5 ways to reduce business overhead costs
Overhead costs are the ongoing expenses that aren’t directly tied to creating your product or delivering your services, such as rent and utilities. This doesn’t mean these costs are inessential and can be cut altogether. It just means these areas are slightly more flexible if you’re looking for a way to save money without impacting daily operations.
A common rule of thumb many businesses follow is that your overhead costs should account for no more than 35% of your gross revenue. This can vary by industry. For example, an accountancy service which operates remotely is likely to have fewer overheads to worry about than a manufacturing company.
Cutting overheads helps you reserve more of your hard-earned revenue and keep more profit. Here’s Bizik’s guide on how to get started reducing your business overheads.
1. Outsource non-core functions
Outsourcing non-core functions is an effective way to reduce overhead costs while keeping your operations running smoothly. Tasks such as payroll, IT support, customer service, and marketing are essential, but they don’t necessarily require in-house full-time staff to get them done. Outsourcing allows you to still get the expertise you need without the financial burden of permanent employees.
Take your customer service operations, for example. By outsourcing your managed live chat and telephone answering to a provider like Bizik, you benefit from a more flexible and affordable service than would be possible in-house.
With Bizik, you only pay according to how much customers use the service, meaning you don’t waste money paying staff during quiet periods. The service scales as your business grows and helps you manage fluctuating demand effortlessly. There’s no need to hire and train temporary staff, and everything’s managed for you.
With Bizik, you also have the peace of mind you have chosen a trusted provider, with over 6,500 happy customers and 1.8 million calls answered so far. You can rely on us to provide the same high-quality service that you would expect from your own team.
2. Reduce your office space
Reducing your office space is one of the most impactful ways to cut overhead costs. According to data by Hubble, businesses pay an average of £619 per desk per month in an average London office space. So, if you have large, underutilised office space, think of the financial drain it’s causing.
Downsizing by selling unused space or changing your lease can help you save a significant sum in both the short and long term. It will also have a positive knock-on effect on your utility bills and maintenance costs.
If your employees can operate effectively with remote working arrangements, you might only need a small central location for occasional meetings and collaborations. Alternatively, consider shared offices or coworking spaces that offer flexible terms, allowing you to pay for only what you use. These options help you avoid long-term lease commitments, and they often come with included amenities, saving you money on facilities like meeting rooms and Wi-Fi.
Switching to a smaller office can also encourage you to utilise your space more effectively. For example, you can redesign your office to have an open-plan layout, you could use a hot-desk system, and you could make all meeting rooms multipurpose. This way, you’re cutting down without compromising functionality.
3. Negotiate with suppliers
Suppliers and vendors often have some flexibility in their pricing, especially for long-term or bulk orders. Try contacting them to see whether there is any potential for discounts, better payment terms, or added value that doesn’t increase costs.
Start by researching what your suppliers’ competitors are charging for similar services so you have an idea of what a fair price looks like. When you approach your supplier, make sure you explain that you have done your research and would like to negotiate a reduced rate based on competitor pricing.
This will be especially effective if you are a loyal, long-term customer. Suppliers are often willing to negotiate if it means securing your continued business. Be sure to highlight that you have appreciated their service so far and you would prefer to continue keeping them on, and hopefully this should strengthen your case – it never hurts to maintain a positive relationship during these conversations.
You could also consider consolidating orders, so you have fewer suppliers overall. This means you will be ordering in higher volumes, which should open more opportunities for discounts. Check in on your supplier contracts regularly to ensures you’re getting the best deal, and you are not overspending on outdated agreements.
4. Review utility bills
Similarly to reviewing your supplier contracts, reviewing utility providers can be a great cost-reducing quick-win, if you own your office space.
Rates for electricity, water, and gas can vary between providers, and you might not be on the most competitive tariff. Just like you would for your bills at home, use a comparison website to find out what other providers are charging and switch suppliers if you find a better deal elsewhere. This may be more efficient than negotiating with your current supplier on the phone or by email.
In addition to switching providers, look at your utility usage to spot where you can reduce waste and save money. Ask employees to adopt energy-saving habits, such as turning off unused equipment and lights, can reduce your electricity bill.
Another effective way to save on utilities is by investing in energy-efficient upgrades. Replacing old equipment with energy-efficient models and improving insulation can significantly reduce energy waste. Though this takes some initial investment, these changes often pay for themselves through lower bills over time.
5. Review services and subscriptions
Redundant or forgotten software tools and services are a frequently overlooked area of potential where you can cut overhead costs.
Start by listing all active subscriptions, not forgetting any software, cloud storage, newspapers, e-learning platforms, networking groups, premium social media channels, or any other regular payments on your bank and credit statements. Make a note of whether they get used, whether they are beneficial to your operations, and whether they are worth the price you pay. Cancel any that do not satisfy these three criteria.
You can often consolidate services into one handy (often cheaper) payment. For example, look for platforms that offer all-in-one solutions instead of using separate tools for project management, communication, and file sharing. By bundling, you reduce costs while also streamlining workflows. Like other overheads, you can negotiate with providers for discounts on annual subscriptions or group rates to help bring costs down further.
Finally, ensure that subscription renewals do not happen automatically without review. Many businesses waste money on auto-renewals for services they no longer need. So, as soon as you sign up for a new service, set a reminder in your calendar of when the subscription is due to renew. This way, if you forget about it and stop using it, you will have a reminder to cancel it before it’s too late.
Final thoughts
Reducing overhead costs is the right strategy for businesses looking to save money without affecting their service or production. So, set aside some time to explore some of the strategies we’ve named here.
Of all the ways to reduce your overheads, outsourcing is one of the most effective. Handing over your customer inquiries to Bizik will save you from the costly expense of hiring more staff, running training sessions, and investing in software. You’ll only pay for your receptionists’ time on the clock, giving you the best possible value for money.
Interested in learning more? See how it works or call 020 3917 7444 to hear more about how Bizik can handle your managed live chat and telephone answering needs.
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Claudia Socratous is the Director of Sales at Bizik, where she leverages her expertise to help businesses scale and thrive. She holds a degree in Accountancy and Finance from the University of Birmingham and brings over four years of experience in the company formation sector. Claudia has a deep understanding of the needs of growing businesses and takes pride in supporting their development and success.
