How to Combat Rising Costs for Your Business

Understand Your Expenses

Business expenses can assume various forms and broadly can be categorised as:

1. Fixed Costs – these costs stay the same, these include expenses such as rent payroll, insurance

2. Variable costs – these costs do change according to the output produced or sold. Common expenses under this category include direct materials, commissions, piece-rate labour.

3. Sunk costs – Money spent which cannot be recovered. Costs typically include marketing, fixed asset purchases.

4. Opportunity costs – the difference between a chosen action versus one that is foregone

5. Avoidable costs – items that are not necessary

Perform breakeven and profitability analysis

1. Find your gross profit ratio; (Gross Profit/Net Sales)*100

2. Breakeven analysis will tell you how many units of a product must be sold to cover your fixed and variable costs

3. Create a breakdown of your different products and their generated income and expenses

4. This will help you understand your most profitable products

Create a Strategic Budget

1. You must review your budget every month to check that you are aligning with your expenses and your goal income

2. A budget will also help you find areas of overspending and help you manage every area of your business

Monitor supplier costs

There are three key-ways to lower them:

1. Ask for a discount or discuss what value-adds they can provide.

2. Review your contracts. If you have been in business for a while evaluating your contracts and renegotiating their terms can be a great way to lower your costs.

3. Investigate cheaper alternatives without compromising on quality.

Increase your profitability

There are four key-ways:

1. Differentiate your customers; this can be done with personal branding or a follow up after they have received your product

2. Focus on Customer Loyalty

3. Redesign workflows and systems for greater efficiency

4. Make buying from you easy and simple