By Yhordan Serpentini | April 14, 2023
As an entrepreneur, variable costs are something that you’ll likely have to face every day. Although it may not be escapable for you as a business owner, there are ways to reduce these expenses to prevent them from getting out of control or past a certain point where you lose more money than gain. In today’s post, we’ll explore five ways you can reduce your business’s variable costs.
1. Negotiation
It’s no foreign concept to negotiate with your suppliers for discounted or cheaper volumes, and your business is no different. If your relationship with your supplier is phenomenal, you have a great reputation with them or simply good credibility as a business, and/or are actively making payments on time without ever missing a deadline, then there is no reason why you can’t, nor shouldn’t, attempt to negotiate for cheaper or discounted volumes. After all, a large part of marketing and business IS negotiating and persuasion.
2. Utilize Technology
There are dozens of fantastic software and other automated systems that can severely help you lower your variable costs. Rather than hiring third-party services or separating your manpower for things like budgeting, customer data collection, or even certain areas of marketing, you can utilize cutting-edge, advanced technology that is designed to tackle these very tasks. For example, automated technology allows for bookkeeping, data entry, budgeting, customer services, customer data collection, automated payments, etc., which relieves the stress and money that would otherwise be poured into solving these through labor.
3. Fixed Interest Capital
One of the biggest mistakes small businesses make when looking for access to capital is that they receive their external financing through adjustable (variable) rates, such as a line of credit, a credit card, or a Merchant Cash Advance (MCA). This may not affect a business when it’s small, but as it continues to grow over time, so will the rates. That is why it’s so important that you find an external form of finance that offers fixed interest rates, such as a small business term loan.
4. Monitor Your Expenses
A very common mistake that every entrepreneur has, or will eventually make, is that they will focus more on sales and profits rather than savings. Even if you are paying one or two cents less, saving money is a crucial thing you must incorporate for a business to thrive without setting itself up for failure. A great way to achieve this is by actively monitoring your expenses to guarantee that your business is sustainable. Analyze different variable costs and track them to see if there are any ways you may be able to reduce them.
For example, compare the costs of each area within your business to see what adds value to your products and services, and what doesn’t. This is a great way to weed out the parts of your business that are either sucking money without providing many benefits or are actually decreasing the quality of your products, services, etc. Additionally, and as mentioned earlier, you can replace certain aspects with technology, such as replacing labor-intensive tasks with automated software.
5. Apply Perspective To Spending
Applying more to the previous tip, when monitoring or tracking your variable costs, a great way to reduce them is by applying perspective to what, and how, you’re spending. For example, know the worth of everything your business’s money is being poured into, especially if there are possibly better options. Similarly to how you know that $4 for a bottle of water at a theme park is outrageously overpriced, add perspective to see if one or more of your variable costs are the result of that same matter.
Disclaimer: This blog is not intended for financial advice
Sources:
- Hecht, J. (2018, December 10). 7 ways to make sure your variable expenses don’t Sink your budget. Entrepreneur. Retrieved April 14, 2023, from https://www.entrepreneur.com/money-finance/7-ways-to-make-sure-your-variable-expenses-dont-sink-your/323573
- Salvador, F. (2023, March 21). How to reduce variable costs: What are and how to calculate them. Camino Financial. Retrieved April 14, 2023, from https://www.caminofinancial.com/how-to-reduce-your-business-variable-expenses/
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