12 Ways to Cut Small Business Costs
Wondering how to cut business expenses without reducing sales or impacting customer service? It is possible. While cutting business costs, you may even discover ways to improve your overall operations, better serving your customers and engaging your employees.
How to cut business expenses:
Use the tips below to find easy ways to save on regular business costs. Some can also help you save time and boost engagement, creating more sustainable operations.
1. Cut energy costs with smart technology, automatic motion-sensing lights, and passive energy-saving tools.
Energy costs are rising, and unfortunately, business owners don't have much control over how much utilities charge. What you can control, however, is how much you use. Use the following tactics to save money by reducing your energy consumption:
- Install a smart thermostat and program a schedule that keeps your space comfortable while occupied but saves money during off hours.
- Set up automatic motion sensor lights. This way, you won't be paying for electricity when employees leave the room but forget to turn off the lights.
- Improve your building's efficiency with materials such as insulation, double-paned windows and LED lighting.
- Go digital. While there are times when you need paper copies, be savvy with your printing to reduce paper usage your environmental impact.
2. Identify and negotiate with preferred vendors to save money and reduce rogue spending.
Working with preferred vendors — and making sure your employees know to purchase from them — can help you take advantage of various discounts. Start by analyzing and categorizing your business's spending. Once you've identified how much you spend in each category, you can use this data to negotiate with preferred suppliers. Ask about volume discounts, loyalty discounts, and pay-by discounts, such as getting a 2% reduction if you pay invoices within 30 days. When you consolidate your spending and shop around, you're more likely to get the best prices. Say goodbye to costly rogue spending.
3. Reduce or eliminate marketing and advertising channels that don't perform.
Marketing spend is essential, but that doesn't mean it shouldn't be strategic. Ask for monthly reporting on all marketing channels. Understand the goals for each channel and review metrics that prove return on investment (ROI). Look at the cost per qualified lead, cost per closed sale, and the value of each closed sale by channel. If you identify an underperforming channel or one with consistently higher costs, you may want to consider reducing or even eliminating what you spend there — especially if the value of each closed sale isn't better than those coming from less expensive channels.
4. Save on storage costs by offloading inventory that doesn't sell.
When inventory doesn't move, your business can suffer from ballooning storage costs. While selling bulk inventory at a discount may feel painful, it can also be necessary to cut business costs. If you can't sell it, consider donating your excess inventory. Just think about the money you're saving on storage and the space you're creating.
5. Negotiate with your landlord before renewing your lease.
Chances are that rent eats up a decent chunk of your business's revenue. Next time you're considering a renewal, why not try to negotiate it in your favor or even reconsider how much space your business needs? After all, the increase in remote and hybrid work plus eCommerce growth have turned the commercial real estate industry upside down, giving small businesses more bargaining power.
6. Consider switching banks.
Take a look at how much your business is paying in banking fees. If you're using a national bank, this expense may be higher than necessary. Regional and local banks often offer lower fees, valuable rewards, and a more personalized experience. And some online-only banks don't charge any banking fees. Plus, consolidating debt under fewer lenders can often yield lower interest rates while simplifying your payments, especially if your business has a good credit history.
7. Consolidate software.
Many small businesses fall into the trap of paying for too many technical tools, often purchasing new software for features already available via existing software — they just don't realize it. Take an inventory of all the software you pay for on a monthly or annual basis. Look into what each one offers and who's using it for what. Then eliminate duplicate and rarely-used software, downgrading subscription plans whenever possible.
8. Automate mundane tasks to save time and reduce labor costs.
Pay attention to how you and your employees use your time. After all, time is money. Are there any tasks you can streamline or even automate? For instance, consider whether you can connect two systems with an API to share data rather than downloading and cleaning lists manually.
9. Identify optimal business hours and staff accordingly.
Labor is typically one of the highest costs for a small business, so overstaffing can be debilitating. When it comes to customer interactions, identify trends for when you need the most customer support — and when you don't. Save on wages by reducing staff during slow hours or training customer-facing employees to work on other tasks while not engaged with customers. Cross-training employees not only keeps them productive while on the clock but may also reveal new strengths and skills, all while reducing the need to hire additional people to perform those tasks.
10. Upgrade equipment when needed.
Upgrading equipment may sound like an added cost, but in the right situation, it can reduce spending. Outdated software and hardware, for instance, may be wasting your employees' time. When your workforce can't be as productive, you end up spending more in labor costs over time. Another example of when it makes sense to upgrade is if your business uses aged manufacturing equipment that requires expensive parts and costly repairs or uses inkjet printers that require ever more expensive ink cartridges rather than toner, which doesn't need replacements as often.
11. Simplify product offerings.
It can be all too easy to get excited about new products and revenue streams, but before you know it, you may be overcomplicating things. Consider a restaurant; It's a lot harder to order ingredients and train cooks for a 15-page menu than a 3-page menu. Plus, you'd have to keep track of more dates related to food spoilage. Just as streamlining a menu helps restaurant owners order in bulk to save money while simplifying their operations, optimizing your product offerings can help you save on costs while focusing on what you do best.
12. Use tax deductions.
Researching business tax reductions can help you save money on your tax bill. If that's not your expertise or if you don't have time, consider working with an independent tax accountant who can identify relevant deductions and other opportunities to lower your taxes.
Put several of these cost-cutting tactics to work, and you'll be on your way to improving your bottom line.