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16 Cost Reduction Tips for Small Businesses

Updated on May 29, 2013

There are many cost reduction tips for small businesses that could also significantly increase the productivity of your employees. It all boils down to ensuring that there are no unnecessary expenses and that operational costs will be kept as low as possible without cannibalizing efficiency and product/service quality. The key is in three things:

  • Don’t be afraid of new technologies and what it has to offer
  • Keep you “emotions” in check and be practical
  • It’s for you to look at alternative ways to do things

If you find your company struggling with operational costs, here are 16 ways to cut down on small business operational cost:

Source

Outsource as Much as You Can

It's pretty much common knowledge by this point, but outsourcing will save you a lot of money. First is because outsourcing is cheaper than maintaining an entire department of employees (who will all use the office's resources and will increase the load of your HR), and the fact that outsourcing allows you to only pay for services that you need, ensuring that there will be no deadweight as far as operational manpower costs are concerned.

If you are particular about keeping money within you country, then choose providers that hail from your country. You can also filter them according to their work experience and budget. Some of the biggest freelance job sites are elance, odesk, peopleperhour and guru. These sites can also help you look for the right candidates. They usually have "star" freelancers.

Allow Work-From-Home Days

A lot of CEOs dislike the idea of letting their employees work from home, out of an outmoded thinking that an employee that is out of sight cannot be managed efficiently. However, this is no longer true with the advent of various communication devices. It also saves you money as company facilities, electricity, and various office supplies will not be used by an employee who is working from home.

Avoid Printing Hard Copies as Much as You Can

Printing hard copies of documents when softcopies (sent through USBs or e-mail) will do is a colossal waste of money in the long run. Not only will you shoulder the cost of paper, there's also the cost of printer ink and electricity required to power the printer.

Get Interns

Interns may not be as skilled as seasoned employees, but they are significantly cheaper to hire and are less likely to be bought out by a competitor. Additionally, if you train them well enough, you will end up with skilled employees that are loyal to your company.

Recycle for Money

Businesses tend to output a lot of garbage, majority of them can be recycled into money. If you do this, not only will you cut down on your operational costs, you will also be helping the environment. Here are some things you can do to make money out of your scraps in the office:

1) Sell papers, magazines and newspapers. It doesn't matter what kind of paper you have, it will sell. Naturally, papers with better quality will sell more.

2) Broken phones, broken computers, empty cartridges, broken tv and almost everything broken will sell. I can't post links but if you just search for the nearest recycling centers near your place, they will not just buy it, they will also pick it up.

3) Bottles, all kinds of bottles. Wine bottles, ketchup bottles, soda bottles and others. Whatever it is, you can sell it.

What VOIP do you recommend?

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Use VOIP

That's Voice Over Internet Protocol, which is basically using the Internet for your voice calls instead of relying on traditional phone or cellular methods. This saves a lot on costs because unlike cellphone calls, VOIP is not metered as it uses your ISP (and nobody uses metered ISPs for businesses these days). Additionally, instead of having a separate phone and internet subscription, you only need the latter.


The most popular one is Skype but there are other providers such as Yahoo Messenger and Gtalk. As long as the person you care calling also has the same application, you shouldn't worry about fees.

In the meantime, if you are using or have used VOIP before, answer our poll question.

Here is one creative gift for clients. Give your clients a star. Yes, you can name a star after your clients.
Here is one creative gift for clients. Give your clients a star. Yes, you can name a star after your clients. | Source
Go from credit cards to debit cards and spend only what you have. Anything outside the budget, you'll have to pay for cash and trust me, it's harder to let go of money when you see it physically leaving your hand.
Go from credit cards to debit cards and spend only what you have. Anything outside the budget, you'll have to pay for cash and trust me, it's harder to let go of money when you see it physically leaving your hand.

Provide Privileges if You Can't Give Out Bonuses

Even if you can't give out financial incentives, there are special privileges that you can award instead to people who deserve it, such as allowing them to surf the internet with the social networking blocks removed, or giving them a flexible schedule.

You can go more creative such as putting up a "chill space" in your office where movies may be watched (even during office hours, naturally with certain conditions), giving a come and go as you wish policy, setting up a children's play area for their kids and others.

These things may sound unthinkable to old-fashioned businessmen but these things are now being implemented to many companies. The principle being when employees feel more freedom with a company, the more productive he or she gets. Many employees respond better when it is the output that is looked at rather than their working hours.

Credit Card to Debit Card

This one will ensure that your company will not be spending beyond its means, and will let you avoid incurring debts, especially unnecessary ones.

Sublease Unused Space

Instead of letting unused space collect dust or use it for unnecessary storage functions, you can instead sublease it to other companies, so that you can add another stream to your cash flow.

You can post ads on Craiglist. There are many "small companies" with three to seven people who are scared to hire a space of their own. Look for startups or maybe a freelancer who just needs a space where he or she can meet clients. Also look for home-based business who just needs a place whenever he or she has meetings and a business address.

Sell Equipment that is not Used Often

This will save you a lot of space, which you can then rent out. In times where the equipment is needed, you can simply rent it. The money you save on this can instead be used in upgrading or maintaining the ones that you use frequently.

Minimize Electricity Consumption

Electricity is usually one of the largest expenses for a business, regardless of size. Fortunately, it's also the easiest to manage as long as you acknowledge that you'll have to make some sacrifices. With a properly managed electricity consumption, you'll be cutting down on a significant portion of operational costs. Something as simple as implementing a forced shutdown of computers during breaktime will be an improvements, and at the more drastic types, you can actually sell off all outdated CRT monitors and replace them with power efficient LCDs of the same or smaller size (an LCD monitor will consume 75% less electricity when compared to a CRT monitor of the same size).

If You Are Going To Give Gifts to Clients/Customers, Be Creative Instead of Buying Expensive

Gifts for clients and customers are essential if you want to build a good relationship with your most loyal customers, but they can be expensive if you constantly just buy the most expensive gifts. You can be creative instead, like provide discounts to your other services, or offer freebies from excess stock. Or you can buy inexpensive gifts but put a little personal touch, which will make price irrelevant.

Turn to Cost Effective Marketing

Instead of trying to raise thousands of dollars just to buy an expensive spot in a popular TV show, why not use social media marketing, where you can get to as many potential customers without spending a single dime, as long as you know what you are doing.

Some of the more effective marketing, when done right, are email marketing, guerrilla marketing and social media marketing. It is always a good option to drop the mass media strategy and go direct to your clients. Look for a Media Manager that could craft a nice marketing plan which your company can follow.

Bid Out Projects

This will let you find the cheapest suppliers, and while loyalty and sticking to the old guard is good, when you're in a business you must worry about maximizing your earnings. Additionally, do not forget that suppliers need your business more than you do them, so they are the ones who must adjust in order to give you the best deal, and not the other way around.


Look for Free Stuff

Regularly, companies come out with promotions that could significantly cut your cost. For example, airlines drop their prices low once a year, take that for your company privileges and bonuses. Wait for suppliers to launch their buy 1 take 1 offers. There are web companies that offer web development services to new businesses every now and then. I can't post links so you will have to search for it on your own.

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