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Business Growth Tip: Manage Your Operating Costs

Managing operating costs is often a tough battle for small businesses. They might struggle to force their expenses into slim budgets, but it’s hard to do this without lowering the quality or quantity of the products and services they put out. When businesses are able to strike the balance between relatively low production costs and appreciable product quality, they stand a good chance of achieving sustained growth.

If you’re a businessperson, you’ll know that rising operating costs can erode profits, and even cause businesses to make losses. Unfortunately, it appears that there’s only so much that can be done to curb it. Power seems perenniallyp expensive, input costs are almost always rising, and rents inch upwards every few years. This is what makes our business environment such a challenging landscape.

There are ways to beat this apparently unyielding obstacle to growth. Here are ten things you can do to cut down operating costs and increase possible profit margins.

  1. Set goals

You will have to define what ‘low’ or ‘manageable’ costs would be for you. But don’t set targets arbitrarily. They should be based on current or projected future indices such as the market price for raw materials and production equipment, quanitities to be produced given market demand, and the price range for your products (which should depend on what customers are willing to pay).

  1. Differentiate costs

Certain costs are more easily tinkered with than others. Fixed costs (such as rent)  remain as they are regardless of how much you use them (or don’t use them), so you might not be able to adjust them for your purposes. But variable costs like staff wages and the cost of raw materials and packaging will change with production levels; the more of them you use, the higher the cost you’ll incure.

Efforts at managing operating costs usually focus on controling variable costs by working around input quantities, qualities and combinations.

  1. Cut out waste

You may never know how much your business loses to waste until you decide to become more frugal with your resources. Using paper for frivolous purposes, leaving the lights and appliances on when they aren’t in use, or draining subscription data on things unrelated to business are just some of the more obvious leakages you should plug. A zero waste goal could do wonders for your efforts to limit business expenses.

  1. Deploy technology

Many business processes can now be undertaken with a fraction of their typical cost when they’re done with the help of modern technology. From cloud storage and payroll software to ecommerce and online payments systems, technology is smoothening many aspects of business, making them more convenient and less expensive, for small and large enterprises alike. So, instead of spending large sums on purchasing huge piles of paper for employee filing work, you can have their information stored on cloud based HR systems, for a small slice of the cost of creating and keeping big paper records.

  1. Work from where you’re at

Telecommuting is becoming a real option for businesses, thanks to technology. It’s attractive because it could be a win for employers and emoyees. Your workers don’t need to journey to the office to get things done, because there’s email and instant messaging, and team project platforms like Slack which allow vast amounts of work to be done by several people in different locations at once. And employers can afford to run their businesses in smaller office spaces, with fewer equipment and less furniture, as employees won’t be there all the time. This translates to potentially lower power, rent and equipment costs.

  1. Outsource work

Certain aspects of your business can be contracted out to non staff experts. This works as a cost management strategy if the benefits of hiring a contractor or freelancer to do the job outweigh the costs, and if you find that it’s much less expensive than maintaining an in-company staff. There are other things to consider; you’ll find them in our article, Five Questions To Ask Before Outsourcing Work From Your Business.

  1. Use the most cost effective vendors

Let’s say your business needs a regular supplier of letterheaded paper. If you’re bent on saving as much of your money as you can, you’ll shop around for options. Collect and compare quotes from several potential vendors, line their paper and print against each other, and examine their terms of service. Go for the one that offers the best combination of cost, quality, and reputation for reliable service provision. For more on this, read our article, How To Find The Right Vendor For Your Business.

  1. Buy smart

Your approach to purchasing equipment is in some ways similar to the process of selecting a supplier for your business. Compare prices, but pay equally close attention to quality, waranty packages and possible after sales service from the product’s manufacturers or sellers. There’s more about this in our article, 10 Questions To Ask Before Purchasing Equipment for Your Business.

  1. Practice barter

You don’t have to pay cash for everything your business needs. Bartering can be a brilliant way to avoid spending scarce money on important inputs or support services. If you’re a media agency, you could offer adverts to an IT support firm in exchange for that firm’s maintenance of your business’s communications and devices. There’s more on business bartering in our article, The Pros and Cons of Business Bartering.

  1. Take stock of inventory regularly

One particularly irksome cause of increasing costs is the disposal of unsold inventory. This may happen despite your concerted efforts at making sure nothing goes to waste. But in many cases, it’s preventable.

Gauging inventory levels on a regular basis makes it easier for you to decide how much you should be producing at different periods. This should in turn reduce or eliminate waste, and reduce costs.

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Ikenna Nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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