Almost half of all new companies fail within the first five years, as per the Small Business Administration. Although most entrepreneurs concentrate on can revenue to avoid bankruptcy, reducing expenses is just as critical, if not more so, when it comes to achieving or maintaining profitability.
Cutting business costs necessitates some difficult decisions and trade-offs, but it doesn’t have to be a tedious process or one that completely changes your business strategy. Many company owners have used these simple tactics to reduce costs, streamline operating expenditures and eventually improve profitability before you.
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Why Is Profit Margin Essential in Business?
Freshbooks, an online bookkeeping services app, is a perfect way to chart your sales and expenditures while also providing insight into your company’s profit margin. But how do you figure out what your ideal profit margin is, to begin with?
Many business owners have no idea how profitable their company can be. This is partially due to the fact that profit margins come in a variety of flavors and are often portrayed in unnecessarily complicated ways. Which of the margins is most important to your requirements?
According to Intuit, small-business owners should focus on net profit margin, which is described as total sales minus monthly expenditure divided by total revenue over a given time span. Net margin reveals sales and income patterns, allowing you to spot flaws that aren’t visible from the top line.
Business owners can monitor — or at least influence — variables that impact net profit margin. Expenses are the most straightforward of the three. Although you can’t make your consumers pay any of their hard-earned cash, you can save money by that needless expense. The key is determining which costs can be reduced safely and by how much.
Here are some simple ways to increase your small business’s gross profit margin by lowering popular expenditures without jeopardizing mission-critical operations or impeding its ability to develop.
15 Cost-Cutting Ideas For Any Successful and Growing Businesses
1. Using a smart or computerized thermostat
Heating and air conditioning costs are not negotiable. Even minor variations in your facility’s ambient temperature can have a negative effect on customer comfort and employee efficiency, putting your top and bottom lines in jeopardy. But that doesn’t mean you can’t save cash on air conditioning by doing whatever you can.
Honeywell’s programmable and digital thermostats will help you save money on heating and cooling without sacrificing comfort. To configure your facility’s climate regulation schedule, use a smart thermostat.
2. Use Energy-Saving Measures That Are Passive
Enhance your customizable or smart thermostat with passive energy-saving steps to reduce the burden and carbon footprint of your weather control and lighting systems:
Windows with two panes. Double-pane windows insulate better than fixed windows from the past. They’re pricey, ranging from $385 to $850 per Modernize on average. They do, however, last a long time and are likely to compensate for themselves and then some.
Locks and curtains that block out light. In the Northern Hemisphere, use dark curtains on south- and west-facing windows to reduce light exposure and passive heating on hot days.
3. After hours, switch off all non-essential fixtures, appliances, and machines.
This is a painstakingly simple way to lower the company’s energy bill without disrupting operations. It’s also painfully straightforward once you and your team get into the habit of following through.
Personal computer desktops are the single biggest non-essential resources suck in a white-collar workplace, so make sure everybody switches theirs off before leaving. Shut off outside and desk lights as well, or give building cleaning crews directions to do so when they’re finished.
Switch off machinery and equipment not needed for protection or storage in supermarkets and light industrial facilities that do not run overtime — in other words, turn off the oven, not the refrigerator.
4. Reduce the amount of paper used
Trying to cut down on paper usage is great for the company’s bottom line and the climate, much like decreasing energy and water consumption. And there is a slew of options, including:
By default, printing and copying are done double-sided.
Instead of using conventional services, use secure accounting and bookkeeping services like Denver Bookkeeper.
Using scrap paper for scratching or taking notes.
On printed papers, shrink fonts and tighten margins.
When employees leave your business, notify vendors and other providers of postal mail.
Wherever legally and technically practicable, exclude the company’s name from direct mailing lists.
5. Persuade Telecommuting
Telecommuting has enormous cost-cutting potential for millions of businesses. Many businesses witnessed this firsthand throughout the coronavirus pandemic in 2020 and 2021.
As per Stanford University analyst Nicholas Bloom, by June 2020, more than 40% of the US population will be working from home full-time. This number fell as laid-off service employees returned to on-site employment and white-collar offices relaxed their work-from-home policies. However, it is clear that one of the pandemic’s long-term effects would be increased rates of working remotely.
6. Downsize Your Office or Make Better Use of Space
There’s a natural conflict between trying to optimize office space productivity and making sure workers are comfortable doing their work. According to JLL, workforce studies show that the ideal amount of room per employee is between 100 and 125 square feet, which is significantly less than the standard 325 square foot average.
At the same time, the pandemic’s social distancing steps will be difficult to reverse, not least because workers value their personal space. Furthermore, the widespread adoption of remote work and flexible scheduling can result in fewer workers working in shared spaces at the same time.
7. Enable Health Changes That Make Sense
The majority of employee compensation packages provide health care coverage. Salaried workers want their employers to cover their healthcare costs, and it’s certainly the right thing to do. Regrettably, it is also becoming more costly every year.
Offering tariff health savings accounts (HSAs), which are listed in greater detail by the IRS here, is one reliable way for employers to decrease their share of employee health care costs without resorting to punitive steps like abruptly terminating coverage. Employees may take control of their healthcare decisions through these accounts, which move responsibility and cost away from the manager.
8. Early Payment of Invoices
Many suppliers provide small but significant discounts to customers who pay invoices on time. For example, it’s popular for suppliers to deduct 2% from invoice totals when customers pay in full within ten days instead of the normal 30 days — an agreement known as “2/10 net 30.”
It normally makes fiscal sense to pay early if it does not have a negative effect on your cash flow. This is especially true in a low-interest setting, where the expense of short-term lending to cover any deficit is unlikely to be greater than the discount value.
9. Allow in-kind exchanges or barter
Centuries ago, bartering was the basis of the global economy, such as it was. While most transactions now use a central bank-backed currency, nonfinancial trade is not entirely obsolete.
Barter Business Unlimited, a dedicated cottage industry of barter enablers, has sprung up as a result of the digital revolution. There are restrictions on what and how often you can barter, but if you’re short on cash or think your goods or services will make good trades, it’s worth taking a look into.
10. Use social media marketing to your advantage.
According to Ad Espresso, the average cost per click (CPC) for a Facebook ad in the United States was $0.40 in the 3rd quarter of 2020. That’s how much the ad customer pays every time a Facebook user taps on your ad indicating that they’re involved in what you’re offering but aren’t ready to purchase just yet.
That’s a lot less expensive than traditional ad formats like TV spots, which can cost thousands of dollars and hit a large number of viewers who aren’t involved in — or deliberately fast-forwarding through — what’s on-screen during advert breaks.
11. Motivate the use of word-of-mouth advertising.
Ethical social media conversation is just one type of word-of-mouth advertising, a low-cost and potentially efficient method of outreach that effectively outsources a portion of your marketing team to your consumers.
Referral services that compensate current customers to refer potential customers, college global brand programs that compensate young people to evangelize about their employers’ goods on campus, social networking communities on Facebook and other digital platforms, and online review directories such as Yelp are only a few examples of word-of-mouth marketing.
12. Use contract labor and freelance writers for non-core tasks.
Freelancers and contract workers are easier to recruit and retain than conventional workers, as long as you have a strictly enforced freelance contract in place to set standards and minimize risk on both sides.
You are not required to have health insurance, pretax savings plans, parental leave or overtime pay off, or other costly benefits to freelancers. All you have to do now is pay them for the job they’ve already done.
13. Efficient spending should be rewarded.
You have to invest money, to make money as the old adage goes. There is a rate of return on every dollar you invest in your organization. However, it can take years for the money to come back. Why not reward yourself for your patience?
You may use a small-business credit card to reward prudent spending on products and supplies you’d buy anyway if your income is good enough. The best business cards consistently return 1.5 percent to 2% on expenditure, either in cashback or rewards that can be used for free flights. The rate of return can be even higher in some situations.
14. Anywhere and everywhere possible, avoid using leverage and paying interest.
Regardless of how wisely you use small-business credit cards, debt is still your adversary. Before you turn to big institutions or investment bankers for small-business funding, look to your financial affairs and friends-and-family networks for interest-free startup money. Any dollar you pay each month is a dollar that will not be added to the bottom line.
15. Recognize and Manage Your Location Costs
Not all economies are produced equal. Some cities and states are excellent locations for starting and growing a business. Others, on the other hand, aren’t so good. Place costs, taken as a whole, play a critical role in distinguishing the former from the latter. Relocating to a lower-cost area is the best way to minimize high location costs, but this isn’t always feasible or even realistic, particularly if you’re an entrepreneurial professional with strong family roots in your current neighborhood.
To Sum Up:
Every company is unique. For example, you can’t cut back on travel costs if your job doesn’t need it, and you can’t cut down your workspace if you work from home. You can rely on the best bookkeeping services and accounting tools that are available in the market that help your business to handle bookkeeping and accounting operations.
Even so, it’s almost inevitable that your company ledgers have some financial fat to cut. Even if you consider you’ve snatched up all the low-hanging fruit, it’s always worth a second glance. It won’t charge you anything, and it will pay off handsomely in the long run.