By Brandon Eley

Saving Money = Making Money

By Brandon Eley

Tips on Saving Money in Your Small Business

Small business owners spend a lot of time trying to drum up new business, but rarely look at cutting costs as a way of making money. In reality, slashing expenses can often increase overall profit margins much more than adding a new client or landing a new project. We’re all busy, but going through evaluating expenses regularly is just the smart thing to do.

Where can you save money? Let’s take a look…

Website Hosting & IT Costs

Are you upgrading software you don’t need anymore? Does your website _really_ need a dedicated server? We recently moved one project from a large $500/month dedicated server to a $50/month virtual server and are saving over $5,000 a year! The website still has room to grow into larger VPS packages, and it will be quite some time before we need a dedicated server.

Do you really need Microsoft Office? Could you switch to Google Apps instead? If you have four workstations, that’s $2,000 in license fees that could be saved by switching to a simpler solution.

Credit Card Processing

If you process a lot of credit cards, you should be getting a quote for processing every few years. Look online for vendors, as local banks and merchant providers are often the most expensive. We see a lot of clients that are paying 1-2% too much for processing. Do the math, that amounts to a lot of money over time. If you process $20,000 a month in credit cards, that’s paying $2,500 to $5,000 too much.

Also consider whether you need a merchant account at all. If you are processing less than $2,000 per month, it is likely less expensive to use a third party option such as PayPal.

Printing or Shipping

We ship a lot of packages in our e-commerce company. We recently started shipping some packages through the United States Postal Service instead of UPS, and are saving upwards of 20% on those packages. We have also recently requested new bids from UPS and FedEx as our volume has steadily increased over the past few years. Request new quotes annually, be sure to leverage the fact that you’re opening your account for bid to get even lower rates. Let UPS know FedEx wants your business!

The same applies to printing and other vendors, shop around. You’d be surprised what you can find. We switched to a trade printer that saved us 80% over what we were paying a local printer for full-color business cards.

Labor Costs

It sounds harsh, but are you paying employees to sit around doing nothing? If business has slowed, it may be time to let someone go. Similarly, if you have an employee that isn’t performing, letting them go can free up a substantial amount of money that can be used to hire someone else, or simply increase your profit margin.

  • On the topic of shipping, keep in mind that both FedEx and UPS are contractually obligated to give you a refund if your package arrives late (subject to certain exceptions, like weather). Many companies can save 5% or more of their shipping costs by pursuing these refunds. Neither company makes it easy though, so using a service like Refund Retriever is a cost effective way (no up-front costs) to go after those refunds.

    • Excellent point, Brian. There are a lot of services out there that try to retrieve refunds from shipping carriers, so shop around. The % they take can vary greatly. Great idea!

  • George Langley

    Re: Labour Costs
    It doesn’t “sound” harsh, it IS harsh! What about all the times your employees saved your bacon when they pulled late nights to make impossible deadlines during the boom times? You then “reward” them by letting them go during the slower times? That is extremely poor management.
    The “rainy days” will come and a smart manager will save some of the boom time profit to cover the slower times. (Just ask any freelancer if you don’t know how to do that!) Also, a smart manager will invest that down time into growth opportunities, getting their employees learning up another piece of software or researching the latest trends, so that the sales team can be knocking on doors with even more services to offer. This makes the company more valuable and viable, and ultimately will reduce those slow times.
    Far too many companies say things like “Our greatest strength is our employees”, then discard those same employees like yesterday’s newspaper, just to prop up their perceived profits. The experience and knowledge they lose when they do that is not something that shows up on the bottom line. But it should be evident if they track the amount of time wasted teaching someone to get up to speed on what that previous employee knew. Every day it takes me to figure out what “Joe” did, is two days of actual work lost – the day I could have be working on my projects and the day Joe would have been working on his.
    Now, if someone isn’t cutting it, then yes, dismiss him/her and hire someone who can. But don’t for one moment think that any of your valuable employees are sitting around doing nothing. Most people whom I’ve worked with are always researching that new software or latest trend without being told. And if they aren’t, then you as a manager aren’t doing your job and perhaps you are the one who should be let go.

    • Good points, George. But sometimes, you just can’t keep employees when business slows down. One story I recently read was that the CEO of a company had to lay off hundreds of employees at a rough time, so he started parking at the back of the parking lot walking by all the empty spaces to remind him to get business back up so he could hire them back.

      I could have worded it a little better, I did make it sound like letting an employee go because of slow sales would bump up profits. I lumped both types of employees together in the same paragraph. I do feel strongly that if someone isn’t performing, and they have been given ample opportunity to improve, you should cut your losses and let them go. However, I didn’t mean to imply you should fire someone because business is slow *just* to inflate your profits.

      And of course, it’s always more complicated than one paragraph can explain. Maybe I’ll write an entire article on that topic soon…

      • George Langley

        Okay, but on the flip side, perhaps that company should be hiring contractors instead of “permanent” employees, if their business is that volatile.
        I grew up in an industrial city, and layoffs were common whenever the demand for the various products they made fell. But the people knew that they could and would be brought back once the market was there again. Being laid off was never fun, but at least was a little easier to take knowing that the door was being left open for them down the road.
        But that doesn’t happen in our industry. Someone gets laid off due to lack of work, and the company never says “We’ll hire you back when things pick up again.” They treat it like a permanent severance. That to me signals that they have no appreciation for what they really are losing, as if any old person will walk in with the same experience and familiarity with the work.
        It also indicates that the company has no long-term vision. Even if they can’t state “when” that position will come available again, they should at least acknowledge that it “could” come again and would welcome that person back at that time. The CEO that you mentioned above would be the exception to the rule if he sincerely meant to re-hire his previous employees.

    • @ George Langley – I agree with you completely.

      I was one of those who was let go because the Line Manager felt that I wasn’t doing my job. Instead of taking a 40% pay cut I left the company. A year later they discovered that they absolutely needed someone in my position and found that they needed 5 more people at full professional wages just to keep up with what I did on a daily basis.

      If you don’t understand why you hired a person, you shouldn’t be the one allowed to do the hiring or the firing. Let the managing director, manager, or supervisor who did the interviewing, who had to work with said employee on a day to day basis, and understand what an asset that employee really is to the office make that decision.

  • What do you do to find ways to cut costs in your business, Brandon? I’m wondering because there is such a variety of businesses that it’s hard to compile one universal list of cost-cutting methods. So what should a business owner do to find those?

    • I work at two very different businesses, I’m the Interactive Director for an agency, and I own an e-commerce company. We’ve found ways to save money in both by simply reviewing the expenses line-by-line and asking ourselves “do we really need this? is there a less expensive vendor? Can we do it in house?”

      You do have to be a little creative and might have to do a bit of research, but you should be able to find several areas where you could save money. For instance, we purchase end rolls of newsprint from our local newspaper to use as packing material in our e-commerce business. They charge us $4 (sometimes nothing) for a roll with several hundred feet of good, unprinted packing paper. Compare that to buying peanuts or bubble wrap, and that alone probably saves us thousands of dollars a year!

  • In my first year in business I threw money at it like I had an unending supply. Now that the frenzy has died down I’m learning to trust myself, realizing that while I may not have ALL the bells and whistles that could make this easier/faster/better, I have what I need to make a success of my business. There’s a kind of panic that rises in new business owners that we might miss out on “THE” tool that will make everything better, when the truth is most of success is savvy sweat equity.

    Great post to keep us focused on what really matters. Thanks.

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