5 Ways to Reduce Operational Costs for Your Small Business
by Perjan Duro, Founder
Every modern business has operational costs that are required to keep the company afloat. These expenses can sometimes weigh down on business owners, especially those who have financial issues, such as negative cash flow or low profits. In other words, operational costs may prove to be too much to handle if your return on investment isn't yielding significant profits. However, many businesses are unaware that operational costs can be lowered down without sacrificing product or service quality.
Lowering operational costs can boost your profits and improve your cash flow. What's more, it's important not to confuse operational with overhead costs. Operational costs are directly involved in production, labor, and manufacturing of products or delivery of services, while overhead costs relate to general business functions. That being said, here are a few ways to reduce operational costs for your small business.
Leverage automation
Technology has advanced enough to help businesses get more work done at lower costs. That's why you should leverage the latest technology to help you lower your operating costs. A good example of this is leveraging automation. As it name suggests, it helps you automate a lot of business processes, in order to cut down on labor and operational costs.
You can automate mundane tasks that require labor to perform, such as social media posts and replies, email responses and sorting among other things. You can also automate and orchestrate workflow processes, in order to improve overall employee efficiency and time to market for your products or services. That being said, leveraging automation in your business processes can vastly reduce operation cost and save time and money for other important projects.
Lower overhead costs
As mentioned before, overhead costs are not to be mistaken for operating costs. However, lowering overhead costs can also help you lower operating costs in the long run. If you manage to do this, you can also improve your cash flow and ensure your business stays afloat, while you wait until profits are due. Overhead costs are expenses that have nothing to do with manufacture, labor, and materials for the production of products or services.
These expenses are, taxes, bills, maintenance, advertisement fees, accounting, and legal fees, telephone bills, travel expenses and so on. Reducing these costs helps improve your business financial situation. For example, replace your regular landline with reliable 1300 numbers. A professional land line is cost-efficient and can better handle business-related phone calls, such as customer support. In addition, pay bills on time in order to avoid late fees and additional charges.
Outsource services
One of the main operational costs is having full-time staff. This is not a problem for well-developed companies with large revenue streams. However, for startups and small business, having full-time workers can be a major expense. Therefore, instead of hiring staff straight away, reduce operating cost by outsourcing to other companies or freelancers.
That way, you cut costs on labor and office space. For instance, you may not need full-time IT staff. Outsourcing IT services may cost you less for the purposes of your business. Marketing can also be outsourced to others, in order to avoid having a marketing team on staff. Needless to say, you'll need full-time workers eventually, but there's no reason to increase expenses, while your business is still in its development phase.
Lower marketing costs
Marketing is another operational expense because it yields a return on investment through sales. However, marketing can get quite expensive. Lowering the costs of marketing can help lower operational costs as well. Fortunately, the online world provides many marketing opportunities you can use for little to no cost at all. For example, traditional marketing methods are still quite effective, but they require investment to produce.
On the other hand, email marketing and social media can cost next to nothing and are even free in some cases if you know how to handle these channels properly. Social media, for instance, allows you to market your business organically by interacting with your audience and by sharing relevant content. You can also leverage paid ads if you want to, but it's not mandatory to produce the results you're looking for.
Lower office space and equipment costs
Outsourcing is a good way to reduce office space requirements and labor costs, but that doesn't mean you won't have a few employees in your team regardless. Outsourcing helps reduce the required office space, but you can cut those costs down even further. A good example is remote work. With the latest computing power and fast Internet speeds, your employees can work from home as efficiently as they'd work from the office.
In other words, you won't even need an office to begin with, until a certain point of course. No office means lack of office supply costs. Furthermore, supplies you actually need can in most part be replaced by technology. Software, such as Google Drive and other tools can help you create and store documents, as well as share them freely without the need for paper and other supplies.
Operating costs are essential to keep your business operational. However, that doesn't mean you must waste money on these costs. Being able to lower operational costs can be a game changer for your financial status. Not only will you be able to have more money on-hand, but you'll also be able to invest in your business further.