7 Entrepreneurs Explain The Best Ways to Cut Cost in Business
Sometimes when times get hard or difficult, business owners are faced with tough decisions to make on how to move forward with their business ventures. For business owners, these decisions can be the difference between being on the cover of the Fortune 500 and filing for bankruptcy. We decided to ask some entrepreneurs and business owner their advice on the best ways to cut cost in business.
#1 – Don't Cut Marketing & Advertising
A big mistake that many small businesses make when they are looking to cut costs, is in how they cut back or cut out their marketing and advertising budget. Instead of just cutting back or cutting out by lowering the dollar amount, it is far more effective to look at ways to have a greater impact for a smaller budget. For example, many years ago we had a client in the building trades field in NY. Each year for the holidays they used to give out a large (expensive) gift to all of their customers. It was a one size fits all gift that did not matter if you were a senior executive or the maintenance crew in the building. One year the client decided that they needed to cut the budget for the gift. Their plan was to just cut the list in half and not give anything to the people on the second half of the list. We showed them that this was not the way to proceed. A far better solution was to divide up the list by job function and demographics. Then we lowered the budget for the executives. For the people who actually rolled up their sleeves everyday making sure that the buildings were running, we gave an alternate gift, one that was much more useful and half the cost of the lower budget executive gift. It was very important to keep the maintenance and engineering staff on the gift list as these were generally the people who were actually doing the ordering. That year the budget was half of the previous year, but the compliments from the maintenance and engineering staff were more than double. In fact, the response was so great that mid-year we had to produce a second run of these special instant-read thermometers with the client's logo as they were getting requests for additional ones.
Thanks to Anne Kleinman, Ad Infinitum – Your Complete Marketing Toolbox!
#2 – Credit Card Fees
Neglecting your credit card fees and not reviewing statements may be costing your small business big profits. It's common to have hidden charges, inflated fees and errors. You could needlessly be paying tens of thousands of dollars annually to credit card companies. Credit card transaction fees are one of the top 3 expenses for small business owners – whether you have a brick & mortar or web-based business. Swipe fees from card issuers are the fastest growing expense for retailers, while card-not-present transactions typically cost the seller more – depending on the volume of transactions, the seller's line of business, risk factors and other criteria. Don't just blindly pay your statement each month. Sometimes the processing companies are not offering you all the industry discounts and incentives available from Visa or MasterCard. Be sure to step up your communication – banks and processors often fail at revisiting the growth or changing needs of a small business. Merchants must actively communicate with their bank or processor to avoid erroneous fees and hidden surcharges.
Thanks to Vito Pagano, Independent Merchant Group!
#3 – Strictly Analyze ROI
One of our best cost-cutting measures is strictly analyzing our ROI. We spend quite a bit on marketing and sometimes our marketing budget gets out of hand. When we started focusing directly on our ROI for certain ventures (online paid search/SEM, trade shows, radio advertising, etc.), we were really able to focus on those expenditures that were yielding profitable return.. While not everything is trackable to the penny, when you start observing trends and tracking via codes, you are able to really assess (sometimes even just directionally) which expenditures are yielding positive return and which are not. This is a great way to optimize. Basically, spend more with those marketing endeavors yielding the highest return and cut those that are not. We find that it is still wise to test different avenues at different times – some may be seasonal, some avenues may evolve (i.e., mobile), some may require more time to test. Hence, it is not a good idea to give up on something altogether, but paying strict attention to ROI can really help the marketing expenditure decision making process.
Thanks to Deborah Sweeney, MyCorporation!
#4 – Frugality Not Cheap
I am frugal. I own a small business and because I truly resonate with the environment, I have several cost-cutting measures in my home office and gardens. 1) Re-using paper is a given … just about everyone I know does this. I take it one step further: If junk mail arrives with a blank side, I put that in the pile as well. All paper is recycled. 2) File folders are NEVER used just once or twice. They go on until they can no longer hold a single piece of paper and then recycled. Cleaning out my father's office after he died resulted in more folders that I could ever need. A bunch were donated, the rest are at the ready when someone needs one. 3) ALL envelopes: those that come in the mail to be sent back with a bill or what-have-you, those that are left over from some other function, those that came from my fathers office are used. 4) Same goes for manilla envelopes – all sizes, padded or not – all reused. 5) We get deliveries where items are first put in a large plastic bag and then boxed. The plastic bags are ALL reused, as are bags of mulch/dirt used around the garden. I have NOT bought garbage bags in years! 6) Brown paper bags are also reused as wrapping paper for gifts to clients. 7) Left over plastic tubing is used as a) drinking straws b) soaker hose components c) house & garden plants supports and more. 8) Old telephone wires, cable wires, printer wires, speaker wire is now being used in the garden to support plants growing outside the office door. 9) All packing materials get stuffed into a large laundry bag – left over from when my daughter went to college – and reused. 10) When my printer tells me my toner is low, I take out the cartridge, bang it on the desk a couple of times and print on. 11) Call me crazy but when the toner finally depletes and banging no longer helps, there's still a lot of toner in that cartridge. I harvest the powder and use it in my art corner. 12) I take advantage of every FREE offer which comes my way. For instance www.graphicstock.com offered 7-days of free downloads, I carved out time over the 7-days to grab as many free images as possible. 13) I taught myself to use PhotoShop and do all my own graphics. 14) When we do a trade show, I use old drapery hooks from my mom's old drapes to hang signs or banners. I also pick up discarded hooks and reuse them as well. 15) Ribbon which comes on a gift I've received is re-used for client gifts. 16) We get a lot of merchandise delivered on pallets. I have build a storage shed for merchandise, a potting bench for the garden and a what I call a garbage-can corral to hide the unsightly bins from clients … using pallets, of course. 17) Sometimes my technicians need to build a shelf for a unit being installed. Old brackets and scrap wood cut to size are reused. 18) When I need a piece of office furniture, I head first to the Habitat for Humanity store. For instance, we built a Hydration Station using an old headboard which cost me $25.00. 19) Chipboard from the back of writing pads is never tossed; always reused for what-have-you.
Thanks to Mizar Turdiu, PUR2o Water Filtration & Purification!
#5 – Cut Back on Spending
A few things can really add up at your small business that you don't even realize! For me, if I need to cut back on spending I first look at our ad spending. I take a deep look at analytics and see what is working and what isn't. We typically will cut back on some and leave others and find we get just as much traffic either way. I also look at things like postage/shipping and the phone bill. I'll research some new ways that we can ship things in a cheaper way or see if there are any new promotions for the phone lines we can qualify for. Anything helps!
Thanks to Nellie Akalp, CorpNet.com!
#6 – Payroll
There is waste and inefficiency in every business both large and small. The biggest opportunity for savings is usually payroll. For small business it is difficult to fire or lay off employees. But it can be a wonderful challenge to redeploy how you use people. If small business owners put their extra people hours into marketing and sales they can dramatically improve their bottom line by growing the top line. This has a better result than cost cutting because everything gets more efficient with growth and you get the extra benefit of a big boost in employee morale. Growing a business is a lot more fun than cutting costs.
Thanks to Barney Cohen, Business 360 Northwest!
#7 – Detailed List of Transactions
Every month, I run through the detailed list of transaction from the previous month. Often there are recurring costs or obvious areas to cut down that I wouldn't have noticed in the summarized P&L statements.
Thanks Keith Brink, Twassistant!