Raise your hand if you have a spreadsheet or something similar in which you track your costs.
Now, keep it raised if you review it at least monthly and look for opportunities to reduce spending.
I suspect that few people both track their costs and regularly review them with the intention of seeking savings.
Personally, I’ve always been notorious about tracking costs. After all, where we spend our money is important – isn’t it?
Well, I’ve come to learn that not everyone is as meticulous as I am about the little details concerning where our money disappears to. They prefer to occupy their headspace with making money instead of saving money.
It’s natural. Growth is typically more exciting than reduction, and cost cutting is generally about reduction.
But if we shift our mindset slightly and realize that cutting unnecessary costs will actually allow us to grow further, the conversation changes.
Hence, this article, which covers a multitude of ways in which just about ANY business can go about saving costs.
Read this article – it will save you money.
- 1 Reducing Costs: Cliffs Notes
- 2 Why Reduce Costs
- 3 Tracking Costs (Get Your Butt Down To It!)
- 4 Identifying High Costs (Aka Figuring Out Where Your Money Went)
- 5 Getting In There And Cutting Down Those Costs
- 5.1 Reducing costs: environment
- 5.2 Reducing costs: labor
- 5.2.1 #10: Encourage remote working
- 5.2.2 #11: Fire underperforming employees
- 5.2.3 #12: Incentivize using non-monetary benefits
- 5.2.4 #13: Outsource work to external contractors
- 5.2.5 #14: Redistribute labor
- 5.2.6 #15: Replace in-house labor with software
- 5.2.7 #16: Screen potential hires properly
- 5.2.8 #17: Use tiered payment systems
- 5.2.9 #18: Work on increasing productivity
- 5.3 Reducing costs: marketing
- 5.4 Reducing costs: others
- 5.5 Reducing costs: purchases
- 5.6 Reducing costs: subscriptions
Reducing Costs: Cliffs Notes
Why reduce costs:
You get more cash flow, which buys you more time to turn a profit or grow your company.
How to track costs:
Set up an Excel template (scroll down to check out what mine looks like).
Identifying areas of high cost:
Look through your costs, and hone in on areas of high-cost. Evaluate whether you really need these items.
Reducing costs (environment):
- Ditch the office
- Go paperless
- Look at capital purchases with a critical eye
- Power down electronics
- Re-negotiate rent
- Sell used equipment
- Sublet office space
- Switch to VoIP
- Use a smart thermostat
Reducing costs (labor):
- Encourage remote working
- Fire underperforming employees
- Incentivize using non-monetary benefits
- Outsource work to external contractors
- Redistribute labor
- Replace in-house labor with software
- Screen potential hires properly
- Use tiered payment systems
- Work on increasing productivity
Reducing costs (marketing):
- Collaborate with other business owners
- Create a referral program
- Do media pitching
- Encourage employee advocacy
- Move your budget to digital marketing
Reducing costs (others):
- Figure out your 80/20
- Get sponsors for events
- Limit company-paid travel
- Sell or write off old inventory
- Stop wasting time on meetings
Reducing costs (purchases):
- Buy used equipment
- Centralize purchasing
- Consolidate expenses to a single credit card
- Forecast inventory requirements more accurately
- Pay invoices early
- Purchase in bulk
Reducing costs (subscriptions):
- Consider low cost alternatives
- Get rid of old subscriptions
- Look for downgrade opportunities
- Negotiating trades
- Reduce healthcare costs
- Upgrade to annual plans
Your action list for reducing costs:
- Analyze each measure individually, and do a quick Cost / Benefit Analysis.
- Implement the measures that pass the test.
- Set a monthly reminder to do the same exercise, as new costs inevitably come up and have to be evaluated on an ongoing basis.
Why Reduce Costs
This one’s pretty obvious: when you reduce cost, this gives you more cash flow.
With more cash flow, you buy yourself more time to turn a profit. If you’re already profitable, you can use the cash to grow your company!
And here’s the thing…
When it comes to reducing cost, a little goes a long way.
Think about it: cutting down on your business expenditure by just $50 per month doesn’t seem like a big deal, but this works out to be $600 per year. Hell, I could fund a customer support rep for a month with that cash!
Tracking Costs (Get Your Butt Down To It!)
Look, every entrepreneur knows – theoretically speaking – that they should be looking into cutting costs. When it comes down to actually doing it, though, that’s a whole different story.
I get it. You have a gazillion things to do on your to-do list, your inbox is filled with unanswered emails, and you were supposed to process your staff’s payroll. Like, yesterday.
So, baby steps.
I’m not asking you to lock yourself up in a room, and devote the whole day to figuring out how to cut costs…
All you gotta do (for today!) is to set up a template on Excel, which you can use to track your costs moving forward.
This isn’t going to be anything fancy – all you need are a few columns where you can type in the type of cost, the description, the date, the actual cost, etc.
Here’s what mine looks like:
I like to add additional columns to separate the months and years – that way, I can filter the data more easily.
This should take you no more than 5 minutes. (In fact, if you’re an Excel whiz, you could probably even do it in 2 minutes flat).
Now, fill in the previous costs, or, if you’re just starting out, then add new costs as they come in (best is to develop the habit of just immediately doing this after spending money)
Once you’re done, we’ll move on to the next step!
Identifying High Costs (Aka Figuring Out Where Your Money Went)
Now that you’ve got your spreadsheet ready, it’s time to track your expenses and identify what you’re spending the most on.
There’s no hard and fast rule to this, but I like to set aside time to go through my spreadsheet once a month.
For startups and small business owners, this will take you 10 – 20 minutes, tops. Look through your costs, and hone in on areas where you’re spending a lot.
Then have a think about whether these items you’re spending on actually contribute to your company, or whether you’re better off without them.
Getting In There And Cutting Down Those Costs
Okay, now for good stuff… figuring out how to cut costs!
Don’t worry, we’ve done all the legwork for you – you’ll find a bumper list of 40 different cost-cutting measures outlined below.
All you need to do is to look through the list, and think about how to apply these to your company and the costs you just analyzed.
Reducing costs: environment
#1: Ditch the office
As entrepreneurs, we all dream of working out of state-of-the-art offices which offer a sweeping view of the skyline (the kind that wouldn’t look out of place on Suits).
But this is real life, and those offices don’t come cheap.
If you (like us!) can’t afford such luxuries as of now, then go ahead and ditch the office.
You can always work out of a co-working space. These places come with all the facilities you need (printers, conference rooms, coffee machines…), and they typically cost a lot less than traditional offices.
If you really want to save, then go ahead and work out of your own home. We’ll all been there, done that… so no one’s going to judge!
Wondering how you’ll communicate with the team? Try apps like Slack, Glip, and HipChat that were meant for this purpose.
#2: Go paperless
In a nutshell: printing is expensive.
Sure, you might’ve gotten a good deal on that printer, but you still have to pay for ink cartridges, paper, maintenance, etc.
So go paperless, and share and store files online instead of printing them out!
For this, DropBox or Google Drive can be great tools for file sharing.
#3: Look at capital purchases with a critical eye
A new machine or gizmo that increases productivity is a sound investment… as long as you’re certain that the costs outweigh the benefits.
Before you sink your hard-earned cash into any capital purchases, ask the following questions:
- What’s the total cost of ownership (including after-purchase costs?)
- How much quicker/faster/more effectively does it help you operate?
- How much ROI can you get from the purchase?
Do your due diligence, before making your purchase!
#4: Power down electronics
Yelp, who else is guilty of simply putting their computers to “sleep mode” instead of powering them down every night?
And it isn’t just the computers but the overhead lights, desk lights, and other electronics as well – get your team in the habit of making sure everything is shut down, and this will save you loads in the long run!
#5: Re-negotiate your rent
Even if your landlord is a scrooge, and you don’t think they’ll say yes to your request, it never hurts to ask. But before you go ahead and lay it all out, check out the other options in the area, so that you have more leverage.
If your landlord turns you down, ask for an option to extend your lease without an increase in rent instead.
#6: Sell used equipment
Need to upgrade your equipment? Sell your existing equipment instead of simply disposing of these.
That’s an extra few hundred bucks in your bank account!
#7: Sublet office space
If you’ve got extra space on hand, but you don’t want to move out, another option is subletting your space.
This is a great way of defraying your rental costs – just make sure you get the go-ahead from your landlord, and that you aren’t breaking any rules!
#8: Switch to VoIP
For companies which are still using the traditional PSTN lines, you’re flushing money down the drain with every minute that you don’t switch over to VoIP.
Consider this: small businesses which switch to VoIP can save up to 45% each month.
If your VoIP system comes with a unified messaging tool, even better. These result in more efficient message management, and they can save your employees up to 43 minutes per day. That’s how you do more with less!
#9: Use a smart thermostat
Nest, the leading smart thermostat manufacturer in the US, says that its thermostats save its users an average of 10% to 12% on heating, and 15% on cooling.
If you use a smart thermostat in your retail space or small office, this works out to approximately $131 to $145 worth of cost savings, per year and per location.
If you have a larger facility that you need to cool or heat, you’ll have to invest in a commercial climate control system. This will be more pricey, but it’ll also afford you with more cost savings!
Reducing costs: labor
#10: Encourage remote working
Get this: according to statistics, employees are 35% more productive when working from home.
Add in the fact that you get to save on rent, air conditioning bills and other expenses when your employees work from home, and it’s clear that remote working is the way forward.
#11: Fire underperforming employees
Many entrepreneurs find it difficult to let underperforming employees go.
Look, I know that having to fire someone (especially someone that you’ve worked closely with over the past couple of months!) is pretty hard to do.
But to put it bluntly, these guys are liabilities to the team. If you keep them on board, they’ll stunt your company’s growth, and your rockstar employees will have to compensate for their inadequacies.
The bottom line? Yes, it isn’t easy – but you’ve got to let these people go.
#12: Incentivize using non-monetary benefits
If you reward your employees with cash bonuses or trips aboard, that’s going to add up to a pretty penny.
Instead of doing this, why not incentivize them using non-monetary benefits?
Often time, the mere recognition of a job well done will do the trick. All you need to do is to commend your employee, and perhaps put their picture up on a Wall of Fame.
Alternatively, you can also provide non-monetary perks. For example, employees who do particularly well might be rewarded with flexible working hours. Now, this doesn’t cost your company anything, and it’ll motivate your employees to work harder. How’s that for a win-win?
#13: Outsource work to external contractors
As much as possible, try to outsource work to external contractors and freelancers.
With these guys, you don’t need to pay for their health insurance and other benefits. Plus, they won’t take up any desk space (or contribute to more overhead costs) in your office.
#14: Redistribute labor
Basically, give easier stuff to cheaper hires, and have your senior staff focus on high-level tasks which bring more revenue to your company.
This applies to you as well. As the owner of your company, you should spend your time on revenue-generating activities… not menial, “timesuck” jobs such as creating invoices and chasing your clients for payments.
#15: Replace in-house labor with software
With machine learning and AI technology at our fingertips, there’s a tool to address your every need.
Spending too much time on scheduling meetings and booking conference rooms? You can get an AI scheduling assistant to do that for you.
Find it a chore to monitor your media mentions? Here are 15 free monitoring tools that can get the job done.
Hate sending personalized emails, and reaching out to reporters and other media folks? Leave it up to this PR software.
#16: Screen potential hires properly
When you’ve got a new opening up for grabs, don’t fall over yourself to hire the first person who expresses interest in the role.
Why? Well, if you hire someone who’s the wrong fit, they’ll cost you in more ways than one:
- They lower the bar for your other employees
- They burn out your A-players (who need to step in to make up for their shortcomings)
- They waste your time and effort spent onboarding them
- They cost you in terms of severance pay
How much are we talking here? According to the U.S. Department of Labor, the price of a bad hire is roughly 30% of the employee’s first-year earnings. That’s a lot!
#17: Use tiered payment systems
You might already be putting your salespeople on a commission scheme, but what’s to stop you from doing the same with your other employees?
For your marketing team, consider working with a base salary + increments for every tier of leads that they hit.
For your customer service team, consider paying according to the number of customer complaints that they resolve.
The key is to peg your employees’ salaries to their performance… so that you motivate them to go the distance for your company!
#18: Work on increasing productivity
There are two ways you can go about doing this.
On top of that, create a conducive environments by blocking out distractions such as social media. No more browsing Facebook at work!
Reducing costs: marketing
#19: Collaborate with other business owners
You’re probably friends with a few other small business owners. For those whose target audiences are pretty similar to yours, ask them to collaborate on a mutually beneficial campaign that will drive traffic both ways.
If you’ve got a sizeable email database, send out a newsletter to your users telling them to check out this other company, and get them to do the same.
If you’re stronger when it comes to social, then give your partner company a shout-out on Facebook or Twitter instead.
You’ve got plenty of options to play around with, so get creative!
#20: Create a referral program
How did Dropbox get a mindblowing 4 million users within just 15 months?
They used a good ‘ole referral program.
If you’re offering a SaaS product, or any other product that has a marginal cost of production that’s close to nothing, then this tactic will be particularly powerful for you. You can get your existing users to help you acquire new customers… and you won’t incur much extra cost by offering these existing users a perk to make it worth their while.
If your product doesn’t have a marginal cost of production that’s close to zero, you can still use this strategy. Just make sure your cost of providing those perks are lower than what you would otherwise pay to acquire a new customer!
#21: Do media pitching
It’s time to nail the art of media pitching. If you play your cards right, you might get featured on various publications, which will result in an uptick of customers and sales. This means you won’t have to spend as much on marketing!
To get you started, check out this list of dos & don’ts when pitching to the media.
#22: Encourage employee advocacy
Did you know that social media posts by employees can generate up to 8x more engagement than when the same post is shared by a company?
It all boils down to a question of authenticity. If, as a brand, you’re singing your own praises, this comes off as slightly narcissistic at best and cringe-worthy at worst.
But if your employees are saying good things about you? Then that’s a different story!
#23: Move your budget to digital marketing
Still spending big bucks on traditional channels such as television and print ads?
Go online – a conversion from a Facebook ad or Google ad can cost you less than ten bucks, and you get way more clarity when it comes to ROI.
For those who are new to the world of digital marketing, check out this PPC guide!
Reducing costs: others
#24: Figure out your 80/20
According to the 80/20 rule, roughly 80% of effects come from 20% of causes.
Applying to a business context:
You’re probably putting 80% of your time and effort into serving 20% of your customers. If their account is large enough to justify this, then by all means, entertain them.
But if they’re not spending more than your average customer, then you might want to consider pulling the plug. This way, you’ll have more time to serve your more profitable (and less demanding) customers!
#25: Get sponsors for events
Hosting an event can be pretty expensive. To defray your costs, take the opportunity to sell advertising air time (or space!) for other businesses.
#26: Limit company-paid travel
Conference call technology is pretty damn sophisticated now, so stop wasting money on unnecessary flights and hotel stays. Just set up a virtual meeting instead!
#27: Sell or write off old inventory
If you’ve got old inventory that’s depreciating in value with every single day that passes, get rid of it as soon as possible.
Hold a warehouse sale with drastically reduced prices; if that doesn’t work, donate the items, or trash them. It sucks to throw away perfectly functional items, but, hey – it’s better than spending more money on inventory space!
#28: Stop wasting time on meetings
Get your team to start using a great collaborative tool (I like Trello, Asana, and Slack), and you’ll find that most meetings don’t even need to happen.
If a meeting is absolutely crucial, make sure that it’s short, sharp, and to-the-point.
You should have an agenda so that everyone’s clear on what needs to be discussed during the meeting. On top of that, have someone be a timekeeper, and keep the team on track whenever people start veering off and talking about irrelevant stuff.
Reducing costs: purchases
#29: Buy used equipment
Is it really that important to have your equipment shiny and new?
If not, purchasing second-hand is definitely the way to go. You can save loads on equipment such as…
- Printers and copiers
- Tablets, laptops, and desktops
- Delivery vans and company cars
- Storage equipment
#30: Centralize purchasing
If you’re purchasing a few of your supplies from Supplier A and the rest from Supplier B, check if it’s possible to consolidate all your purchases, and get them from a single supplier.
The more you rack up in purchases from an individual supplier, the more bargaining power (and discounts) you get!
#31: Consolidate expenses to a single credit card
The same logic applies – instead of spreading your expenses out over several cards, go ahead and consolidate them into a single card. This way, you get to maximize your cashback and other perks!
#32: Forecast inventory requirements more accurately
If you can forecast your inventory requirements more accurately, this means you’ll:
- Prevent expensive stockouts, and
- Not get saddled with excessive inventory and unnecessary storage costs
You might even be able to get away with ordering less frequently!
There are plenty of paid platforms and softwares out there, but to get started, try TradeGecko’s free inventory forecasting tool.
#33: Pay invoices early
If your invoice says “2/10 net 30”, that means you’re eligible for a 2% discount if you pay the full amount within 10 days. It’s freeeee money that’s up for grabs!
#34: Purchase in bulk
What if you’re a super small outfit, but you don’t want to pay retail prices for your office supplies?
Simple – cut a deal with your other entrepreneur friends, and get bulk discounts by purchasing together!
Reducing costs: subscriptions
#35: Consider low cost alternatives
Imagine this. You’re in the market for a media monitoring tool, and you Google for a few options. You click on the first few listings which appear, take some time to compare them and read reviews, then make a decision.
Well, here’s the problem:
The first few listings that you see are probably all paid ads… and if these companies are bidding high enough for their keywords to appear on the first page of Google, you can bet that this extra cost is built into whatever you are paying, as a customer.
Now, if you do a little digging, you’ll probably be able to find a competing tool or platform that does essentially the same thing, but costs less.
This tool might not be as well known, but don’t write them off too soon. Sign up for a demo or a free trial, and check them out for yourself!
#36: Get rid of old subscriptions
If you’re no longer using it, then you shouldn’t be paying for it. Go through all the subscriptions (especially those that are on an auto-renew scheme!), and cancel the ones which you don’t need.
#37: Look for downgrade opportunities
For platforms and tools where you’re paying for a mid-tier or high-end plan, try looking for downgrade opportunities. Sometimes simply deleting inactive users or removing unnecessary team members will do the trick!
#38: Negotiating trades
When all else fails, try to barter the use of your tool with someone else’s. Hey, anything to keep your cost structure lean!
#39: Reduce healthcare costs
Tax-deductible Health Savings Accounts (HSAs) are a great way of allowing your employees to take ownership of their healthcare choices (and at the same time, reducing the amount that you’ll need to fork out).
As you probably already know, the process of filing taxes when you are self-employed can be a little trickier than a typical tax return, so be sure to educate yourself on HSAs and other tax-deductible accounts before trying to do your taxes yourself.
#40: Upgrade to annual plans
If you’ve been using a certain tool for a while now, and you foresee yourself using it in the long-term, save by switching from monthly payments to yearly ones.
Psst: the end of the year is the best time to make the switch – because you’re reducing your profit with a lump sum payment, this will also help you lower next year’s taxes.
Your Action List For Reducing Costs
Yay! You made it to the end of this article. Give yourself a pat on the back!
While browsing through the above list of measures, you’ve probably given some thought as to which ones are applicable to your business, and which ones aren’t.
Now, here’s what you need to do…
- Analyze each measure individually, and do a quick Cost / Benefit Analysis. Basically, find out how much it’ll cost you to reduce the cost, and determine whether it’s worth your while to do so. A mental calculation is sufficient to get started, and then dive deeper into the ones that pass the test. NOTE: If your business will suffer from the cost-cutting measure in some way, be sure to take this into account, as cost cutting is not about lowering quality!
- Implement the measures that pass the test.
- Set a monthly reminder to do the same exercise, as new costs inevitably come up and have to be evaluated on an ongoing basis. Don’t worry - the first one will take the most time, but subsequent ones will be a piece of cake.
Alright, time to optimize your company’s finances!