There are two main ways to increase the profitability of your business — increasing revenue and minimizing expenses. Increasing revenue is rather simple, but what about reducing costs? As the name suggests, operating costs consist of all the expenses connected with the everyday maintenance and administration of your business, as well as material expenses, rent, or payroll.
Reducing operating expenses can give your business a profit boost. To do that, you can minimize utility spendings, create a strict budget, decrease resource waste, employ automatization apps, cancel unused services, or even outsource specific tasks.
Once you have a general understanding of what operating costs are, you will be able to find ways to cut them down in your business. Below, you will find the definition and ways in which operating costs can affect your business profitability, as well as a few examples of reducing them. Read on!
What Are Operational Costs?
Operational costs are the expenses directly connected with a business’s day-to-day operations. It is a broad term, which covers many expenditures, such as office supplies, employee salaries, rent, and so forth.
No matter in which industry you operate — your business will generate some operational. Whether you are in a nang delivery business or tip your toes in a much less unique niche, you need to address these costs in the right way.
We will focus on one of the main categories of operational costs — employee expenses. This category includes everything concerning employees, such as payroll taxes, insurance, health benefits, vacation days, and the like.
What Determines Operational Costs?
Operational costs are determined by the company’s size and the number of employees. They depend on the number of office facilities and the type of industry in which you are operating.
It also depends on your business practices and living costs in your area. For example, if you have a company with employees who work from home, you will need to consider the rent and utilities required for each employee.
How Can You Reduce Operating Costs?
There is no definitive answer to how much you can reduce costs. It is important to remember that optimizing your expenses does not necessarily mean reducing them. The key here is to do it in a profitable manner.
Optimizing the number of employees is a good example. If you can get the same work done with fewer employees, you will reduce costs without sacrificing your service quality. Another example will be if you are able to find cheaper alternatives for office supplies or outsource some tasks to other professionals.
Examples of Reducing Operational Costs
First of all, you can automate repetitive tasks in your business with automation apps. For example, if you have several social media accounts and need to schedule them regularly, automation apps can help you do that. This way, you will save time and spend less.
However, there are more bottom-up methods that help you save money. Here are a few examples of ways in which you can reduce operating costs:
Minimize Utility Spendings
If your office uses a lot of energy, you can do two things: reduce the energy used or change its source. You can invest in energy-efficient electronics and appliances to lower your utility bills. Similarly, if your business depends on connectivity, you can switch from a traditional internet connection to a fibre-optic one.
Collect the latest bills and see where you can reduce costs. Maybe you can find a different payment processing service that will reduce your transaction fees or change your insurance policy to a more suitable one.
Set a Budget
It is essential to understand the impact each bill has on your business. You should set a budget for each of your services and add it with your regular operating costs. Once you have a clear view of how much money you spend on each of your expenditures, you can easily optimize them.
If your business expenses require more cash than expected, you can adjust your budget accordingly. This way, you will avoid any potential risks or financial problems and maintain a stable cash flow.
Decrease Resource Waste
You should also do everything in your power to reduce resource waste. You can do that by making sure to recycle everything you can. If your business generates a lot of waste, you should search for solutions to reduce it.
Suppose you have a printing company. In that case, instead of throwing away paper, you can organize your paper recycling so that all your customers can use the same recycled paper. It is a win-win situation!
Employ Automation Apps
As we already mentioned above, you can do a lot with automation apps. They can help your business in many ways and make your employees’ lives easier. For example, you can use a time-tracking app to see how efficiently your employees solve problems.
Furthermore, if you haven’t yet switched to cloud-based document management, you should definitely do it. It will save you a lot of time and money on paper, ink, and toner. Besides, it can help you keep your documents safe and easily accessible from anywhere.
Cancel Unused Services
You need to understand that some services you or your employees might not be using enough to justify the costs they generate. If that is the case, you should cancel them without a second thought.
When estimating the usefulness of some services, ask yourself whether your business really needs them or if they are just an expense. For instance, it may turn out that while a complex task assigning app gives you many more options over a traditional calendar, it is not necessary for the smooth operation of your business, and the additional features it offers do not provide any significant value.
You can also try to outsource some tasks to other professionals. For example, if you need help with a particular project but don’t have all the means you need to finish it, you can outsource the project or its parts instead of hiring new employees.
You can also outsource some of your business processes, such as accounting or inventory management. Nevertheless, you need to make sure that the chosen organization is fully capable of doing what you require them to do.
Operating costs are one of the main factors determining how successful a business is. Consequently, if you want to improve your company’s profitability, you should first look at your operating expenses. Once you find ways to reduce them and optimize your business services, your company should start bringing more profit.
The examples we have given you above are just a few of the many that are out there. Setting a budget, minimizing utility spendings, and cancelling unused services are just the tip of the iceberg. There is always room for improvement, and with technology, it is easier than ever to optimize your business profitability.