics will help you gain some ground. However, by no means is this an exhaustive list. Scrutinize every aspect of your organization and constantly look for ways to improve.