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4 Ways to Cut Your Company’s Operational Costs

Managing operational costs is a priority for successful small businesses. A CB Insights survey found that 29 percent of 101 small business startups that failed cited running out of cash as a top reason, while 18 percent cited pricing or cost issues. A U.S. Bank study found that 82 percent of all small business failures can be attributed to poor cash flow management. Keeping costs under control is key to maintaining profitability. Here are four ways to cut your costs and improve your operational efficiency.

Payroll and Benefits

Payroll and employee benefits such as insurance typically form companies’ largest operational expense. For example, in 2012, U.S. retailers on average spent 43 percent of their operational expenses on payroll and 9 percent on fringe benefits, Census Bureau data shows.

One way to trim payroll expenses is to reduce full-time staff size by using part-time workers or outsourcing functions that do not require in-house staff. For instance, accounting can be outsourced and billed on an hourly basis, significantly reducing the expenses that would be accrued from having a full-time in-house accountant. Forty-one percent of companies outsource their general accounting, a Deloitte survey found.

A second way to reduce staff size is to make better use of automation. For instance, McKenzie research found that 29 percent of customer service functions could be automated by using technology such as chatbots, translating into $23 billion in annual salaries saved by U.S. businesses.

Rent

Census Bureau data identifies leases and rental costs as the second-biggest expense for retailers, consuming 9.5 percent of operational expenses. One way companies can cut this cost is by renting an office business center or executive suite, which subleases shared space to provide smaller companies and startups with limited office space plus services such as receptionist services, conference center use and IT network use. Knoxville company Marine Accessories Corporation was able to reduce its rental costs by 50 percent by moving its operations from a traditional office into an office business center.

Another option is to rent virtual office services, which provide a physical mailing address along with services such as phone answering without use of dedicated office space. A third option is to work from home and employ remote workers who also work from home. Partneris owner Guntis Endzelis runs his small company entirely from home using the Hubstaff time tracking platform to remotely employ several permanent employees, a part-time assistant, and contractors.

Marketing

The Small Business Administration recommends that companies with an annual revenue below $5 million should allocate 7 to 8 percent of their revenue to marketing. Your marketing investment has a direct impact on your sales revenue, so it’s important to make sure you’re getting a good return on your investment in order to stay profitable.

A first step toward improving your marketing efficiency is tracking which of your campaigns are generating the best return. Don’t waste money on advertising campaigns that aren’t returning your investment. Here’s a breakdown of the highest return on investment (ROI) for each marketing campaign type:

• Email 21%

• Telephone 19%

• Social media 15%

• Mobile 12%

• Paid search 9%

• Internet display ads 6%

If your marketing isn’t generating the return you need, considering reallocating your marketing channel mix. Triumvirate Environmental found that it was able to increase its marketing ROI to $1.2 million by switching from Google AdWords campaigns to a mix of blogging, SEO, white papers, social media, email marketing and PPC advertising.

Supplies and Inventory

Supplies and inventory can be another major expense. Choosing suppliers and supply methods carefully can help cut costs. Many suppliers today use economical methods such as 3-D printing, on-demand order fulfillment, and just-in-time shipping to keep supply and inventory costs low.

For example, Apple Rubber uses 3-D printing to produce customized rubber seals, sealing devices and o-ring seal designs for its clients. Three-dimensional printing enables Apple Rubber to keep its prototyping and production costs low, a savings passed on to clients.

 

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