Overhead Expenses 101: 5 Ways to Reduce Them

There’s a saying in business that you need to spend money to make money, which is true. But it’s also a recipe for disaster when your expenses far outweigh your income.

Overhead expenses are critical to businesses. However, they don’t have a direct link to profit generation. It’s uneconomical for your business to always be in the red. You may not completely eliminate the overhead costs, but there are ways to reduce them.

The reduction helps to increase your profit margins and avoid fatal cash flow problems. This then helps to keep your business afloat even during economic downturns.

5 Ways of Reducing Overhead Expenses

There are times when businesses and especially startups will face hard times. Others may want to go as lean as possible at all times.

When planning to cut costs, it can be difficult deciding what your business can go without. So you must do your best to prioritize what you can go without. Prioritize what’s more important to your employees and the business.

You will need the cooperation of your team members to weather the storm. Especially when going through tough financial times and decision-making for the future. Here are important cost-cutting solutions that will certainly work for your business.

1. 1. Invest in Technology

If you have tasks that can be completed with a computer and you don’t need to hire additional staff, it would be best to use technology in cutting costs. Investing in technology helps you to automate processes that may require human interactions. This helps to save money on employee salaries. It can also help to improve efficiency and productivity.

You can use a spend management software to track and manage non-payroll business expenses. You can use it to gain insights into the businesses spending by gathering and analyzing data. This enables you to avoid overspending and account for business expenses.

Investing in software that automates processes like how many hours employees work is very important. It enables you to wrap your arms around your spending. With tailored analytics, the software enables you to uncover insights about expenses.

1. 2. Build on Brand Ambassador

Marketing is important, especially in highly competitive industries. The only challenge is that it can eat up a huge part of your budget. That’s why you need to save on advertising costs by leveraging your most powerful marketing tool. We are talking about loyal clients.

Loyal clients can be amazing brand ambassadors who bring in new clients that are fit for your brand. That’s because their authenticity, expertise, and trustworthiness makes them a powerful voice.

And when they refer a friend, that person adds part of their trust to the recommendation.  Remember that word of mouth is the best method of acquiring new clients.

You can encourage clients to be brand ambassadors by giving them discounts, incentives, and bonuses. Many people would be happy to give you free promotions for something in return. That’s especially if they are big fans of your brand.

1. 3. Outsourcing

Everything doesn’t have to be done in-house, because outsourcing helps to reduce labor costs. There are additional costs that come with having employees. These costs, unfortunately, are beyond their salaries.

Some organizations use the “hidden paycheck tool” to remind employees that their compensation consists of more than their salaries. The elements on the hidden paycheck include health benefits, sick and vacation days. There is also disability insurance and workers’ compensation. These benefits can skyrocket an employer’s costs of labor.

But with the way outsourcing is set up, employers don’t have to pay such costs. The overhead costs associated with in-house employees include physical space and tools. Office space, phone systems, and computers are related to having in-house employees.

So instead of looking for a big office to accommodate more staff, look into the areas you can outsource. You’ll realize that your current space can continue serving you if you outsource certain tasks. This is better compared to bringing in more employees.

Look at your projections for growth in the coming months. Are there areas where you can outsource operations? Outsourcing can scale with your business as it changes and grows. It will help you to reduce costs and streamline some processes.

1. 4. Business Travel

Another way of reducing costs is by setting up a budget for business travel and sticking to it. Your staff doesn’t have to eat at a 5-star restaurant every night. You can always look for places that are frequented by the locals.

You can also stay in business hotels that charge half the cost charged by luxury hotels. Also, ensuring that all the staff are members of the hotel loyalty plan will help you to get discounts and free nights. This also applies to airline reward programs. Why not target a single airline for maximum payback?

Questioning the need for travel can also help to reduce costs. How about holding video meetings or teleconferences with clients? This will be better compared to paying for off-site employees to fly in.

Be sure to set up a budget for your client’s entertainment. You don’t have to build relationships on expensive gifts and dinners at high-end restaurants. In fact, clients may react negatively to such expenses. They’ll see it as excessive in relation to the economy or size of the organization.

1. 5. Cut Your Printing Costs

Regular office printing costs can certainly add up. That’s why it’s important to have digital solutions for invoicing and other tasks. Remember that the biggest printing costs that construction businesses face, for instance, are blueprints.

You may be paying a steep price for print shops to generate large-scale prints for jobs you’ll not win. There are more expenses when change orders come with revised plans at times. This can work out at the beginning when bidding on a few jobs a year. It’s however unsustainable and cost-prohibitive with time as the business grows.

A take-off software platform can pay for itself after a few jobs. It also helps to significantly speed up your workforce and evaluate some solutions.

Final Takeaway

Reducing your business overhead expenses may seem like a difficult task. But you’ll be amazed at how much cutting small things here and there can add up over a certain period. This doesn’t have to include drastic re-budgeting or downsizing. You only need to re-evaluate your current financial situation and identify where to cut costs in small ways