When times are tight you want to cut your fixed costs and make the most of your sales opportunities. There are two ways you can cut costs – first, if some part of your business is broken beyond repair, extreme measures may be the solution.
In the same way that amputation might be the only way to save a patient, closing down an underperforming unit of your business might just save your business and lift profits across the board.
On the other hand, there’s always more ways you can save money by reviewing your fixed costs, too. As a director in a large business, many years ago I cut running costs from £28M per annum to £18.5M – but it followed a merger of two companies and there was lots of duplication and wasted effort. Nevertheless, it was a huge cut of 33.9% from operating costs – a direct impact for the bottom line.
More recently I encouraged one of my clients to review their fixed costs and do a hatchet-job on them. The big surprise was the mobile phone bill – he’s cut £250/month from it without pausing for breath. He’s off now to find more savings to hit a target of £1,000 less per month before we next speak!
His mobile phone bill savings, by the way, cut more than 50% off without any loss in service provided. He just got onto a more modern tariff with a better deal, saving hundreds of pounds.
This is an easy and effective way to improve your profit margins right away. Spend 20 minutes to review your costs – make a full list – then ask yourself these questions…
- Can I do without it altogether?
- Can I cut how much I need this (e.g. cut out personal phone calls)
- Am I getting a good deal, or am I paying too much (like my mobile phones example)?
- Can I share the cost with another business, or get this done another way?
You’ll be surprised how much you can save. I reckon most businesses can easily cut 10-20% from their cost base with a ruthless and honest review.
And remember, every £1 you take off your fixed costs is another £1 added to your profits – just like that.