Whether you just launched your company or have been in business for years, cost cutting can be a powerful way to help increase your profits. By keeping costs down and improving your profit on every sale, you generate funds that can be redirected into important business-building expenses. More available cash also means you can seize opportunities as they arise.
Consider these four areas to find savings opportunities:
Conduct vendor reviews
Periodically review what you pay for goods and services so you know that you are getting the best prices. Many companies review major expenses annually by soliciting bids from three potential vendors. Keep in mind that the lowest price doesn't always mean it's the right one, so avoid pressuring a supplier to lower their prices unless you are sure it won't affect quality. Assess which vendor's total offering provides the greatest overall value.
When you and a vendor reach an agreement, put all the details of the contract and compensation in writing. Include a fair penalty when deadlines aren't met, or if the quality of the product or service is sub-par. If a vendor's terms or work don't meet your satisfaction, provide feedback to help improve the quality of future work.
Review prices
If you are pricing correctly, you should have a standard profit margin and know how close you are to it on all sales. In your set of offerings, you may have some products or services with lower or higher margins — some items may bring customers in the door so you can try to sell them other, higher-profit items.
If you are not sure what your margins are, work with your accountant to review your expenses and determine if your prices support your company. A common mistake among small businesses is to fail to factor in all expenses, such as rent, insurance or utilities.
If you need to raise prices, you may want to emphasize the value that your company provides before customers will accept the hike. You can also try offering additional benefits, such as bundled products, as a way to raise prices without customers pushing back.
Assess your advertising
Review your advertising and be sure you understand the cost of each lead it generates. Also assess the success you have at turning leads into customers to gauge the return on investment of each campaign. While traditional advertising and direct mail are still important tactics for some companies, many are able to substitute online outreach, which can be much less expensive. For example, instead of printing and mailing brochures, ask for your customers' email addresses and start an email newsletter.
Another way to improve your advertising outreach is to make your website more user friendly. Get active on social media sites, but have realistic expectations about their ability to drive leads; social media's real strength is in managing relationships with current customers. You could also take advantage of the online business listings that are maintained by the search engines and other online directories. Many of these are free and allow you to include your contact information, directions, hours and products for sale or menu. This way, when someone searches locally for your products or services, your listing appears on a map with other nearby businesses so it increases your exposure to potential customers.
Create a culture of thrift
Keep an eye on what you and your employees buy. Review reimbursement requests so you understand exactly what they are for. Be sure employees know they shouldn't use their own money for purchases without prior authorization. If they have a company credit card, set a limit on how much they can charge each month.
If you have a bookkeeper or someone else sign checks, set a dollar limit over which you need to sign checks yourself. Keep tabs on your employees' working hours and require them to notify you in advance if they expect to put in overtime. Remember, every dollar your company doesn't have to spend is a dollar that ultimately goes toward your bottom line.
