The simplest way to make more money is to cut your costs.
Today we are facing a massive economic crisis. We’re seeing job cuts, small businesses close down, and restaurants struggle in these tough times.
So how can we reduce our expenses? How do we save some money so we can live to fight another day, and hopefully build a business that’s going to thrive in the future?
Today I’ll share 8 Ways to Cut Costs so you can keep more profit in your pocket.
Let’s dive right in.
1. Have A Road Map
Having a road map for your business is essential to saving money. Where is your end goal? Your destination? You need to understand how to get from Point A to Point B so you can implement the right strategies to get you there.
Some things that you need should identify: Where are you spending more money than necessary? What are the inefficiencies within your business that you can cut?
Having a roadmap also allows you to see the light at the end of the tunnel, so you can push through those dark days and keep saving money because you know it will all be worth it in the end.
Information is power. The more you know about your business, the better financial choices you can make.
Have a tracking system to understand how many people come in through the door. Track how many sales you’re getting. What is your turn rate? When are people leaving? What’s the lifetime value of your customer?
All these things are crucial for your success.
When you track these numbers, you know what levers to pull in order to improve them.
Without understanding the fundamentals of your business, there’s practically no way for you to know where you’re needlessly spending.
Implement systems to track sales, turn rates, inventory – everything, because at the end of the day, you’re running a business.
If you’re already tracking, make sure you’re focused on the metrics that are meaningful for your business. Then you can put your numbers against the market benchmarks to see how you match up.
3. Know Your Benchmarks
We’ve talked about understanding your business health, your roadmap, and why tracking is essential. Now it’s time to understand your industry benchmarks.
If you’re looking at the restaurant industry, we know that labour costs should account for roughly 25% to 30% of your overall revenue. Thus, if your labour costs are 50% of your revenue, it’s a big red flag.
This shows that you’re overspending and being inefficient with your labour, or that your revenue is way too low and you should cut more excess costs to be profitable.
Knowing industry benchmarks allows you to see where your inefficiencies are, and your opportunities to cut some costs.
4. Identify Fixed & Variable Expenses
What does that mean?
Fixed expenses are costs that you must consistently pay, that don’t change, regardless of your revenue or other factors. An example of a fixed expense is rent. You need to pay rent to your landlord each month to stay in business, no matter what.
Variable expenses are things that change, usually because they depend on your traffic, the amount of people coming in.
For example, the more people that visit, the more items you serve, the higher your Cost of Goods Sold. If there’s not a lot of people coming through the door, you’re not selling as much, your COGS decreases, so it is a variable expense.
Once you identify which expenses are variable and which are fixed, you’re able to cut out the redundant or inefficient costs.
A lot of software expenses are really redundant. We think that they’re super necessary to run a business, but they’re not. There’s always other options.
Knowing your expenses isn’t enough, you need to understand how they work to make informed business decisions.
5. Consider Upgrading
Upgrading the technology that you’re using can be a worthwhile investment, saving you money in the long run.
If you’re still using an old fashioned cash register that doesn’t have any POS or IT systems integrated, then it’s time to upgrade to something that allows you to seamlessly track your numbers.
For an example, when your staff comes in, they can clock in on the POS system, and clock out when they leave. This allows you to see all their hours, and your total labour costs in one place super easily.
Additionally, POS systems allow you to track the number of each individual food item that you have sold. All this data is calculated in one place for you.
This allows you to know see which items to price adjust or take off your menu because their cost outweighs their profit.
Spend that extra hundred dollars now to save thousands in the future on your time and expenses.
Time is money.
6. Use Gamification
Gamification means making your business fun!
If your business is a fun environment, your employees have much more incentive to go to work and make more money for you. Things like friendly competitions can actually push the sales up!
So often we visit small businesses and they have this negative culture. Places with commission based sales where employees fight amongst each other just to win the sale. The same thing happens in restaurants with personal tips.
One example is offering everyone an extra day off if they can reach $10,000 in gross sales. It motivates everyone as a team. They will make sure that they don’t comp too many meals and that your schedule is tight.
You aren’t alone! This way your staff can help you reduce costs too.
Gamify your workplace to generate more sales that you can put towards your costs.
7. Try Exchanging Instead
Consider exchanging your time and service for someone else’s!
This is something that I find super helpful, especially if you’re bootstrapping your business.
I’ll give you an example:
I do business consultation. So I offer to consult with small business owners, and they give me services like videography and photography in return!
This creates a win-win situation, where both parties are saving costs.
You can do the same with your restaurant!
Perhaps you send free food to influencers, and in exchange, they promote your restaurant for you. You save thousands of dollars on marketing and the influencers are happy because they didn’t have to pay for that meal!
Exchanging services is a great way to save on costs that can actually boost your sales!
8. Buy At A Discount
Let’s say that you’re buying equipment for your small business or restaurant.
Try to find these things from an auction site for a discount! There are lots of websites selling refurbished equipment in very good condition and you can save 20%, 30%, or even 40% off of your goods.
Another way to save is to buy your goods in bulk and when they’re in season.
So for example, if I needed mangoes for my ice cream shop, I would buy them in bulk when they’re in season because the grocery stores would have lots in stock at a discounted price. I can then just freeze some to use when they’re out of season, or find another flavor for that time.
Another bonus tip is to join local business associations or any other chambers of commerce. They will often offer you discounts for lots of useful things like an insurance policy or equipment rentals.
Lots of organizations support local businesses, so make sure to search in your city!
There you have it!
These are the rules that I followed to really cut my business costs, and I hope that you can do the same.
If you want to learn more about monitoring your small business’s health, make sure you guys check out this video here where I dive deep into the important financial details you should know.