10/ 16/ 2006
by Jeffrey Moses
There is one business axiom that is almost always true: Every extra dollar you make costs something. This cost may be in the form of added or more expensive advertising, increased salaries, added production costs, costs of higher quality materials, etc. Often, the cost of increasing total revenue can be calculated very accurately over time. For instance, direct-mail companies know that for their specific types of business, the average cost of adding a dollar to revenue may be 85 or 90 cents or more.
There is one exception to this rule. Every dollar that is directly cut from expenses falls all the way to the bottom line, thereby increasing your company's profits. If your company pays even $1 less for, say, a ream of copy paper––that will be reflected in full as a $1 increase in profits. Taking the example further, if you pay $1,000 less for supplies during the year, arrange to have your lease reduced by $2,500 during the year, cut your shipping expenses by $750 and so forth, then every one of those dollars will be added in full to your annual profit.
Unless the savings is counterproductive and ends up reducing your revenue, economizing on purchases and other expenses is the single most effective way to increase your bottom line.
The day-to-day operation of every business offers dozens of ways to cut costs. It wouldn't take you long to simply list every expense you have and review them to see what you can trim without, hopefully, costing you reduced revenue.
The following suggestions may help you think of ways to trim costs that won't show up in a general list of expenses.
- Find a way to do something free. If you lease software, is there free software that can do the job just as well? If you pay for business consulting, are there services that provide this at no charge or at greatly reduced charges (such as certain Small Business Administration services)? If you send out follow-up letters to customers, would e-mails be just as effective?
- Outsource services that you don't need all the time. If some of your employees are frazzled from wearing too many hats, maybe you can outsource some of their responsibilities. This may save you a bundle, especially if it allows employees to focus on what makes your company money. Remember, few things in a company are more valuable and expensive than employee time.
- When making a new purchase, buy less and add more when needed. It's tempting to save money per unit by buying more right at the start, but if you eventually don't need it, you'll be paying too much. At the time of purchasing, see if you can get a free upgrade provision in case you determine that you do need more.
- Keep your employees. It's costly to search for, hire and train new employees. Treat the ones you have well––and encourage them to stay with you.
- Drop-ship rather than pay the cost of purchasing and storing. This can take a burden off your financing, as well as reducing the cost of personnel, equipment and shipping facilities.
