12 Tips to Lower Your Overhead Costs

by Megan Sullivan

6 min read

Running a business requires spending money just as much as it requires making it. These overhead costs, which many business owners place in the category of “spending money to make money,” can become a significant drain on the organization’s bottom line.

If you find your overhead—or “indirect”—costs are taking a bigger and bigger chunk out of your revenue, it might be time to reevaluate. Here are 12 tips on how to lower your overhead costs.

1. Review Everything

If you employ an accountant, ask him or her to provide you with your business’ most current list of overhead costs. If you don’t, conduct a search via your bookkeeping software that can pull these costs for you. Remember that overhead costs can be variable or fixed and paid on a regular basis (e.g. monthly, quarterly or annually).

Once you have your list, review it. You should be able to star items that are:

  • No longer necessary
  • Too high in price
  • Open to efficiencies

It’s always a good idea to get a handle on where you are with your costs before you try and make sweeping changes.

2. Don’t Look for a Magic Bullet

If you conducted cost-savings exercises before, there’s little chance that reducing or eliminating one line item is going to solve the problem. Have patience throughout the process, and realize that your greatest cost savings might come from a series of small amounts.

3. Brainstorm With Your Employees

If you have a staff, ask them for their input on where money can be saved. Depending on the size of your organization, you might even want to offer incentives for the idea that saves the most, the idea that is the most innovative, etc. This type of collaboration often leads to more opportunities than you could find on your own.

4. Reevaluate Your Third-Party Contracts

If you rent equipment or pay service retainer fees, then you might be able to find cost savings by evaluating your current contracts to see if they still fit your needs. This is especially important if the contracts are older. Chances are your business has changed since you first signed it, so taking a closer look is warranted.

This analysis may not always result in decreasing the contract cost. You may have outgrown your original contract, but you may also be spending more to fill service gaps yourself instead of asking the vendor to do it for you. So while you might see an increase in the contract amount, you will see a decrease in other columns of your ledger.

5. Clear Out Your Storeroom

There’s a chance that your storage room or empty office space is filled with non-working or outdated technology, including older computers, printers, fax machines and phones. Clear it out, and sell it. Look for buyers in your area. If the machines are in good working order and no longer needed, consider donating them to a charity or a school. Just make sure to get a receipt so you can write them off on your taxes at the end of the year.

6. Assess Your Staff

Chances are there are one or two members of your team that are underperforming and have been for a while. Laying someone off hurts, but keeping an underachieving employee on staff doesn’t do anyone any good. It’s a drain on your resources and employee morale. It also doesn’t give the employee a chance to find something new or different that might be better suited to his or her skills.

Of course, before making any hiring or firing decisions, speak with HR and make sure you are not opening yourself up for a lawsuit.

7. Leverage Your Current Client Base to Save on Promotion

Even in the digital age, word-of-mouth is still one of the best forms of referral. Scale back your advertising and marketing budget by using your current, happy customers as brand ambassadors. Here are a couple ways to do it:

  • Offer an incentive (i.e. restaurant gift cards, percentage off future services, premium items, etc.) to clients who refer others to your business. These incentives do not have to be pricey, but they should be valuable.
  • Ask for testimonials, and use them. Ask current clients for a one- or two-sentence testimonial, then use it on your website, email newsletters or any advertising. If appropriate, ask them to post a positive review on Yelp or another social platform such as Facebook or Twitter.

8. Go Paperless

While you may not be able to completely eliminate paper from your business, you can probably greatly reduce the amount of paper you use, which will allow you to save on printers, ink/toner, paper and storage space. Back up all of your documents to the cloud or on a drive, then shred any unnecessary files. You can then sell the filing cabinets that held them and pocket a little extra cash.

9. Use Credit Cards That Work for You

As a business owner, you probably have at least one credit card for business expenses. Make sure that you’re using a card that gives you the most benefits, including miles or points for travel, cash back or other rewards. Even if you don’t issue company credit cards to all of your employees, the amount of money you can save on your own travel expenses by redeeming points can often lead to significant savings.

You can also evaluate your cards based on annual fees and interest rates. Make sure the card you use is designed for small business and not just consumers. Companies service each group a little differently.

10. Control Purchasing

If possible, designate one person in your organization to handle all purchasing, including negotiating contracts for telecommunications services, placing office-supply orders and more. This person should be very good at negotiation and not afraid to ask for concessions, such as, “If we pay the total balance in eight months instead of 12, can we get a 3% discount?”

Also, by making purchasing their job, it will allow them the time to look for the best prices and bargains. When purchasing tasks aren’t a primary job function, the employee may want to just get it done quickly so he or she can focus on other tasks. This often results in placing orders with a familiar vendor and not shopping around for the best offer.

11. Sublease Your Office Space

If you own your office space, you might find there are a group of rooms—or even floors of a building—that you don’t use. Sublease this space to other small businesses, and use the rent to subsidize your own payments.

12. Consider How Much Space You Really Need

Depending on your organization’s size, it might be time to give up your office space and move to a telecommuting model. Or it might just be time to move. Maybe you don’t need an office in the middle of downtown, which often comes with a higher price tag.

Consider what you use your office for, how often you’re there and why you have it in the first place. If you feel you still need an office, consider downsizing or look into office rental situations that allow you to maintain a professional space for a fraction of the cost.

However you decide to cut overhead costs, the process will be ongoing, and results will not be instantaneous. You will need to carefully evaluate your current situation in order to determine the most efficient way to generate savings. And unless you immediately jettison a few employees or cancel a bunch of contracts, your cost-saving endeavors will be an ongoing exercise.

Keeping costs down should be a year-round effort, but there should be a method to your cost-cutting. Learn more about where not to cut corners when it comes to your startup’s finances.

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