Cutting costs – indirect and direct costs

Whether you are just starting up a business or you are a long time business owner one thing that you need to think about are the various costs that go into running a business. When it comes to running a business you are going to be faced with both direct and indirect costs for your products or services. Direct costs are things that are related directly to your product or service, such as materials, employees, and inventory. While indirect costs are things that are not related directly to your product or service but they are still needed to do business such as heat, lights, and rent.

Or another way to look at this is that direct costs can be affected by how much your are producing, meaning the costs go up if you decide to make more product or the costs go down if you decrease the amount of product that you are making. But indirect costs stay the same no matter how much or how little of a product you are making. But regardless of if they are indirect or direct costs one of the best things that you can do to increase your company’s profits is to cut your costs for doing business.

Here are some of the things that you can do immediately to help your business cut costs and increase your profits.
• Hire the right number of people – this is important because your employees are usually your highest expense. So what you want to do is look at your busiest times and days and determine how many employees you are going to need by averaging the two. You will want to start with the fewest amount needed, but you want to watch it closely so that you are not cutting back on customer service or working your employees too hard. You can also think about hiring part-time employees or seasonal employees if your business is busier during certain days of the week or times of the year.
• Employees – you also want to look at the benefits that you are offering your employees to ensure that you are getting the best prices and offering the same benefits as other companies. But you also want to ensure that the employees deserve these benefits. You can also offer incentives to your employees for not being late or missing work
• Evaluate your facilities – take a look at where you are doing business and make sure that you are in a space that you are using. Make sure that the place is not bigger than you need because then you will be paying for space that you are not using. You can also get a reduction in rent by extending your lease
• Share expenses – look into getting together with other companies that you are not competing against about sharing office costs, including billing and receptionist
• Utilities – convert to fluorescent lighting, use high efficiency heating and cooling equipment, turn off lights or machines that are not in use, etc
• Barter services – rather than spending money on everything you can also make an offer to trade various services for things that you need, which is known as bartering,. You can trade business services with others, which many times many business are more than willing to do

• Rent equipment – rather than buying your equipment out right, especially if your business is a high tech business that always needs to be updated, you should rent the equipment. This greatly reduces your overhead costs because it is cheaper to rent than buy, especially with high tech equipment or computers
• Transportation costs – most every company has felt this impact because of how much fuel costs have gone up in the past year, and the more vehicles that your company uses the more money you are going to end up spending on transportation costs. This effect is felt whether you are having to fill up your vehicles or if you are receiving shipped goods that have increased in price to make up for the high fuel costs. So what you are going to need to do is sit down and look at your transportation costs to see where you can save money. Here are some questions that you can ask yourself to help reduce transportation costs:
o Do all of your service calls or sales calls need to be in person? Can you use other means of communication with your customers and employees, such as teleconferencing and telecommuting
o Have you double checked your delivery routes or your sales call schedules to be sure that they are the most efficient?
o Compare the prices for third party shippers to be sure you are getting the best price
o Considered using public transportation for your employees rather than company vehicles
o Are you passing your increase in costs onto the customers? Look at your calculations to see what the price increase might do to your total cost, most of the time the price increase is so small they won’t even notice it.
• Cross training employees – this is important because every time that an employee calls in sick, shows up late or even goes on vacation your company can end up spending extra money on hiring a temporary employee to do their job or you will end up losing money because nobody can do their job. So rather than paying out a lot of money to hire a temporary employee it is probably more reasonable to train some of your other employees in that department to do their job. This way if something does come up you can cover that person’s area at your normal rate of pay. Here are some things that you can do to get started cross training your employees:
o As time and their workload permits you can let people shadow other workers so they can get an idea of what their job entails. This would be best done by thinking about who has the skills and the interest to do other jobs, cross training is not for everybody.
o If needed you are going to need to work into the other people’s schedules some time so that they can get software training or even business training so that they can fill in for the people who are out

• Compare service offerings – one thing that many people tend to forget about is the money that they are paying for services that are needed by the company. A perfect example of this would be telephone service. What you need to do is to make sure that you check and compare the various service rates from numerous companies to ensure that you are getting the best deal for your money. If you do this on a regular basis you can end up saving a ton of money because you are masking sure that you are only paying for what you are using and what you need. But here are some other things that you need to think about when it comes cutting costs for services in an office setting:
o Using multiple printers you should set up a network that allows employees to share devices
o Reduce the number of phone lines that your office needs by configuring office PCs to send and receive faxes
• Marketing efficiently = every company has some kind of marketing plan that they have put into action and most of those companies also have some kind of budget for their marketing plan. But what they forget to do is to rethink their current marketing plan and budget to ensure that everything is allowing you to get the most for your money. With marketing many times there are things that you can get rid of because they no longer work or a more cost effective method has been discovered. So what you want to do is at least once a year rethink your marketing plan to see what kind of cuts you can make to help cut back on your marketing costs. What your company requires is going to depend on your type of business but here are some things that you can consider to help cut costs:
o Mailing printed newsletters – more cost effective to send out an email. The reason for this is it saves on printing and paper costs but it also saves you a ton on postage
o Paying to have flyers printed to advertise a sale – more cost effective to create and print your own flyers in your office than to pay another company to do it for you

But the main thing that you need to keep in mind is that most of the time it is the little things that you don’t think about that are costing your business money. And by thinking about those little things and cutting out those small but unnecessary costs you are saving your company some money which in turn is going to lead to an increase in profits at the end of the year. The reason for this is that the less you spend on expenses the more money your company gets to keep in the end.
Cutting costs – indirect and direct costs Part 2