The sixth step in your journey toward business growth involves reducing your variable costs. These are the expenses that tend to rise as your sales increase. By strategically cutting down on variable costs, you can significantly boost your profit margin.
For many businesses, focusing on reducing variable costs is a crucial aspect of their growth strategy, especially when their gross profit margin falls below industry standards. Let’s explore some of the most effective ways to trim these variable costs:
Minimise Rework and Wastage
If your business involves producing goods or providing services, chances are you’re dealing with rework and wastage. Take a close look at the time and resources wasted on fixing defects and mistakes. Calculate the actual cost of this rework, including raw materials and labor.
Negotiate Better Terms with Suppliers
Strengthen your relationship with suppliers by negotiating better rates and securing discounts for early payments. If you’re considered a valuable customer, don’t hesitate to leverage that status to your advantage.
For service-based businesses, ensure that your team records their work hours in real-time. Set clear efficiency targets and make sure the results are transparent and visible to your team.
Invest in Improved Systems and Technology
Utilise cloud-based applications to manage inventory levels, record work hours, and automate processes that enhance overall productivity.
Streamline Wage and Salary Costs
Evaluate how overtime is managed within your organisation. Implement robust management controls for commissions and expenses paid to your sales teams.
These are just a few strategies to help you reduce variable costs and, consequently, increase your profit margin. Keep in mind that there are numerous other ways to achieve this goal.
If you’d like to explore further opportunities for margin improvement, don’t hesitate to get in touch with us. We can facilitate a comprehensive review of your business’s potential for growth.
Remember the wise words of Benjamin Franklin: “Beware of little expenses. A small leak will sink a great ship.”
On 11 October from 12-1pm, Sharp Accounting will be running the 7 Ways to Grow Your Business Seminar. This will be held at our offices here in Ballarat. Click here to find out more and register at no cost.