8 Ways to Reduce Operating Costs

by Megan Sullivan

4 min read

Many small businesses work on tight margins. As a result, small business owners are always looking for ways to reduce their operating costs without sacrificing the quality of their offering or making the lives of their employees more difficult.

So, what are the best ways to reduce operating costs? Below are eight ideas that can help you reduce the operating costs for your business and enable you to generate more revenue and reduce overhead.

1. Reduce Operating Costs by Embracing Technology

There are dozens of online systems and software programs that have automated tons of small business functions. Accounting, website hosting, marketing communications, payroll and more have all benefited from programs and services that make it easier to manage facets of business.

In order to choose the right program or service for you, ask yourself the following questions:

  • What do I know how to do really well? (e.g. If you were an accountant in a former life, then outsourcing your finances might not make the most sense.)
  • What do I find myself spending an inordinate amount of time on every week?
  • If I could take one of my most time-consuming tasks off my plate, what would it be?

Hopefully, your answers to these questions will give you a clear indication of the task or subject matter area that you should rely on technology for.

2. Reduce Costs With Outsourcing

Instead of relying on technology, it might be prudent to shift responsibility of certain business practices to another business or consultant. One area that seems to benefit the most from outsourcing is advertising and marketing. For many entrepreneurs, this is a pain point. They find that the amount of time they spend on advertising and marketing does correlate to the return on investment.

While it might seem that hiring an outside vendor will result in spending more money, the truth is, in the long run, delegating certain tasks to subject matter experts will save you money and should generate even better results.

3. Lower Operating Costs by Shopping Around

If you work with vendors on a regular basis, you might want to set up a bidding system for projects and work. If you ask three different vendors to provide costs to you, then you can technically use the returned bids to get better pricing.

It’s important when asking for bids, however, that you determine what you want them to do for you before you ask for bids. Compile an accurate scope of work or request for proposal (RFP) for the vendors to bid on, as missing information or added complexity can greatly affect the quoted rate.

4. Telecommute to Cut Down on Costs

Leasing office space, paying for utilities and managing a physical office can be a drain on your financial resources. If it makes sense, allow your employees—and yourself—to telecommute. With the amount of connectivity available today, the difference between an employee sitting in an office and sitting at home is almost indiscernible. Employees will typically also find this advantageous, as they will be able to cut down on their own commute times and expenses.

5. Pay Invoices Early or On Time

Many vendors will offer a discount if you pay your invoice early. Even a savings of two or three percent can really add up. At the very least, make sure to pay your invoices on time in order to avoid any late fees or other penalties.

6. Identify Inefficiencies to Decrease Costs

You should always be looking for ways to make your business more efficient. By tightening up your processes and procedures, you can reduce waste (both materials and time) and therefore, decrease costs.

Empower your employees to look for inefficiencies and identify ways to save time and money. If and when employees pitch ideas to you, don’t forget to pay attention. You don’t want to waste money because you weren’t willing to listen.

7. Cancel Unused Services

This may seem like a no-brainer, but it’s easy for unused services to continue to be deducted from bank accounts or charged to credit cards if you’ve left them on auto-pay. Take a look at all of your expenses over the past six months. If you haven’t used a service in 90 days, cancel it.

It might also be time to reevaluate the services you do use, so shop around for a cheaper alternative or use the occasion to renegotiate your existing contracts.

8. Go Green to Reduce Operating Costs

If you do have an office space, consider making it as green as possible to reduce energy usage. Replace regular light bulbs with compact fluorescent lighting, look to reduce heating and cooling costs by improving your insulation and windows, and cut back on the amount of physical waste. Encourage employees to communicate via email or other electronic means if they don’t already do, and ask your vendors to do the same. This can drastically decrease the cost of your monthly office supply order.

Cutting operating costs for your small business isn’t impossible, but depending on how comfortable you are working within a lean budget, it can take some getting used to. Don’t be afraid to spend money on the services and people you really need, but take an extra moment or two to consider the long-term cost of ongoing services or expensive technology.

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