Discover a tried-and-tested method for cutting business expenses and raising profits in the face of current economic uncertainty, with fourteen examples for controlling and lowering IT expenditures in 2024.
In this article, we cover:
We understand that most business owners and managers are concerned about their bottom line considering rising costs and general economic unpredictability. The British Chambers of Commerce expects a recession until late in 2024, so now is the right time to look at reducing the cost of goods sold (CoGS) and overheads.
The goal is to put the money you’ve saved into revenue-generating activities like sales and marketing to futureproof your business to ensure the company’s long-term success and growth, or just to secure margins during this period
In my previous company, we saved around £72,000 per year thanks to the exercise described below.
One of the most important things to look at is your IT budget, especially if it keeps growing every year. As part of this exercise, later on we will give you some concrete examples of cost-cutting opportunities within your IT environment. As an additional resource, you may want to think about requesting a free IT Invoice Assessment for expert guidance on how to cut your current IT bill.
The Power of One
The Power of One is a fantastic activity that has been used with great success by many businesses, including those where I have previously worked. This exercise comes from Gazelles CEO Verne Harnish and is explained in his book Scaling Up. It details the benefits to cash and profits by making a 1% change in one of the seven financial levers available to all businesses. Today we will be focusing on Costs of Goods Sold (CoGS) and Operating Expenses
How to Start Saving
This is an exercise that we used successfully in my previous company, and I’ll use it as a case study to explain what was involved, how we did it, and provide some tips on areas to focus on.
We began this project with three people from Procurement and Finance (Finance Manager and Admin). The goal was to save at least 1% on COGS and overheads. It took about fifteen hours of work across three people in a month to increase our profits by £72,000 per year without raising our prices or changing anything about our business model. That’s only five hours per person in one month, and it’s not a difficult task!
The first step is to compile a list of all recurring monthly (at least three months’ worth) and annual overheads. This list should include all costs across the business, regardless of department or category. Once you have this breakdown, apply these questions to each item.
What is it used for?
This is a critical first step because it confirms a simple question: does anyone know what this is? It’s not uncommon for old software or subscriptions and services to find their way into a larger company, with everyone assuming someone else knows what they’re for.
Who ‘owns’ this and is it in their budget?
This follows on from the first question. When you give a department or manager ownership of a cost, especially if it’s in their budget, everyone suddenly cares about it. It is critical to assign responsibility for all business costs to the appropriate person and force them to reconsider the need for this.
Is it still needed?
Now is the time to determine whether it is still required or even used. You’d be surprised how many subscriptions, licenses, and services are no longer used because workflows or processes change, or because your company’s service delivery and client base have shifted over time.
Can we reduce the cost?
Once you’ve determined which line items you must keep, it’s time to try to cut costs. Downgrading subscriptions, switching providers, consolidating services under fewer suppliers, or renegotiating contracts and commitments are all ways to accomplish this.
Even though every business is different and has different operating costs, here are some things we’ve learned:
- As credit cards sometimes do not have the same internal signoff process as invoices, we noticed subscriptions and monthly licenses that haven’t been properly reviewed in some time.
- Certain subscriptions to services and platforms/apps could be downgraded to a lower package while retaining the features we still needed.
- By consolidating similar services, such as deliveries in our case, to one supplier instead of 4 meant we could benefit from a better price and have fewer vendors to manage.
- By committing more spending or future spending to suppliers, in line with the above action, we could negotiate for a lower cost price or improved service.
- Certain suppliers had tiered pricing structures based on the number of consumed/resold services which we simply needed to apply for – or you can use the increased spend to negotiate better pricing either way.
- Certain contracts had expired and were rolling. By recommitting to the same service for a reasonable period we were able to get better pricing or sometimes get an improved newer version of the service.
- Switching providers for certain utilities meant we were eligible for new customer discounts and deals – credit cards and insurance providers were good examples for us.
- Never assume something is in use across the business, always check and find out who is actually using it. We found an application a manager told us was definitely required, to find out that no one had logged into it for 4 months.
- By doing a quick google and price comparison on comparable small-item services/products is well worth the time. Prices have often reduced in the market from when you first purchased them and changing this takes 5 minutes – we saved nearly £100 a month on the office fruit order for example!
- Review all services and features that are included in the tools/subscriptions/services you use. We identified that a tool we were paying for was now included as a ‘free’ feature by another of our suppliers.
If you’ve already implemented the above tips and are still seeking a deeper understanding of your business’s financial health, profitability, and sustainable growth, it may be time to consider hiring a specialised business mentor. These mentors focus on optimising business health and profitability, providing clarity and expert guidance to take your financial management to the next level.
Examples of IT Cost Savings You Can Make Right NOW
One of the first things we do when we bring on a new Partner is reviewing their IT invoices and look for cost savings. We discovered a significant amount of overspending that was going on without anyone being aware of it. It’s difficult to understand what you actually need or if the price is reasonable when you outsource your IT; this occurs when you don’t get the right advice from your IT provider.
For a free IT Invoice review please contact us. Get free advice from an IT professional on where and how you can cut IT costs.
Here are examples of overspending we see and rectify for our partners. Use this as a checklist to see if you’re overspending or not getting the right advice from your IT team:
- Microsoft or Google Licenses can be confusing. Ensuring you have the correct license types and are only licensing mailboxes that are needed can save a huge amount. Something we often see are licenses added to mailboxes when they don’t one. If you don’t need to send an email out from the mailbox, only receive mail into it (sales@, admin@ hello@ etc) then make this a Shared Mailbox, which doesn’t need a license.
- Many companies buy website domains for future use, temporary projects, or to protect the brand name. Double check these are still needed, or they can automatically renew on an annual basis.
- If you haven’t reviewed your website hosting costs in a while now is the time. Website hosting has come down significantly in the last decade and a switch over to a new hosting provider isn’t laborious or disruptive.
- Review all software and applications in use across the business (The Power of One exercise above will help with this). We often find that an app or license can go out of use when your staff find alternative ones to use, or the need reduces, but this isn’t cancelled.
- Make sure you’re fully utilising your existing technology. Here are examples of apps available within Microsoft that can replace paid-for alternatives in use – Teams to replace Slack, OneDrive to replace WeTransfer/Google Drive, Shifts to replace time logging software or holiday management approvals, Tasks to replace Trello, Visio to replace Lucid Chart, Bookings to replace Calendly.
- Ensuring you have Warranties on all devices can be a fraction of the costs of replacement components or devices and avoids any nasty surprises
- Many companies have multiple different cyber security services in place. Consider a provider who can package them together for a cheaper price or improved service
- Many companies have ‘IT’ related costs and services coming from multiple suppliers. A good IT Support Partner should be able to provide most of the services you need in one place at a reduced price – consider Internet connectivity, Phone costs, print charges, hardware and software procurement etc.
- Many providers will offer a discount on an increased number of services consumed – it is well worth knowing what this tier structure is and if you can apply now, or will in the future.
- Consider increasing the commitment term for any services you are likely to need long-term. This will often give negotiation room for price reductions.
- Review all your service contracts, once they have expired their initial term you can look to either renegotiate the price or switch to a better and more cost-effective provider. Services like Internet connectivity are a clear example, but also consider your IT support provider.
- Cloud storage costs are usually based on the amount of data that is being stored. Simply reviewing the data you store there, and doing a ‘spring clean’ can reduce costs. Looking to ‘Archive’ data that isn’t accessed or required anymore to a cheaper less accessible storage option can cut costs significantly.
- If you have admin-heavy processes that staff do regularly it’s well worth speaking to your IT provider as many of these can be streamlined through automation and integration. Or ask your IT provider what they suggest you automate to save costs through improved productivity, then reinvest that time in revenue generation activities.
- If you don’t already….. OUTSOURCE YOUR IT SUPPORT AND MANAGEMENT….. it’s a huge cost reduction and has many other benefits.
If you want some free advice on how and where you can start saving on IT costs, schedule your free IT Invoice Assessment from one of our knowledgeable advisors.
If you would like to understand more about what working with Sereno could look like, and how we provide a great service at a reduced price, please reach out on 02030890141, email@example.com and chat with one of our knowledgeable advisors on how we can help.