Are you struggling with high business overhead costs? If so, you’re not alone. Fortunately, there are a number of ways that you can reduce your overheads without compromising the quality of your products or services. By following the 15 easy steps outlined in this article, you can significantly reduce your business overhead costs and improve your bottom line.
What Exactly Are Overheads?
Before we get started, it’s important to define what we mean by “overheads.” Overheads are the ongoing costs of running your business that are not directly related to producing your product or service. In other words, they’re the costs that you have to pay whether or not you make a sale.
Some common examples of overheads include:
- Rent or mortgage payments
- Utilities (e.g., electricity, water, gas)
- Insurance
- Wages for non-production staff (e.g., office workers, customer service representatives)
- Accounting and legal fees
- Marketing and advertising expenses
- Software and subscription costs
- Shipping and handling charges
These are all things that any business owner is going to need to take into consideration when planning out a budget and optimizing their spending.
Types of Overhead Costs
Overhead costs are classified in different ways. The most common way to classify overhead costs is by variable overhead and semi-variable overhead. Other ways to classify overhead costs include by function, such as marketing or administration, and by time period, such as current or long-term.
Correct classification of your overhead costs is essential for effective decision making. Knowing which costs are fixed and which are variable will help you to make better decisions about how to increase your profits.
Variable Overhead
Variable overhead costs are those that fluctuate with production volume. For example, if your business produces widgets, then the cost of the raw materials needed to make the widgets would be classified as a variable overhead cost.
Semi-Variable Overhead
Semi-variable overhead costs are those that have both a fixed and variable component. For example, the electricity needed to power your widget-making factory would be classified as a semi-variable overhead cost. The fixed component would be the monthly fee charged by the electricity company, while the variable component would be based on how much electricity was used that month.
How To Reduce Your Overheads Easily
Now that we’ve gone over what overhead costs are and how they can be classified, let’s take a look at 15 easy ways that you can reduce your overhead costs:
1. Review Everything Thoroughly
Take a close look at your recurring expenses. Are there any subscriptions or memberships that you no longer use or need? Are there any services that you could get for less money by switching providers?
You’re also going to want to review your inventory levels and see if you can streamline your stock to reduce storage costs. When it comes to your equipment, fully examine t what you’re using and see if there’s anything that could be replaced or downsized. For example, if you have a large printer that’s only used occasionally, consider replacing it with a smaller model.
If you have staff, review their roles and responsibilities to see if there’s anything that could be consolidated or delegated to someone else.
2. Find a More Cost-Effective Office Space
Downsizing your office space is a great way to cut back on overhead costs! If you’re not using all of the square footage that you’re paying for, then consider downsizing to a smaller office. This will reduce your rent or mortgage payments and save you money in the long run.
Another option is to sublet part of your office space to another business. This can help offset your costs and provide you with some extra income.
3. Rent Instead of Buy
In business, one of the best ways to reduce your overhead costs is to rent instead of buy. This can be applied to anything from office space to machinery and equipment. By renting, you avoid the high upfront costs associated with purchasing, and you also have the flexibility to return or upgrade the item as your needs change. Additionally, renting can help you free up capital that can be used for other investments.
Renting gives you the flexibility to choose exactly what you need for your business without tying you into a long-term contract. It also means that you don’t have to worry about maintenance or repairs, as that will be taken care of by the landlord. And if you need to upgrade your equipment, you can simply return it at the end of your rental agreement and get something new–easy peasy!
4. Trim Your Team
Okay, we’re not talking about getting rid of employees willy-nilly! We mean taking a close look at your workforce and making strategic cuts where necessary.
For example, do you have too many managers? Do you have employees who are under-utilized or whose skills could be better utilized elsewhere? By carefully evaluating your staff and making targeted cuts, you can reduce your overheads without sacrificing quality or productivity. And who knows–maybe trimming your team will help you focus on what’s truly important, and lead your business to even greater success.
5. Reduce Your Energy Costs
One of the easiest places to start when cutting overhead costs is with your energy expenses. There are a number of simple steps you can take to reduce the amount of energy you use, and in turn, lower your bills.
One way to reduce your energy consumption is to make sure your premises are well insulated. This will help to keep heat in during the winter and cool air in during the summer, meaning you won’t have to rely as much on heating and cooling systems.
Another way is to switch to energy-efficient lighting. LED bulbs use significantly less electricity than traditional incandescent bulbs, so making the switch can lead to big savings on your energy bill.
Finally, consider investing in solar panels. Solar panels can provide a great source of renewable energy, and they can also help you to offset your traditional energy costs.
6. Go Paperless
Sure, there’s something satisfying about the rustle of paper and the scent of freshly printed pages. But paper is surprisingly expensive, and it takes up so much space! Not to mention the environmental impact–each year, businesses in the US alone use millions of tons of paper, which takes a toll on our forests.
So why not ditch the paper and go digital? There are lots of ways to do it, from sending invoices and contracts electronically to using digital filing cabinets to store documents. Not only will you save money on paper and printing costs, but you’ll also save time and space–and you can feel good knowing you’re doing your bit for the environment.
7. Outsource
One of the best ways to reduce your workload and free up your time is to outsource some of your business tasks. For example, if you’re spending hours each week on accounting or bookkeeping, consider hiring a part-time employee or using an online service.
You can also save time by outsourcing tasks like social media marketing, website design, and customer service. The key is to find a reputable company that can handle these tasks quickly and efficiently. By outsourcing some of your business tasks, you can reduce your overheads and free up your time to focus on more important things.
8. Build on Your Brand Ambassadors
A brand ambassador is someone who advocates for your company, product, or service in a positive way. They can help to raise awareness of your business and generate leads. Furthermore, they can also provide valuable feedback and insights that can help you to improve your offering. In short, brand ambassadors can be incredibly valuable assets for any business.
There are a number of ways to find brand ambassadors. One option is to reach out to customers and ask if they would be interested in serving as an ambassador. Another option is to use social media platforms like Twitter and LinkedIn to identify potential ambassadors.
Once you have found some potential ambassadors, the next step is to contact them and explain what you’re looking for. Be sure to let them know what benefits they would receive by serving as an ambassador for your company.
9. Review Your Contracts
It’s important to review your contacts on a regular basis. This means taking a close look at who you’re doing business with and whether or not they are providing value for money. Are they charging you fair prices? Are they delivering on their promises? Are they easy to work with? If the answer to any of these questions is no, then it might be time to consider finding new suppliers.
Reviewing your contacts on a regular basis will help you to identify any areas where you could be saving money, and it will also help you to build better relationships with the businesses that you rely on.
10. Shop for the Best Business Credit Card
There are a few things you should look for when choosing a business credit card. First, make sure the card has a low interest rate. This will help you save money on interest payments.
Second, look for a card with generous rewards. This can help you offset the cost of purchases you have to make for your business.
Finally, make sure the card has a low annual fee. This will help you save money in the long run. By shopping around for the best business credit card, you can easily reduce your overheads.
11. Invest in a Business Overhead Insurance (BOE)
A BOE policy helps to offset the costs of continuing your business in the event that you’re unable to work due to an injury or illness. It can pay for things like your mortgage or lease payments, utilities, employee salaries, and other essential expenses. And because it’s an insurance policy, it’s usually tax-deductible.
There are a lot of different BOE policies available, so it’s important to talk to an insurance agent to find one that’s right for your business. But if you’re looking for an easy way to reduce your overhead costs, investing in a BOE policy is a great place to start.
12. Leverage Your Current Client Base to Save on Promotions
Leveraging your current client base is an often-overlooked method to cutting down on overhead costs. But it’s really a great option!
For example, let’s say you own a small law firm. You could save a lot of money on advertising and marketing by simply reaching out to your existing clients and asking them to refer you to their friends and family members. Not only will this save you money on promotions, but it will also help you build deeper relationships with your clients.
Of course, this isn’t to say that you should never invest in marketing and advertising. But if you’re looking for an easy way to reduce your overheads, leveraging your current client base is a great place to start.
13. Control Purchasing
When you’re running a business, it’s important to make sure you know exactly what you need to purchase and when you need to purchase it. Do your research and shop around for the best deals. And don’t be afraid to negotiate with suppliers–after all, they want your business just as much as you want theirs! By taking a proactive approach to purchasing, you can easily reduce your business overheads.
14. Evaluate Your Marketing Strategy
No matter what size your business is, managing expenses is always a top priority. Marketing is one area where costs can quickly add up, making it necessary to evaluate your strategy on a regular basis.
There are a few easy ways to reduce your marketing costs and still reach your target audience. One option is to focus on online marketing, which can be very cost-effective. Social media, for example, is a great way to connect with potential customers at no charge. You can also use email marketing to reach a wide audience without breaking the bank.
Another way to save on marketing costs is to take advantage of free or low-cost advertising opportunities, such as community events or local print publications.
15. Invest in Culture to Reduce Turnovers
Investing in company culture has been proven to reduce employee turnover rates. A strong company culture creates a sense of community and belonging, which makes employees feel more invested in their work. As a result, they are less likely to look for new opportunities elsewhere.
In addition, a positive company culture can attract top talent and help to retain existing employees. Furthermore, happy employees are more productive, meaning that investing in culture can also lead to increased profitability.
How to Calculate Your Overhead Expenses
In order to calculate your overhead expenses, you’ll first need to determine what categories of expenses fall into this category. These can include things like rent, utilities, insurance, and office supplies.
Once you have a complete list of overhead expenses, you will need to add up the total cost for each category. This will give you your overhead expense total for the month.
To calculate your overhead expense rate, you will divide this total by your revenue for the month. This will give you a percentage that you can use to budget for overhead expenses in future months.
By understanding how to calculate your overhead expenses, you can ensure that you are accurately budgeting for the cost of running your business.
In Conclusion
If you’re looking for an easy way to reduce your overheads, implementing some or all of the tips we’ve provided can help. From controlling purchasing to evaluating your marketing strategy, there are plenty of ways to save money without sacrificing results. And if you’re looking for even more advice, be sure to check out our other articles on cash flow and business growth. Sign up for our free email updates to get the most up-to-date information on optimizing your business!
