The less money we waste, the more money we have to grow our businesses.
Cutting costs isn’t a bad thing, it’s a smart strategy in business. Some of the biggest businesses in the world such as Amazon and Costco are gargantuan companies today because of their relentless drive to reduce wasted costs.
For every dollar per month we cut in waste, we gain at least 36 to 60 times that in wealth as the business owner. A typical business value is three to five times annual net profit (or EBITDA or owner earnings – regardless of the exact profit metric, the effect on cost cutting is the same). If we cut $100 per month in waste, we produce $1,200 more per year ($100 x12 months) in additional profit. If the business is valued at three to five times profit, it is now worth $3,600 to $6,000 more.
Imagine the picking up an extra $5,000, $10,000, or even $50,000 in profit per year with a few simple actions taken over the next couple weeks…Here’s how:
- Cut wasted subscriptions: Review all recurring charges on your credit card statement. Cut all subscriptions your can’t survive without. When it doubt, cut it out! (You can always add it back later. Trust me, they’ll take you back.)
- Buy in bulk: Can you buy inventory or other supplies such as packaging in-bulk and save? Have you asked? If not, give it a try. You might save 10-30% per year.
- Cut duplicate expenses: Paying for two software tools that do the same thing? Pick one and cut the other. What about two graphic design services? Pick one and cut the other. Two “productivity” tools like Basecamp and Asana (versus using a free Google Doc)? Don’t even get me started…
- Liquidate idle inventory: Inventory not selling costs you money. Quit hoping it will sell. Run a deep discount promotion and let it go.
- Set a professional services budget: Attorneys for your 17th trademark, accountants, tax “advisers”…service providers are always willing to provide you service, but don’t do it all at once or you’ll have no profit left. Set a monthly budget and stick to it. Some projects will have to wait.
- Set an advertising budget: I fought this for the longest time…”But I’m a direct marketer!”, I’d say. “It’s stupid not to spend more money when you’re making a $1.50 in profit for every $1.00 you spend on ads! Only ‘dumb’ big companies think like that.” …Until you aren’t 100% sure whether that customer discovered you on Amazon, your blog, your website, social media, or through another customer…We need advertising budgets. Set a reasonable amount and stick to it for the month. You can adjust after you analyze performance when the month is over.
- Set a software and technology budget: Push a button and your life is simpler. Ahh…the promise of every software tool on the planet. We can live without a lot of technology, at least for a period of time. Set a budget for all your technology expenses including hardware such as computers and software including subscriptions and one-time software expenses.
- Get bids from suppliers: When was the last time you priced out new suppliers for your major costs including inventory, packaging, shipping, freight forwarding, and anything else that’s in the top 20% of your expenses? It takes work, yes. But, you can permanently reduce your costs and make more profit. It’s worth it.
- Get customers to buy in bulk to save shipping: If you sell physical products, the shipping cost on two or three unit order is only a tiny bit more expensive than a one unit order. Therefore, try to get your customers to order multiple units at a time.
- Set a free shipping threshold: Amazon forced everyone to offer free shipping for orders over $30 or $50. They did it, so we had to. But times have changed. People are more comfortable ordering from regular e-commerce stores (thanks Shopify). You don’t have to always offer free shipping today. Set a threshold of at least $50. Try increasing it further to see if you lose sales, you likely won’t.
- Ask for discounts: Airbnb hosts probably hate my wife and I. Every time we book a place we ask for at least a 10% discount. You know what? We get it about 80% of the time. The same strategy works in business. Prices quoted by service providers and suppliers are negotiable. Ask for a discount.
I used these cost-cutting strategies and more to grow profits in a business from $346,000 in 2019 to $3 million 2020. I also used them to grow profits from 1% per month to 10% per month in our e-commerce brand that hit #80 on the Inc 5000 list of the fastest growing companies in America.
In short, these strategies work.
I’ve created a special guide called 45 Ways to Increase Profits. It includes 13 more ways to cut costs and 22 ways to increase sales so you can double your profits in 90 days or less. Click here to get it for free now.