According to Bloomberg, 8 out of 10 small businesses fail within the first 18 months. While most entrepreneurs focus on increasing sales, lowering expenses is equally important when trying to achieve or maintain profitability.
I’ll show you 26 straightforward ways to cut costs and increase the success of your small business.
This Metric Matters Most
Online accounting software like Intuit Quickbooks is a great way to track your revenue and expenses, giving you insight into your business’s profit margin. But what is your ideal profit margin?
Many business owners have no idea what their profitability should be. That’s partly because profit margins come in multiple flavors and are often presented in overly complex ways. Which margin is the most relevant to your needs?
Intuit argues that small business owners should pay most attention to net profit margin, “calculated by taking the company’s total sales for a given time period, subtracting total expenses, and then dividing that figure by total revenue.” Net margin illuminates sales and revenue trends, helping you uncover weaknesses that aren’t apparent from top-line numbers.
Variables that affect net profit margin can be controlled – or at least influenced – by business owners. Expenses are arguably the easiest of the three: While you can’t force your customers to spend more of their hard-earned money, you can trim unnecessary costs. The trick is knowing which costs are safe to cut, and by how much.
Here’s a look at some easy ways to expand your small business’s net profit margin by reducing common expenses – without hampering mission-critical activities or crippling your company’s ability to grow.
Utilities and Overhead
1. Use a Programmable or Smart Thermostat
Heating and air conditioning aren’t negotiable expenses. Even small changes in your facility’s ambient temperature can adversely impact your customers’ comfort and employees’ productivity, threatening your top and bottom lines. But that doesn’t mean you can’t do everything in your power to save money on air conditioning.
Programmable and smart thermostats from companies like Honeywell can cut your climate control costs without compromising comfort. Use a programmable thermostat to customize your facility’s climate control schedule: at a 9-to-5 office, that probably means increasing the heat or AC in the morning and dialing it back (or turning it off completely) in the evening and overnight. In larger facilities, you’ll need multi-zone thermostats or multiple thermostats to handle climate control needs on different floors or suites.
If your climate control needs are more complex or variable, or you doubt your ability to keep your programmable thermostat set at the right level, use a smart (or learning) thermostat instead. Smart thermostat technology remains relatively new, but its promise is tremendous: Once installed, it learns your climate control preferences, gauges your building’s energy profile, and automatically adjusts itself to maintain a comfortable temperature as efficiently as possible.
According to Nest, the United States’ leading smart thermostat manufacturer, Nest users saved an average of 10% to 12% on heating and 15% on cooling – $131 to $145 per homeowner. However, retail smart thermostats are appropriate only for homes and small commercial spaces. If you have a larger facility, you’ll need to invest in commercial climate control systems from companies such as 75F, which are significantly more expensive (though potentially even more cost-effective).