The past couple of years have been rough for small businesses. So if you find yourself struggling to make ends meet, you aren’t alone. The good news is there are always ways to cut costs. You just have to know where to look.
4 Tips for Cutting Costs
It’s easy to get so focused on increasing revenue that we forget about the other part of the equation: expenses. Both elements – revenue and costs – factor into bottom line profitability.
As the old saying goes, a penny saved is as good as a penny earned. So while we’re certainly big proponents of growing revenue over time, there’s usually plenty of low hanging fruit on the expense side of the balance sheet.
When it comes to managing costs, your business will have its own strengths, weaknesses, and opportunities. But if you’re looking for some basic strategies that apply across industries and business models, you may find the following suggestions helpful:
1. Go All-In With a Marketing Channel
You could invest 100 percent of your revenue back into marketing and still not feel like you’re doing enough. There are endless options, platforms, channels, and strategies – most of which evolve on a monthly basis. But don’t be intimidated by this. Instead, we recommend going all-in with a single marketing channel. Then, once you perfect that channel, you can think about adding another one.
Marketing is very much a quality over quantity investment. Take social media, for example. Most businesses create profiles on five or six different platforms – like Instagram, Facebook, Twitter, Snapchat, TikTok, LinkedIn, etc. – and then half-heartedly post content on all of them. This is time-consuming and low-returning.
A better approach would be to focus on a single social media platform, like Instagram. By putting all of your energy into building up this audience, you’ll post better content and enjoy greater consistency. The result is superior engagement. (It also costs less – both in the short-term and the long-run.)
2. Outsource Instead of Hire
Hiring full-time in-house employees has its perks. Employees feel invested in the company and culture, will typically work extra hours when they’re needed, and give you (the employer) much more control over your team. However, it’s also a lot more expensive.
When outsourcing, 62 percent of companies say they save between 10 percent to 25 percent on talent, while the remaining 38 percent save as much as 40 percent. This is partially due to the cost-effective nature of freelancers and contract workers. However, it’s also a direct result of the expenses you don’t have to pay.
With a full-time employee, the salary is just the start. In most cases, the actual cost is 1.25x-1.4x the salary. So if you pay someone a salary of $50,000, you’re actually spending somewhere in the neighborhood of $62,500 to $70,000 by the time it’s all said and done. These extra costs come in the form of taxes, benefits, training, etc.
Outsourced workers command much less. If you break it down to an hourly rate, they might be more expensive than a traditional employee. However, by the time you discount things like taxes and benefits, they’re less expensive. Plus, you’re never stuck paying for time you don’t need. Outsourced contractors are scalable, meaning you pay for 10 hours if you need 10 hours or 25 hours if you need 25 hours of work.
3. Go Paperless
It’s amazing how many businesses are still using paper today. Not only is it more cumbersome and inefficient than digital processes, but it costs a lot more! Going paperless can create significant savings.
Take, for example, the traditional “approval” process on contracts and documents. If multiple parties were spread across different locations, you once had to print a document, sign it, fax it, and repeat two or three times until all parties had signed. According to Box.com, you can now handle the entire approval process using electronic signatures and the cloud. This saves on paper, postage, and – most importantly – time!
4. Focus on High-Margin Products
It’s time to get very intimate with your numbers. You should know the profit margin on each product you sell down to the penny. This allows you to make wise decisions about which products to focus on and which ones to shelve.
The goal is to emphasize your high-margin products – at least in your sales, marketing, and advertising endeavors. If one product nets you a 75 percent profit margin while another gives you just 20 percent, you probably don’t need the second product. In fact, it may be taking away from your ability to maximize sales on the first product.
Along these same lines, it’s worth noting that a lean product offering is usually better than a robust product offering. The 80/20 rule usually applies here. It states that 80 percent of your revenue is generated from just 20 percent of your products.
Keep Your Business Growing
Growing a business is both an art and a science. And while the artsy part of things is certainly fun, creative, and stimulating, it can’t be the only focus. Sometimes you have to account for the more technical aspects, like cutting costs and managing profit margins. It’s not always exciting, but it can make a massive difference in the grand scheme of things.
Small cost savings add up over time. For example, let’s say you’re able to cut your expenses by $225 per day through a clever combination of negotiating a better rate with a vendor and shifting your focus over to higher profit margin items.
On the surface, that might not sound like a significant number, but wait until you extrapolate it out across a longer period of time. That $225 per day turns into $6,750 in savings per month and more than $82,000 per year.
For a small business, $82,000 is a massive savings. It’s enough to upgrade your building, hire a couple of employees, pay down debt, or increase your own salary. Don’t underestimate the power of cutting costs. Yes, revenue still matters – but it doesn’t have to be the only focus!