How and Where To Reduce Costs
When it comes to increasing your profits, you can either up your revenues or cut your costs. In this post, we'll talk about how you can do the latter.
The first thing you can always do whenever you want to reduce costs is to find that 5% you can cut. There's always 5% in you can cut.
If you don't know where to look, start with your largest accounts - these typically have the most fat.
Review Your Largest Accounts
Print your accounts and see how much money you spent over the last year. Sort it by the amount so you can easily find your largest accounts.
In this example, you can make your cut from your Equipment Leases that amounted to $43,220, or maybe you can cut 5% from the Office Supplies just right above it.
If you make cuts at the bottom of the list, say, under Donations worth $650, it won't make much of a dent in your overall cost - that's why you need to look for cuts in your larger accounts.
Review Your Vendors
Much like with your accounts, sort your vendors by the amount you spend with them and see about doing some negotiations. Review your pricing and/or rates and see if you can get a discount.
The reprographics company you're working with, for example, might have different pricing for customers walking in and for professional firms. Check to see if you're paying walk-in prices and whether you could pay less when you have professional-level arrangements.
We've had the exact situation with our firm. We asked about their pricing and saved about 30% with professional pricing. If you haven't had this conversation with your vendors, it's time you bring it up.
You can also look into getting extended terms with your vendors. If you're paying them net 30, see if you can get that to net 60 to give you time to collect on your invoice before you have to pay the bill.
You can even consider consolidation. If you're working with two reprographic companies, for example, you can drop one of them and get a better rate from the other by giving them more volume instead of splitting the money between two companies. But in that case, you're putting all your eggs in one basket, so you have to evaluate your situation and decide what's the best option for your firm.
When it comes to negotiations, remember that nobody likes a cheapskate. When you negotiate your pricing with your vendors, keep in mind that they need to make a profit as well. But they don't have to make it all off of you.
Review Your Insurances
Get a fresh quote on your health insurance every year. This may not be everyone's favorite thing to do, but you'll be amazed at the savings you'll find.
Don't forget to shop around for your errors and omissions insurance. This is a big-ticket item where you can find some significant costs you can cut off your bottom line.
Let's Talk About Health Benefits For a Second
Did you know that nearly 20% of American workers have secondary insurance through their spouse?
You may have employees that are insured both by you and their spouse's plan, and they're probably using you as the secondary. One of the things that you can do is adjust the percentage of health benefits that your employees are paying, and by adjusting, we mean increasing. This might encourage them to switch their health insurance just through their spouse's plan, saving you that entire premium.
When we introduced this to our firm and had our employees paying more, we ended up giving each employee a raise enough to cover that additional cost. When our employees left our plan and switched over to their spouses' Health Insurance coverage, we ended up having a 15% reduction in our health insurance costs.
This is not intended to hurt your employees or make things difficult for them - it's just something you might want to consider. Health Insurance is a huge cost today, so whatever you can do to reduce it while keeping your employees comfortable will help.
If you don't already have a profit-sharing or a bonus plan in place, you might want to implement one in place of giving raises. When you have a profit-sharing bonus plan, your employees can be more enrolled or vested in the success of the firm - the better your firm does, the bigger their bonus or share of the profit they'll get.
Rather than giving raises this year, increase their revenue or income by switching it to a bonus plan. This gives you some wiggle room - if you don't do as well as planned, you don't pay out as many bonuses. If you do better, then you pay out more, but you're not tied to the anchor of a salary you have to meet no matter how good or bad the year turns out.
Here's Your Reading Assignment
Read Bob Pritchett's book, Fire Someone Today: And Other Surprising Tactics for Making Your Business a Success.
Don't get hung up on the title, and focus on Chapter 9. It's not just about cutting employees and firing people. Bob Pritchett does a wonderful job of outlining things you can do to make your business more successful. The book is filled with great information that can help your firm take that next stride to success.
If you enjoyed this blog or learned something from it that you can apply to improve your firm, consider sharing it with your associates and colleagues. We want to help as many companies and firms as possible to reach higher levels of success and profitability.