When thinking about improving profits, very often businesses focus on increasing sales. However, another part of the equation is cost cutting. When it is done properly, it can have a more direct impact on profits than increasing sales.
Here are just some ideas for your business.
You can start by soliciting suggestions on cost reduction from your employees. Usually, they are usually a good source for ideas. To encourage participation, consider implementing a bonus program based on a percentage of costs saved. With this strategy you can kill two birds with one stone: achieve some cost savings and improve employee morale.
Payroll
For many companies payroll is a major expense category. One of the ways to reduce payroll costs is automation. The initial investment may be costly, but through reduced labor needs, it would cut your payroll costs.
If your business is seasonal, you can consider using contractors or temporary employees.
In addition to payroll costs, businesses most likely have fringe benefits, which can easily amount to 25-45% of direct payroll. Here you can save some money on premiums for workers' compensation insurance by ensuring employees are properly classified.
Also, depending on the size of your company and composition of the workforce, consider different options related to group insurance. For example, consider self-insurance or selecting higher deductibles to reduce your premium costs.
Fixed Assets & Inventory
Determine whether it would be better to buy or lease major assets, especially those subject to fast technological changes. Consider disposing of excess machinery and equipment either by selling or donating these assets. Similarly, determine if any obsolete inventory can be reworked or sold for salvage.
Other costs
It is generally a good idea to review your costs and expenses on a regular basis.
Review telephone and postage costs. Here you can consider the following: Do we have the most cost effective service plan and are there any options that are not truly necessary? Is the telephone being used effectively (not abused by employees)? Can money be saved by alternate shipping and receiving carriers?
Review costs of supplies, products, or raw materials. Compare prices of other suppliers. Switch suppliers where appropriate, or renegotiate for better prices with your current suppliers.
