Cut Overhead Costs and Increase Profit Margins [Free Worksheet]

10 MIN READ
Posted By Troy Dean on

Cut Overhead Costs and Increase Profit Margins

In recent months, we’ve covered a number of strategies to help you increase profit margins. Productising services, systemising processes and getting paid what you’re worth are just the start.

BONUS WORKSHEET

I’m including a free checklist and worksheet you can use to identify which overhead costs are chewing away at your profit margins. Make sure to download your copy below.


That said…

Have you ever considered how much more money you could keep just by cutting down on overhead costs?

The following guide is going to focus on how to use this awesome little trick to increase profit margins overnight.

Cut Overhead Costs; Increase Profit Margins

SOS (or “Shiny Object Syndrome” as others prefer to call it) is a serious problem among business owners. It’s not that you don’t need that new tool or subscription, but sometimes you forget you already have something that does the same exact thing! Or you accumulate a new business expense, believing you’ll need it very soon… only to lose track of it because you found a more efficient way to accomplish the task. What’s worse is that you’re too scared to look at your numbers which, in turn, encourages this endless loop of blind spending. We’re going to use the 33/33/33 rule to identify key areas where you can afford to trim the fat.
  • 33% should go to you (remember: profit first!)
  • 33% should go to operational costs.
  • 33% should go to business growth initiatives (like sales and marketing).
%

Should go to you.

%

Operational costs.

%

Growth initiatives.

If your profit margin is currently below 33% (there are some tools below to help you calculate this), it’s time to work on removing excessive spending from the latter two types of business costs.

If you're not making enough money to put any real profit into your pocket, then learn how to charge better fees with this free online training.

1

Office Costs

Office Costs

The office is your base of operations, so you want to ensure that you’re set up for optimal focus and productivity. While you don’t want to skimp to the point where that’s compromised, you don’t want to overspend either.

find your perfect space, but dont overspend
Whether you work from a home office or you do most of your work from a coworking space, it’s easy to lose sight of the overhead – especially when it’s automated in the form of recurring monthly payments.

2

Equipment Costs

Equipment Costs

Your day-to-day operations are powered by hardware. The computer or smartphone that you’re staring at right now. The headphones you use to drown out the sound of the kids or family dog in the background. The printer you use to print, sign and store client contracts.

You can’t run a business without essential equipment, but let’s face it, the equipment you started with on Day 1, might not be an essential part of your workflow anymore. You have to be prepared to remove things from your life that no longer add value to it, no matter what sort of sentimentality may be attached to it.

Plus, don’t forget to consider the age of your equipment. Outdated technology could unknowingly be driving up your overhead costs.

3

Software & Subscription Costs

Software & Subscription Costs

Software and subscription costs are some of the easiest to lose sight of, especially when you write them off as only “a few bucks” every month. But it all adds up!

For instance, you read a blog post from one of your favourite websites and sign up for a free trial for a prototyping software recommended in it. The only problem is that this is one of those free trials that never tells you when it ends and when it later starts charging your credit card.

Quote White
Reviewed my expenses and spent 2 hours to save my business $20k/year. 🤑 #KnowYourNumbers.”
SIMON KELLY

Also be aware that subscription costs can get lost as you upgrade your processes. You purchase a new piece of software, but decide to hold onto the old one for a month in case the transition doesn’t go smoothly. But the new software works so well that business heats up and you get lost in the influx of new clients.

Then, there’s the matter of services changing over time. Your business isn’t the only one evolving, after all. Who’s to say that the company behind your task management software hasn’t released a cheaper, but just as effective plan since you first signed on?

4

Staffing Costs

Staffing Costs

This is always a difficult one to consider as it may lead to the dismissal of staff or the reduction of hours for a contractor. But is it fair to pay staffing costs that dig into your profit margins just so you don’t have to feel bad about releasing someone from your payroll?

If your business is barely surviving with the current staffing situation, you’re doing everyone involved a great disservice by maintaining the status quo.

These are just some of the difficult questions you’ll need to ask yourself:

  • Are you paying employee wages and benefits when the work could be contracted instead?
  • Have you filled roles that contribute little to your productivity or output?
  • Is the employee adding value to the company and not just taking work off your hands?
  • Do you have employees that do tasks that should be offloaded to software?
  • Do you have employees handling tasks that should be automated with templates and other shortcuts?

The 4 D’s of time management tell us not to be afraid of deleting that which is unnecessary. So, why do you continue to hold onto unnecessary costs?

5

Business Upkeep Costs

Business Upkeep Costs

This one is tricky because the act of keeping your business in good standing isn’t something you can compromise on. That said, what you’re going to look for in these areas (things such as insurance, professional association fees and so on) are:

  • Alternative providers
  • Negotiation of rates
  • Bundling of costs

Anything you can do to strike a better deal will help, especially if you can’t afford to live without these kinds of expenses.

Across these five key areas of common overhead costs, there are 50+ expenses that could be costing you big time. It’s time to work on cutting them out of your life.

Resources to Increase Profit Margins Right Now

Resources to Increase Profit Margins Right Now

I know this isn’t what you want to hear, but you have to know your numbers if you want to be able to increase profit margins. But don’t worry. Now that you know where businesses accumulate excessive overhead, we’re going to look at some tools and resources to help you get control over it.

Trim

Trim Software
Automate and trim your business

Apps like Trim do exactly what we’re talking about above. More specifically, these apps dig through your financial statements and identify ways in which you can save more money. If you have a hidden subscription somewhere, an increased recurring fee you weren’t aware of or too much money going to another kind of overhead, these apps track it down.

Grow

Grow Software
grow with grow
Grow is a digital dashboard that I use to quickly look at the financial health of WP Elevation. This quick video will explain exactly how it works and how it saves me a heap of time.
What’s nice about Grow is you can integrate it with pretty much any API to get a clearer view of where you’re spending money and where it’s not paying off. The only catch is that it’s pretty expensive. So check out Klipfolio as well. It's cheaper than Grow and still a great product.  However, if you want to be smart about those overhead costs and your business isn’t ready for the weight of something like Grow or Klipfolio, Xero and Stripe are good alternatives.

Finance Apps

Mint Software
Employ the right apps, take control over your finances.
I realise this is a generic recommendation, but I find that the choice of finance app can be a personal one for business owners. As Maddie explains in the above post, there are five reliable options that’ll aggregate all your overhead costs and revenue, so you can stop manually tracking it all down. (Or avoiding it like the plague because you don’t want to see it!)
Quote White

“By employing the right finance management apps, it will become significantly easier to manage your freelance revenue and take control over your finances.”

MADDIE KEOGH

Float

Float is a cash flow app that should go hand-in-hand with whichever finance app you use to manage your financial data. Float then takes that information and gives you a clear picture of the future.
Float App
Accurate forecasting should float your boat

If you find that the cash you have on hand doesn’t correlate to expectations, you can spin up an alternative scenario where you cut troublesome overhead and see what sort of outcomes lie ahead.

Educate Yourself

While the tools above will certainly give you the level of visibility and control you need to get a handle on overhead costs, you shouldn’t rely on them to do it all for you. It’s crucial that you know your numbers and make them work to your advantage.

Wrap Up

Wrap Up

It doesn’t matter what level of success or sustained profitability you’ve attained at this moment. There’s always more you can do to increase profit margins. If you’re not in the habit of doing so already, establish a system for monitoring money going out of your business. Then, take some time to evaluate whether those overhead costs are really worth it. If not, get rid of them. You’ll be surprised how quickly profit margins widen even if you only chip away at your overhead costs one-by-one. Speaking of which, there are over 50 overhead costs that can cost your business a great deal if you lose sight of them. Want to know what they are? Download your free checklist and worksheet now!