7 ways to cut business costs in a recession

19/07/2009 at 11:57

There’s no question that the recession is here to stay for many months, if not years, and it’s time to look at your business and cut costs to increase profitability.

Cutting too many costs will in the long run damage rather than grow a business, so don’t not invest in new technology or equipment but only invest if it’s going to add to your profitability in the long term.

There are seven main cost cutting areas which all businesses should examine:

1. Over Stocking / Over Servicing

There’s an old adage that 20% of your business (be it customers or product) gives 80% of your profits. Examine your business and decide if all the product lines that you stock are generating an effective profit margin. Obviously if you only stocking the top selling 20% of your lines would cut a fair chunk off your turnover and affect profits, but would cutting the 20% slowest moving lines make sense? Do you only stock some of these lines because a few regular customers buy them? – if so ask if it’s worth keeping these few customers compared to the cost of servicing them.

If the 20% of products from your inventory aren’t making you significant income stop selling them. This is even more true for eBay than for your website as you’re paying fees to list them and more fees on the odd occasion that you sell them.

If you have slow moving lines and liquidate the stock (even at a loss) as it frees up capital to invest in faster moving or new product lines.

2. Waiting

Look at your processes and workflow, do you have slack times of the day/week/month when you could be utilising your time better? Eliminate time in the day when you’re diverted to tasks which need doing but aren’t the most productive.

One personal tip is that I have a rule that no matter how late in the day I never leave the office until the photographs I need for the next day’s listing are shot. This means as soon as I get into the office and the packing and post is done I can get straight on creating new listings. It’s far too easy to get to the end of the day and realise you’ve not done a single new listing as you’ve been too busy on other tasks and yet listing is the activity that makes you money.

Waiting becomes a serious issue when you have employees. If you have a lister with no photographs they can’t list. If you have a packer they can’t pack until invoices and labels are produced. Don’t have your employees waiting because another essential task hasn’t been completed. Also if they’re waiting for you to sign off an action make sure you’re there to approve it in a timely fashion.

3. Transport Costs

Although the obvious thing to look at might appear to be motor vehicle costs consider the layout of your office and warehouse.

How long do you spend walking around to collect stock to pack? Would it make sense to print a picking list and gather all the products shipping today in one go, rather than fetch each item as you pack it. Are the fastest moving products closest as you’ll be needing them most often.

Do you have a packing station where all the boxes, bubblewrap, jiffy bags, and printer for generating courier or mail labels is situated or do you have to keep moving around the office simply to reach your supplies?

Finally review your postage and courier costs – could a contract save you money rather than paying for ad hoc postal services? Have your volumes increased or decreased since you last negotiated pricing? Has your inventory profile shifted towards lighter or heavier items? This is one area where saving a few pence per parcel adds up to a significant cost over the course of a year.

4. Inappropriate processing

It never ceases to amaze me how many sellers still use inkjet printers to produce invoices. A mono laser printer will significantly reduce costs and although black/white only, customers really don’t need your logo in colour. If you do want a colour logo have headed paper printed as in the long run it’s cheaper than printer ink.

Consider using integrated labels instead of printing a packing slip/invoice and using Dymo type label rolls or A4 sheets of labels. The cost for integrated labels has dropped to the level it will actually save you money.

Do you go to the Post Office every day? How long does that take and how much does it cost in petrol, parking, time? Consider a Royal Mail collection which can work out as little as £1 a day (or even free).

Also consider your eBay fees, are you paying for an Anchor or Featured shop when fee savings only justify a Basic shop? Could you save money by upgrading your Basic Shop to a featured shop? Are you paying for SMP, for scheduling listings or for listing enhancements and are they paying for themselves?

Look at how many auctions you’re running, do you list the same item on multiple auctions and do they all sell? If not run longer auctions and/or lower the number you run.

Final Value Fees are the only eBay fees you shouldn’t worry about (it means you’ve sold something) – question every other fee that you pay and ask yourself if it’s providing value for money.

5. Inventory

Inventory is probably your biggest cost, holding too much inventory not only ties up money but also ties up warehouse space. The more times a year you turn your inventory the harder your money is working for you. Although you may access bigger discounts by ordering in bulk if it takes you a year to sell the stock it’s not always the best use of your finances.

Smaller quantities of more product lines turned over every month means you can turn your money 12 times in a year make 12 lots of profit. A large order bought and sold every 6 months means you’re only turning your money twice a year making just 2 lots of profit. Do the maths before ordering stock.

Don’t just look at your stock, do a check of business items which are no longer needed. Do you have old printers, packaging or machinery that you no longer use or need? If so they undoubtedly have a value and should be sold off. Keep a check of stationary and only re-order what you require, not what your employees think you need.

6. Time management

I speak to many sellers and without a doubt time management is one of the biggest costs to businesses. Try keeping an hourly diary for the next week and set an hourly alarm. At the end of each hour note down in the diary exactly what you’ve achieved in the last hour. Be honest and note down not only business tasks you aimed to carry out, but also all the things you did which were a distraction.

At the end of the week you’ll easily be able to see when and why you were diverted from the main tasks essential to running your business. The more time you spend on productive tasks and the more diversion you can eliminate the more profitable your business will be.

7. Defects

Don’t allow errors to leave your warehouse. It’s cheaper to fix a mistake before it ships than have items returned by customers. If this means taking longer to photograph, measure and describe items it’s better than a buyer not satisfied with their purchase and returning the item.

Double check all orders prior to sealing the box/jiffy bag. Again a mis-shipped item (or my most common mistake, only shipping 1 when a buyer ordered 2!) will cost you money.

Implementing Cost Savings

When you look at the seven ways to save money start with those which will save you the most in the shortest period of time. The more costs you cut and the quicker you implement changes the healthier your business will be, so quick wins are the place to start.