• Search
Cut Small Business Costs

7 Ways Your Small Business Can Cut Costs

There are about 28.8 million small businesses in the U.S., with over 630,000 new businesses opening each year. The tough reality, however, is that most of these new small businesses fail within the first five years of operation. A small percentage that survives remain small, while only a select few manage to grow into big companies.

But why only a few of them and not all? What are the factors that enable some businesses to become big household brands? One thing for sure is that they are continually finding new ways and approaches to make operational and other processes more efficient and cost-effective.

Here are seven ways small businesses can cut costs.

Go for Low-cost Marketing Strategies

Whether you’re a new small business or simply looking to expand your existing business, marketing can get quite costly. While marketing costs vary widely, according to SBA, most businesses spend about 8% of their revenue on marketing, and up to almost 20% for those in a highly competitive industry. However, marketing experts advise that start-up and small businesses should allocate between 2% to 3% of gross revenue to marketing and advertising to remain profitable.

Therefore, to cut on your marketing costs, you should review your marketing plan and go through your various marketing strategies and advertising methods to see how well they are performing, and if you find that some of your marketing campaigns are costly and not bringing in sufficient revenue to justify this spend, you need to be ruthless and get rid of them. Instead, put your budget into the best places that will generate results, such as online marketing.

Online marketing is far cheaper than conventional marketing as it provides several methods offering free advertising for your business, including on social media sites, social bookmarking sites, free blog sites, and article directories. Also, creating videos about your products/services and placing these on your website and social media channels will often engage your customers and allow you to target customers specifically within your local area.

cut costs 1

Outsource As Much As Possible

An article by Harvard Business Review explained how businesses can reduce costs by up to 30% by bringing in outsourcing. For many businesses, certain tasks, such as data entry, document processing, answering customer service emails, or conducting customer satisfaction surveys, are too expensive and time-consuming to be done in-house. Contracting out any jobs where a full-time employee is not required cut overhead costs.

However, a few questions that need to be answered before considering outsourcing:

  • Are you outsourcing the right jobs, or could some of them be done more efficiently and cheaply in house?
  • Where to outsource?
  • What are the cost vs. the benefits of outsourcing?

Be aware that for tasks that require highly skilled expertise or unique talent and knowledge that may be hard to find, the services provided will usually be worth the money charged by such outsourcing firms since they tend to have a massive pool of employees, covering all kinds of skill sets. They will also have the right tools, the latest technologies, and the equipment needed for the service in question.

Go Green

If you run a small business, transforming it into an eco-friendly business might not be your top priority and may even seem like a hugely overwhelming task. But it can actually save you money in the long run.

You do not have to go high-tech, or set up a solar panel array, or an eye-catching windmill, just focus on some easy and affordable going green business tips to start off with. Businesses that have an environmentally aware mindset use fewer resources to get the same work done, and that sort of efficiency can slash expenditures.

Regardless of the type of business you run, there are a number of simple things you can do to lower your overall energy costs, such as:

  • Making it a company policy to turn off all lights, equipment, and machinery when not being used. Most equipment is idle and unused for almost 90 percent of its lifetime, so there is a great potential for cost savings.
  • Turn off PCs at the end of the day to save up to 50 percent of your energy.
  • Set up low-cost energy monitors that can provide an accurate display of the cost and energy used by each equipment. Research shows that installing low-cost energy monitors can increase energy savings by up to 40 percent.
  • Lighting accounts for almost 40 percent of your energy costs. Installing motion sensor lights or automatic dimmers will make sure that lights are efficiently switched off in rooms and areas where no one is present.
  • Reduce unnecessary waste to cut the costs of having to remove this waste. This can be a significant break, especially if your company produces hazardous or toxic waste in your work processes.
  • Have a clean energy and Green IT assessment done to decide in what areas your business can cut energy consumption and expenditures.

Finally, don’t be shy to let your customers know that you’re an eco-friendly company as well. Doing so can help the way customers perceive your company.

cut costs 2

Reduce Travel Costs

It’s also a good idea to think about how you are doing business. Some people still like to go out and meet with clients on a face-to-face basis, but is this really always necessary? When everyone is interconnected nowadays via email and the Internet, there are plenty of options available for other means of contact —and they can be just as fulfilling and cost-efficient. For example, instead of booking that business trip next month, why not consider web conferencing, or set up a webinar, or use Live-Meeting software for presentations.

Web conference software has dramatically improved in terms of quality and performance over the past few years, meaning as long as you have a reliable and strong Internet connection and a decent camera in each office, you can quickly link up meetings all over the world. Even if you use this to replace e.g. just two plane journeys and four train journeys a year, you will be surprised how much money you will end up saving, it could be thousands.

Also, according to the CCIM Institute, offices are 50% smaller now than they were ten years ago. That’s because telecommuting has eliminated the need for large offices and in return this has reduced renting costs. Thanks to tools like Google Hangouts and Slack, you no longer have to keep all your employees in the office five days a week.

Reduce Supply Expenses

As one of the essential things in your business, supplies can end up becoming incredibly pricey and put an unnecessary financial strain on your business. Fortunately though, there are a few simple things that you can do to prevent business supplies showing up at the top of your monthly expenditure.

Look at who you are buying from. Shopping around can dramatically reduce the price of the same products by several hundreds of dollars—also, the higher up the supply chain you buy from, the better the prices. Getting your paper from a supermarket is extremely expensive compared to going to whoever sells them that paper, or even going directly to the production company. Try to shop outside your pool of usual vendors.

In addition, consolidate your suppliers and invoices. Buying from one source will increase your negotiating power, and teaming up with other business and buying as a group will increase savings even further.

Buy multi-purpose equipment, such as a printer/copier/fax in one, in bulk. Anything that is non-perishable and you may need a lot of, such as paper, pencils, ink cartridges, etc., you can usually find and buy in bulk. The initial cost is a little more of course, but it will save you time and money in the end. Also, make sure you take any discounts offered by suppliers, such as a small discount if you pay your invoice within a certain amount of days.

Cut Production Costs

As a business owner, you should constantly be looking for ways to minimize production costs and to optimize your resources. Here are some suggestions how to do these:

  • Instead of sending leftover materials to the recycling center, try selling them. Leftover paper, cardboard, or metal can save you a lot of money. Also, consider ways to re-use your waste to create another product. For example, waste paper can be used to make packaging bags.
  • Get the most out of your used production space. This can be done by centralizing or consolidating the space necessary for production and then leasing unused space to another business or individual—this could be as small as an office or as big as a warehouse space.
  • Track and measure the operational efficiency of your business so that you can adjust and optimize the use of all your available resources. Set performance parameters that reflect your efficiency goals and offer incentives when those goals are met.

Make Your Employees Happy

For any business to be successful, employee retention is a crucial element, because if you keep losing well-qualified employees after years of service and dedication, it will cost you a lot of time and money filling their positions and training new employees. 

According to a report from the Center for American Progress, replacing an employee with a new one can cost organizations anywhere from 16% to 213% of the lost employee’s salary. Therefore, if you find yourself always backfilling positions, you have an expensive problem on your hands.

cut costs 3

If you notice you have a high turnover rate—that is, people in certain job positions are frequently quitting their jobs—it may be time to look at why. Is the compensation you’re offering competitive? What types of benefits would you need to provide to maintain employees? Are you providing your employees with the proper tools and equipment? Is the working environment clean and safe or does it need some improvement?

Sometimes it just takes a little appreciation. Thanking your employees with either a free luncheon or giving small rewards can help make your employees feel appreciated for a job well done. Working with a bonus structure or incentive can help you get you much more from every employee. Also, take some spare time to sit down with your employees to discuss their jobs with them—what’s making them happy, and what isn’t.

It’s quite evident that each business wants to become an industry leader. But, to grow your business into a true market leader, you have to increase your revenue with minimal expenses. The costs of doing business should not outpace the profits you enjoy. Of course, every business will take a while to get going full steam, but making sure that you are minimizing unnecessary expenditure is essential to your success, and considering and actioning the above seven ways is a good start.

Leave a reply

1 comment
  • Small businesses are being constantly squeezed by increases in expenses, so controlling costs is more important than ever. The following slides will show you how you can reduce your business costs and improve your bottom line.

Written by BBB Staff

Is Your Business BBB Accredited?