It’s challenging out there at the moment. And as the attention turns towards costs it’s important to think strategically about the types of costs you occur.
There are three basic types of business costs and it’s important to understand them before you can become more efficient and more critically start to smart source. Take this as an opportunity to review how you source your supplies so that you are picking the optimum solution for your business, making sure that it stays agile and flexible.
Overheads
The costs of “keeping the lights on” (eg. rent, insurance, office supplies and support staff). These don’t change with fluctuations in revenue or only change with significant movements in business activity. They can be the hardest to rationalise because they can be contractual or fixed, but here are some ideas to consider.
1. Take advantage of virtual office support services
Outsource your front desk or reception to a virtual office service which is shared between a few companies
Outsource support functions such as IT support, data entry or basic book keeping.
Make best use of your office space by working on a hot desk model and supporting staff working remotely where practical. With cloud based crm, finance and data storage systems this has become more effective than ever
It is important to note that the decision to outsource functions or move to a cloud supported solution is one that shouldn’t be undertaken lightly. The objective in reviewing your cost and support requirements has to take into account efficiency, value and risk. However recent developments in both outsource and cloud providers and the maturity of the market have meant that SME’s can benefit from the scale of these operations which they would be unable to resource in house.
2. Consider bringing some support functions in house if volume makes this more effective. Paying an hourly or daily rate to a third party is expensive if you are using it in a full time capacity.
3. Sublet part of your office space if you are not using it at capacity. There is an increasing need for co-working space by solo entrepreneurs or micro businesses.
4. Offer meeting room space for rent or for evening industry events. There is the added benefit of publicising your business as well as generating extra revenue.
5. Negotiate volume discounts on stationery supplies or telephony costs
6. Downsize your mobile phone plans or the number of phones in the business if you have excess capacity.
7. Renegotiate the terms of your loan with the bank
8. Renegotiate other supplier contracts. Even if you are only part way through a contract it may be worth raising with suppliers particularly if you have a good relationship with them and are a regular customer.
Revenue generating costs
The costs have an impact (directly or indirectly) on the revenue that you bring into the business so proceed with caution here….. The tricky thing is correctly identifying revenue generating costs. Direct costs, for example staff working on specific projects, are relatively easy to identify. Indirect costs can be trickier. For some companies their first “go to” for cost cutting is marketing which can be dangerous or at least a missed opportunity. Continuing to spend effective marketing dollars can benefit the business in the medium and long term. The key is making sure that your marketing is highly targeted and you have a clear strategy.
So how can you streamline without hurting the business?
1. Staff costs
Extend the virtual team concept to these team members. Think about maintaining a core permanent team supplemented by a virtual team based in Australia or overseas depending on your business needs. Your workforce costs can then flex in line with your business activity. There are other smart sourcing benefits too. One of my clients uses this model very effectively. Despite being a small business they can offer 24/7 responsiveness by having team members based in Australia, the UK, South Africa and India. That’s smart!
2. Variable material or consumables costs
Renegotiate existing contracts or put them out to tender
Look for new entrants into the market who may be willing to be more competitive on pricing
3. Marketing
Review your SEM (Search Engine Marketing) Spend. Can you use SEO (Search Engine Optimisation) more effectively to replace some of these costs?
Are you targeting your spend where the results are most measurable?
Discretionary costs
These costs are the easiest to cut but in today’s bootstrapped environment they are usually few and far between.
1. Cut non essential travel. Use videoconferencing or Skype instead where possible
2. Save money by booking flights direct rather than through an agency
3. Save money by booking accommodation through hotel deal aggregators like wotif.com, expedia.com.au or lateroom
4. If your business requires substantial travel to one location negotiate for preferential rates with a particular hotel in return for using them exclusively, the same can be done with car hire firm
5. Scale down staff entertaining costs to make them less regular or less extravagant. It’s important to keep having these events particularly if staff are working extra hard but small savings still add up.
6. Review your newspaper and magazine subscriptions. Do you need all of them?
Finally, these smart sourcing reviews should be a regular part of your business operations and not just something to be done in tough times. Keep an open mind on new ways to operate, regularly review existing contracts and stay agile.