Increase Your Business Profits by Cutting Variable Costs
Reducing variable costs is a powerful way to elevate your business profitability. These costs fluctuate with production levels, so effectively managing them can directly impact your bottom line. Whether you’re aiming to improve cash flow or increase profit margins, focusing on lowering variable expenses is key to sustaining growth, particularly if your gross profit margin falls below industry standards.
By incorporating cost-saving strategies, you can drive business success and create room for reinvestment in other growth areas. 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. Look closely at the time and resources wasted on fixing defects and mistakes. Calculate the actual cost of this rework, including raw materials and labour.
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.
Enhance Efficiency
For service-based businesses, ensure your team records their work hours in real time. Set clear efficiency targets and ensure 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 contact 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.”
The Essential SME Checklist for Growth + Profitability
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