I’m including a free checklist and worksheet you can use to identify which overhead costs are chewing away at your profit margins. Make sure to download your copy below.
Have you ever considered how much more money you could keep just by cutting down on overhead costs?
The following guide is going to focus on how to use this awesome little trick to increase profit margins overnight.
Cut Overhead Costs; Increase Profit MarginsSOS (or “Shiny Object Syndrome” as others prefer to call it) is a serious problem among business owners. It’s not that you don’t need that new tool or subscription, but sometimes you forget you already have something that does the same exact thing! Or you accumulate a new business expense, believing you’ll need it very soon… only to lose track of it because you found a more efficient way to accomplish the task. What’s worse is that you’re too scared to look at your numbers which, in turn, encourages this endless loop of blind spending. We’re going to use the 33/33/33 rule to identify key areas where you can afford to trim the fat.
- 33% should go to you (remember: profit first!)
- 33% should go to operational costs.
- 33% should go to business growth initiatives (like sales and marketing).
Should go to you.
If your profit margin is currently below 33% (there are some tools below to help you calculate this), it’s time to work on removing excessive spending from the latter two types of business costs.
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The office is your base of operations, so you want to ensure that you’re set up for optimal focus and productivity. While you don’t want to skimp to the point where that’s compromised, you don’t want to overspend either.
Your day-to-day operations are powered by hardware. The computer or smartphone that you’re staring at right now. The headphones you use to drown out the sound of the kids or family dog in the background. The printer you use to print, sign and store client contracts.
You can’t run a business without essential equipment, but let’s face it, the equipment you started with on Day 1, might not be an essential part of your workflow anymore. You have to be prepared to remove things from your life that no longer add value to it, no matter what sort of sentimentality may be attached to it.
Plus, don’t forget to consider the age of your equipment. Outdated technology could unknowingly be driving up your overhead costs.
Software & Subscription Costs
Software and subscription costs are some of the easiest to lose sight of, especially when you write them off as only “a few bucks” every month. But it all adds up!
For instance, you read a blog post from one of your favourite websites and sign up for a free trial for a prototyping software recommended in it. The only problem is that this is one of those free trials that never tells you when it ends and when it later starts charging your credit card.
Also be aware that subscription costs can get lost as you upgrade your processes. You purchase a new piece of software, but decide to hold onto the old one for a month in case the transition doesn’t go smoothly. But the new software works so well that business heats up and you get lost in the influx of new clients.
Then, there’s the matter of services changing over time. Your business isn’t the only one evolving, after all. Who’s to say that the company behind your task management software hasn’t released a cheaper, but just as effective plan since you first signed on?
This is always a difficult one to consider as it may lead to the dismissal of staff or the reduction of hours for a contractor. But is it fair to pay staffing costs that dig into your profit margins just so you don’t have to feel bad about releasing someone from your payroll?
If your business is barely surviving with the current staffing situation, you’re doing everyone involved a great disservice by maintaining the status quo.
These are just some of the difficult questions you’ll need to ask yourself:
- Are you paying employee wages and benefits when the work could be contracted instead?
- Have you filled roles that contribute little to your productivity or output?
- Is the employee adding value to the company and not just taking work off your hands?
- Do you have employees that do tasks that should be offloaded to software?
- Do you have employees handling tasks that should be automated with templates and other shortcuts?
The 4 D’s of time management tell us not to be afraid of deleting that which is unnecessary. So, why do you continue to hold onto unnecessary costs?
Business Upkeep Costs
This one is tricky because the act of keeping your business in good standing isn’t something you can compromise on. That said, what you’re going to look for in these areas (things such as insurance, professional association fees and so on) are:
- Alternative providers
- Negotiation of rates
- Bundling of costs
Anything you can do to strike a better deal will help, especially if you can’t afford to live without these kinds of expenses.
Across these five key areas of common overhead costs, there are 50+ expenses that could be costing you big time. It’s time to work on cutting them out of your life.
Resources to Increase Profit Margins Right Now
I know this isn’t what you want to hear, but you have to know your numbers if you want to be able to increase profit margins. But don’t worry. Now that you know where businesses accumulate excessive overhead, we’re going to look at some tools and resources to help you get control over it.
Apps like Trim do exactly what we’re talking about above. More specifically, these apps dig through your financial statements and identify ways in which you can save more money. If you have a hidden subscription somewhere, an increased recurring fee you weren’t aware of or too much money going to another kind of overhead, these apps track it down.
If you find that the cash you have on hand doesn’t correlate to expectations, you can spin up an alternative scenario where you cut troublesome overhead and see what sort of outcomes lie ahead.
While the tools above will certainly give you the level of visibility and control you need to get a handle on overhead costs, you shouldn’t rely on them to do it all for you. It’s crucial that you know your numbers and make them work to your advantage.
When you have some time in the coming weeks, check out your local bookstore or head over to Amazon to grab a copy of one of these books:
- Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
- The Pumpkin Plan: A Simple Strategy to Grow a Remarkable Business in Any Field
- Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
- Rich Dad's CASHFLOW Quadrant: Rich Dad's Guide to Financial Freedom