How to Cut Overhead Expenses
Almost every business has overhead -- costs that go beyond those directly incurred in the manufacture and delivery of products and services (or cost of goods sold). Overhead encompasses everything from the rent or mortgage and utilities required to keep the physical location open to the salaries and benefits paid to employees.
There may be little you can do to reduce your cost of goods sold, but overhead can represent a potential gold mine of cost-saving opportunities. These also represent profit-boosting opportunities, because every dollar saved in overhead drops straight to the bottom line. Consider these areas of your business that may be ripe for cost-reduction pickings:
Rent or mortgage: It’s a tenant’s market in many areas of the country, so see if you can negotiate a better deal with your landlord. If your lease is up for renewal soon, arm yourself with data on comparable rental rates for office property in your area, and try to negotiate from a position of strength. Meanwhile, if you own your facilities, look into the feasibility of a mortgage refinance, especially while interest rates remain low.
Utilities: There are several things you can do to lower your utility bills, like shutting everything down at night. Leaving computers, printers, and lights on overnight not only consumes energy from the equipment itself, but it also raises air conditioning costs due to the heat emitted.
Installing window shades, blinds, or curtains, or tinting windows with film, is another easy and inexpensive way to keep the heat out and the cool in. And newer and more energy-efficient heating, ventilation, and air conditioning systems can reduce overall energy consumption by as much as 40 percent. A complete HVAC retrofit will be expensive, but do the math to see where your breakeven point lies.
Salaries and benefits: Cutting salaries should usually be a last resort, as it will likely lower employee morale and productivity. However, strive to reduce or eliminate overtime for hourly employees, and hold off on filling new or open positions by spreading the work among existing employees if possible.
Meanwhile, employee benefit costs can be cut by reducing or eliminating matches to retirement plans, requiring higher contributions from employees for health insurance, and cutting back on perks like company-paid meals and entertainment.
Travel and entertainment: Soaring energy and commodity prices have raised the costs of everything from plane tickets and gasoline to restaurant meals. To reduce travel and entertainment costs, start by eliminating travel whenever possible by conducting meetings via videoconference instead of in person; technology now makes this both inexpensive and effective.
If you must travel, scour the Internet for deals on airfare and hotels. They’re usually plentiful if you look hard enough. And if wining and dining clients and prospects is important, try to do so more cost efficiently. For example, maybe dinner at a three-star restaurant will suffice instead of a four- or five-star extravaganza followed by an expensive concert.
Marketing: Cost-cutting in this area should be done carefully, as it could result in fewer leads and less new business. But it’s always smart to closely examine the effectiveness of your marketing programs and reduce or eliminate spending on any that aren’t generating measurable results.
To lower marketing costs without sacrificing results, consider strategies like bartering your products or services in exchange for free media placement, implementing PR initiatives like submitting press releases and articles to industry publications, strategically cutting the size or frequency of your advertisements, and publishing an e-newsletter.
Overnight shipping and mail: Before automatically sending packages overnight, ask yourself whether they really need to arrive the next day. Usually, the answer is no, and using a two- or three-day delivery option may cost half as much as shipping overnight.
Don Sadler is a freelance writer specializing in business and finance. Reach him at don@donsadlerwriter.com.
