If you’re looking to reduce business costs and set up cost saving initiatives in the workplace you’ve come to the right place. If you don’t regularly review your overheads you could be losing out. In this handy guide we are going to break down 6 key areas to focus on; some obvious and some you might not have considered.
1. Lower customer acquisition costs
You’re going to have to delve into your stats for this one. Don’t focus on growth in sales without zooming in to how you achieved those sales. Taking an average cost-per-click in your Google Ads or Facebook Business account isn’t always going to reveal the true costs. Do your research, and don’t always trust averages.
Here’s an example given by John List, former Chief Economist at Uber, on the Tim Ferriss Podcast, about why averages aren’t always accurate:
What they present to me is a slideshow that has... here’s how much money we spent on Google for ads to get new drivers. Here’s how much we spent on Facebook for ads to get new drivers. And then they say, “On average, we had to pay $500 per driver on Facebook. And on average, we had to pay $600 for drivers on Google.” And then they say, “Because of that average, what we’re going to do is we’re going to spend the next tranche on Facebook ads.” And I say, “Whoa, whoa, whoa, whoa, whoa. I don’t care about the average in the last half-year. What I care about is how much did we have to spend to get the last handful of drivers, the last 10 or 20 or 50, on Google and Facebook?” They say, “Well, let us check.” They go, and then they come back and say, they say, “Well, on Facebook, it was 700 per driver, and on Google, it was 350.” Then I’m like, “Well, wait a second. Don’t you think we should be moving money, then, from Facebook to Google?”
2. Lower credit card processing fees
Lowering your credit card fees can have a large effect on profits over time. The fees nibble away at your hard-earned cash, amounting to a large amounts of wasted money over time. Merchant fees are becoming more competitive as new providers emerge to challenge the big players like Stripe, Shopify Payments and Worldpay. When doing your research, look for perks like cashback bonuses
given for opening a new account, but don’t get blinded by that and fail to lock in low fees. Things to take into consideration:
- Will you have a large volume of transactions or just a few per month? Some merchants tailor their pricing and fee structure depending on the amount of sales passing through.
- Have you considered the monthly flat fee rates on top of the percentage of sales? Make sure you account for everything.
- How important is good customer service to you? Make sure you check the reviews to see how easy it is to get help when you need it, and factor that into your calculations. The lowest fee might not be the best if the platform is glitchy and you can’t get hold of anyone when you need to.
- Do you need more than one payment processor? Some companies select a favourite but also add an additional option like Paypal which is known and trusted by customers while offering quicker payments. In the end, you want your customer to have a quick and painless user experience, and offering an extra option can increase conversions which is probably worth it even when the fees are higher.
If you’re completely new to this, check out TechRadar’s guide which compares the pros and cons of some of the top platforms out there right now.
3. Negotiate, negotiate, negotiate!
This works on both sides of the equation: negotiating with suppliers for lower prices, and negotiating with customers for sales.
Negotiating with suppliers
People can be afraid to negotiate. There’s an art to negotiation and that’s why it can be helpful to invest in educating yourself and your employees using online or real world training courses. In addition to this, it helps if you lead by example or set a framework or guidelines for what you are comfortable with. This guide breaks down how to strategize for negotiations, and how to work out what you want to achieve as the end goal.
Negotiating with customers
Here’s GaryVee talking about what to do if a customer objects to your prices:
In this video Gary boils it down to: who has the leverage? When the situation is nuanced, your employees may hesitate to negotiate without a clear strategy (this of course depends on their level within your organisation). But if you’ve already had these discussions in advance or built guidelines into your company handbook and training, it encourages staff to be more bold.
4. Reduce packaging costs
Unless you’re a service-based business you probably deal with a lot of packaging. Over the last two years the cost of packaging, and cardboard boxes in particular, has increased suddenly due to increased demand and reduced supply. This has left many businesses struggling with inflated costs on something that is essential to a product-based company.
Firstly, are you buying packaging that is suitable for the products you are shipping? Can you buy smaller boxes that fit the products better? Customers hate it when their tiny item comes in a huge box – some may even take to social media to call you out on the waste you are creating.
Buy used boxes instead of new. Companies like Sadlers buy used and unwanted cardboard boxes from large manufacturers and sell these second hand boxes at low cost to other businesses. It’s a circular model that cuts waste while cutting costs.
See our packaging buyer’s guide to cardboard boxes for more things to consider when looking for packaging companies.
5. Outsourcing vs inhouse
What is outsourcing? According to Wikipedia, outsourcing is ‘an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally’. Outsourcing doesn’t have to mean offshoring – if you are in the UK you can outsource to someone in the UK. It just means finding a contractor who can do the work.
The opposite of this is in-house; having someone working for the company either part-time or full-time to fulfil that role.
The benefits of outsourcing
If you require only occasional design work for example, outsourcing the work cuts costs because you don’t have someone on the payroll who is light on work. Outsourcing can also work well for a one-off project like a new website build, particularly if your company is small to medium sized.
The benefits of in-house
An in-house employee has more knowledge of the business and can react quicker than an agency or someone who is managing lots of clients. For marketing and SEO for example, an in-house person can dive deep into their work whereas a subcontractor is working within time and budget constraints on a more surface level. If you’re a small company looking to grow in size you may want to try outsourcing first until there is enough work to justify employing someone within the company to do the job.
6. Create a great company culture
Recruitment can be costly; it’s far better to retain quality workers than recruit and train up new ones. Value your great employees - find out what motivates and inspires them. For example, studies have shown that millennials value meaning and a good work-life balance and Gen Z look for self-development opportunities. While it’s not always possible for a job to have balance and meaning, the workplace, the team and the management can create meaning and value. And presenting opportunities for a person to develop their skills is easy to do, even if it’s a simple in-house training programme.
According to GlassDoor, the average cost of recruitment for a new employee is £3,000. They also note that it takes on average 27.5 days to recruit a new employee, and as the old saying goes, time is money. Save that money by creating a more inclusive workplace that enables workers to develop their skills and feel supported in their development.
SummaryThese are just a few ways to reduce business costs, whether you offer a service or sell products. We’ve explained how to lower customer acquisition costs, what to look out for with payment processing merchants, how to teach employees to negotiate prices and sales, the best way to reduce packaging costs, whether to outsource some of your work, and creating a great company culture to reduce recruitment costs.
Author: Lauren Sadler, MSc Sustainable Development (University of Exeter)
Bio: Lauren is passionate about the circular economy and enjoys writing about sustainability, business and nature.
Last updated: 08 February 2022