How to Reduce Operating Costs for Your Business

By Shipware July 1, 2020 eCommerce

Are you a business owner trying to determine how to reduce operating costs for your business? It’s an important topic. Operational expenses (OPEX) include labor cost, payroll, facility fees, energy bills, maintenance, depreciation, and more. Operating expenses include fixed costs and variable costs. Luckily, we’re experts in parcel contract negotiation and are well versed in getting you the low costs. We have got a number of cost cutting ideas for large companies. But with so many categories of expenses, how do you cut operating costs? Read on for our top tips on how to reduce operating costs.

1. Analyze your largest monthly expenses

Look at the total operating cost, before breaking it down by your company’s most significant monthly expenses. Maybe that’s payroll or real estate. It could be inventory costs or energy use. Whittling a few percents off the largest monthly expenses will go a long way in helping to lower operating costs. 

Of course, a different approach is needed to reduce payroll expenses versus real estate, though in some cases they are connected. More people means more furniture and square footage needed in the office environment. You may find ways to gain efficiencies by allowing some employees to work from home, reducing needed office space. Maybe two people want to work part-time instead of full time, and they can job share. Some of these are case-by-case opportunities to reduce operational costs, and some are part of a global plan and culture shift. 

Real estate is something else you may have some negotiating power over. Rent is often a big expense. When your contract is ready for renewal, do some research to find out the price of similar properties, while also determining whether you need the space and amenities the current rental offers. Use this information to negotiate with the building owners. Even though moving is expensive and disruptive, it can result in lower operating costs, even after moving expenses. 

2. Analyze your longest contracts

Relationships are a big part of business. But it’s easy to fall into the trap of relying on that great relationship to keep things the same. The contract for IT support is up for renewal? The insurance broker is offering to renew the same business insurance policy you’ve had for 10 years? Your energy provider keeps sending the bills month after month, but you’re wondering if there might be another option? 

Do some research. Put the services and contracts out for quotes to see what other deals are out there. Look for reasons that you might be able to save, for instance, cell phone monthly contracts offer more data for the same amount or less. Or there’s a new janitorial service or garbage company working in your area. What can they provide that your contracted company can’t? 

Then, go back to your current company and show them what you learned about effective cost cutting methods. Tell them you value their relationship but you think your rates are too high or your service could be improved. Let them work for your business. Even if your expenses stay the same, you might gain better service or other perks that make it worthwhile to continue working with them.

3. Set retainer agreements

Retainer agreements give you a certain level of service or number of hours at a set monthly or yearly fee. Are you tracking what you use? Are the hours appropriate? If you have a law firm or accounting firm on retainer but are only using half the hours you contracted for, you’re essentially paying double the rate. 

It’s worth renegotiating these agreements after you determine your past use and what you think your use will be in the coming year. It may be worth paying slightly more per hour, with a reduction in hours, if those extra hours are otherwise going to waste. If the retainer agreement hasn’t paid off, you still may be able to use their services with just an hourly rate or use a different person in the office to maintain that flexibility and cost savings. 

4. Negotiate payment discounts

Cash flow is important to companies. If you have the cash, use that to your advantage and negotiate payment discounts with vendors. Ask the business owner or contracting department for a discount if you pay in a certain time frame, maybe in 15 days or 30 days, instead of longer payment terms. Saving 1-10% by paying quickly and those cost savings add up while strengthening vendor relationships and potentially improving customer service as well. 

5. Negotiate shipping services

Another vendor to negotiate with is the carrier to optimize the contract. Shipping contracts have many terms that can be tweaked and discounted, if only you know the right way to ask. This is a time when outsourcing or getting consulting help will pay off with lower operating costs, whether you’re a retail business, a wholesale business, or provide other products. 

Companies have more leverage than they think in negotiating business costs and terms, but they won’t get the best rates on their own. Shipware’s experts know this because we worked in-house at the major carriers conducting these negotiations for the other side. Shipware can analyze your contracts and either offer negotiating strategies or conduct the negotiations. This will result in better cash flow and lower expenses.

6. Automate bill payments

Manual bill processing is inefficient. Use automated business processes and software to streamline your accounts payable and better understand your cash flow. Software systems are easier to set up than you might think, and they can pay for themselves within months to a year. 

The changeover process is also easier than you might think. Most bills can be processed through automation software, which eliminates some employee payroll costs. You can redeploy those employees to other roles or to fill vacant positions. You’ll have visibility over the payment process, and can set up automatic approvals or at least make it simple for employees to approve bills from their computer, not from a stack of papers that can easily get lost. This software works whether you run a retail business or a service business.

7. Assess your banking needs

Banks rely on good customer service to retain customers. As a business owner, that service is helpful, but sometimes the fees creep up and you pay more than you should. Get an assessment of what merchant service fees you pay, whether your accounts earn interest, and what other customer service options you receive. Find out what other banks offer. As a retail business, you might need to deposit cash on a daily or weekly basis. Does the bank make that easy and safe for you? Gather information from competing banks and turn that into cost savings instead of operating expenses.

8. Implement cost-saving technology 

Software bundles or suites can save you a bundle if you can use them wisely. Suites now include the use of video calls, cloud storage, word processing, messaging systems, document sharing and management. Using one integrated suite can save on purchasing individual programs, and offer added benefits you may not have to pay for, but would need to include as an operational expense otherwise. 

Cloud storage is enabled with some suites, though you would pay for that service. Still, cloud storage can represent cost savings over on-premises servers, and you don’t need as large an IT group to handle it. That helps with payroll expenses.

Landlines are still used in many offices, but some have moved over to voice over internet protocol (VOIP), which runs through the internet. That can represent savings to your overhead.

9. Conduct a parcel audit 

Technology works in your favor when it comes to parcel auditing and recovery services. Some companies try to track their shipping invoices manually to ensure they are correct. That is an exercise in pushing a boulder uphill. Automation through software like Shipware provides, can not only identify carrier guarantee failures, but mistakes they make as well. After identifying these on a nightly basis, the claims are filed automatically with the carrier. Not only do you save money with a parcel audit, but the fee comes out of the savings.

10. Bulk purchase your office supplies 

Centralize your purchasing to save money and control expenses. Some businesses gain value using a group purchasing organization (GPO), which does all product negotiations. That saves employee time, and the bulk purchasing through the GPO means cost savings for you. 

11. Increase energy efficiency

Whether you’re a building owner or renter, you likely pay your energy costs. That gives you an incentive to lower energy consumption. There are many ways to increase energy efficiency for cost reduction over your overhead costs. 

Switching out lightbulbs for energy-efficient ones is one effective way to cut your energy bill costs. Putting lights and heating/cooling on timers is another way to reduce energy consumption. There’s no reason for the building to maintain the same level of temperature control when no one is there overnight. While employees will not all agree on the preferred temperature, many offices are too cold in the summer, and people bring sweaters to wear. Even lowering the thermostat a few degrees can be an effective cost cutting strategy. The building owners may be willing to make some changes to the office space to increase energy efficiency. 

12. Stay on top of maintenance

Your equipment will break down – it’s totally normal. If you can do regular maintenance activities to keep the equipment in working order, it will last longer. If the facility management department budgets for maintenance costs, they won’t come as a surprise and the money will be there. Predictive maintenance is another model for ensuring that equipment is kept in good shape.

Implement Solutions Today, Save Tomorrow

Wondering how to reduce the total cost of your operating expenses? As you can see, the options abound. Not every single one is right for your situation, but likely if you implement a handful of these, you’ll see cost savings and better OPEX. Reach out to Shipware to learn more about saving money with contract optimization services, parcel audit services, as well as invoice audit recovery services. 

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