The sixth way to grow your business is to reduce your variable costs. These are the costs which increase as sales increase. By reducing your variable costs, you increase your profit margin.
For some businesses, focusing on reducing variable costs is fundamental to their growth, particularly if their gross profit margin is below where it should be in their particular industry.
Here are some of the most significant ways to reduce your variable costs:
1. Reduce rework and wastage.
If you make products or provide services, your business is likely to be experiencing some rework and wastage. Is time wasted fixing defects and mistakes? What is the cost of that rework, including raw materials and labour?
2. Get better terms from suppliers.
Negotiate better rates and discounts for early payment. If you’re a VIP customer, you have some leverage. Use it.
3. Improve efficiency.
If you provide a service, make sure your team records their time on jobs in real time. Set efficiency targets and make the actual results highly visible to your team.
4. Invest time in better systems and technology.
Use cloud apps to manage stock levels, record time, and automate processes that boost everyone’s productivity.
5. Manage wage and salary costs.
How is overtime managed? Do commissions and expenses paid to sales teams have appropriate management controls?
There are many more ways to cut variable costs and improve your profit margin.
Contact us so we can facilitate a thorough review of your margin improvement potential.
“Beware of little expenses. A small leak will sink a great ship.” – Benjamin Franklin