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Cost Reduction Strategies for the Thrifty Business Owner

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Cost Reduction Strategies for the Thrifty Business Owner

cost reduction strategiesYou are not alone if you’re looking for business expense cost reduction strategies. Any business that’s been at it for more than a year is sure to have areas that are ripe for cost-saving strategies. As your business grows, so do the needs and demands of the business. It’s difficult to hit the bulls-eye every time as the pace of change escalates around you.

Top 7 Cost Reduction Strategies

There are 7 main areas that are pretty easy to analyze, and then put some cost reduction strategies in place. Let’s take a look these cost reduction strategies and see where your business can start saving money.

operational cost reduction strategies

Strategy #1 – Evaluate Your Space Need

The location of your business is likely one of the biggest expenses on your book and one of the biggest operational cost reduction strategies. Have you evaluated your lease or building costs lately? Take some time to ask yourself if you still need the amount of space in your current arrangement. Is there a portion of your space that you could sub-lease to recover a little of your monthly expenses? What about space for staff? Do you have staff members that are no longer with your organization thus freeing up space in your building? How could you re-purpose that space?

Most businesses will sign a lease and then feel tied down by the terms of that contract. Remember, your landlord wants to get paid and is likely to work with you to keep you as a tenant. Consider re-negotiating your building arrangement to cut costs. Most building owners are more than willing to work with great tenants to keep them around.

operational cost reduction strategies

Strategy #2 – Review Telecom Fees and Use

When is the last time you did an evaluation of what you are paying for telecom services?

“On average, about 50 percent of telecom bills have an error that accounts for 3 to 5 percent of the total value of the overall telecom spend.” This statement alone should encourage each one of us to take an immediate review of our telecom costs. A common error in any size company is to have an employee leave the business and never turn off their plan. This unnecessary expense continues to add to the telecom spend while delivering no value to the business.

For many companies, the way to save money on telecom is to spend money on telecom. Updating old equipment and taking advantage of new contracts can save considerable money for a business in the long run. In an era of VOIP service, many telecom bills have plummeted with the advent of new technology. You’re most likely paying much more than you need to be if you’re still paying for an outdated phone contract. Clean up your telecom costs with a free audit offered by many of the major players in the telecom space.

operational cost reduction strategies

Strategy #3 – Do a Vehicle Fleet Cost Assessment

Maintaining any type of vehicle fleet is costly, but how long has it been since you’ve calculated exactly how much? When you add together the costs for fuel, maintenance, tires, washes and more, things can add up fast. Consider doing a vehicle audit to see how much each vehicle is costing you per year. Would there be a big enough savings if you changed out the type of vehicle for something more cost effective? Could you double your vehicle use by adding a wrap to each to increase your local exposure?

One way to save money on your corporate vehicle costs is to not pay too much for the vehicle’s purchase. There are plenty of ways to find a great vehicle in great working condition. Is there a local business that’s closing up shop and needs to sell off their fleet? There are usually a couple of auction specialists at large automotive dealerships that can help you shop local dealer-only options. They can help you scoop up a vehicle for your fleet at a fraction of the price if you let them know what you’re in the market for.

Great cost reduction strategies will be sure to ask if you’ve taken an assessment of how many miles you’re driving in company vehicles. If you’re going to be looking at tens of thousands of miles each year, a diesel or hybrid may be the way to go. You will pay more up front, but you will save thousands each year as the miles rack up.

operational cost reduction strategies

Strategy #4 – Assess Printing Costs

Printing costs can vary as much as 50% between vendors, so have you done a pricing comparison lately? If you’ve been doing your printing with the same company for years, do you know if they are continuing to give you great prices? Whether it’s stationery for the front office or a brochure to hand out to clients, it all costs money. The difference in price for a box of business cards can differ from $15 – $80 for just 500 cards. If you’re not shopping around, you may have found a printer who is more than happy to take the extra money you’re giving them.

With all the advancements in technology in the printing space, savings are available to your business. As new printers become available to the printing companies in your locale, are you getting the savings that come along with them? If you’ve only looked for pricing in your town, have you priced across the internet? There are many printing companies where you can upload a current design or layout and get it printed with the same quality for much less. Before you hit that “reorder” button, make sure the price your printer is giving you is fair in the industry.

cost reduction strategies for business

Strategy #5 – How Much Are You Paying For Credit Card Processing?

One of the most effective cost reduction strategies available to your business can be Payment Processing Merchant services. With many businesses paying between 3-6% in credit card fees, the bottom line seems to erode quickly with fees paid to processing companies. Have you looked at what options are available for your company? If you’re in an industry that accepts credit cards at the point of sale, have you considered offering a cash discount program? By implementing a cash discount program at the point of sale, you in effect give a discount for cash paying customers while adding a convenience fee for others who choose to pay with a credit card. With this new strategy, you can reduce your credit card fees to zero with zero fee processing. Imagine the savings to your bottom line if you could eliminate any credit card fees for your organization.

If you’re currently locked into a contract with your processing company, do an evaluation of your rates. If the rates you’re paying for processing don’t match the rates you were quoted when signing up, it’s time to pay the exit clause and find a better company. Oftentimes paying the exit clause and moving to a more reputable company will save you much more money even in the short term.

cost reduction strategies for business

Strategy #6 – What’s Your Utility Usage?

Paying a premium for energy use at peak times can add up quickly. Most cost reduction strategies evaluate your energy consumption, but change involves a company-wide effort. Some simple ways to reduce costs are to replace all of your light bulbs in the building with CFL or LED bulbs. Consider an energy audit from your local utility company. Most utility companies will offer a free energy audit if you simply call and ask. With a simple phone call, your business can be on the way to saving money by eliminating unnecessary costs.

Consider having all of the computers in the office set to hibernate shortly after business hours end. By using the hibernate feature of all computers in the office, you save all of the work that was done and save energy at the same time. On weekends and holidays, turn everything off. If there’s not going to be anyone in the office for a day or two, turn off everything. There’s no use keeping printers, computers and other electronics powered on if nobody is going to be around to use them.

cost reduction strategies for business

Strategy #7 – Assess Your Marketing Return On Investment

When was the last time you did an audit of your marketing efforts? The marketing landscape changes dramatically about every 6 months. If you’re not staying on top of what’s working, you may be putting money into marketing channels that simply don’t work anymore. Schedule a strategy and consulting call with a digital marketing company to do an evaluation of what’s working, what’s not and where you could reinvest money from broken channels.

Cost Reduction Strategies: Conclusion

There is no master list of cost reduction strategies for business. You have to decide how much effort you want to put into finding and eliminating the waste to save your hard-earned money. The areas and strategies above are a great start, and with minimal effort, you can find areas that are ripe for improvement.

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Example of High Risk Merchants

  • 1-900 Phone companies – If you’re the type of company that charges people to have a chat on the phone, you’ll be considered high risk.
  • Adult Bookstores – Clearly a part of the adult entertainment industry, and an easy mark for the high risk tag.
  • Adult Entertainment – Any business labeled with the “adult” descriptor will automatically be assigned a high risk status.
  • Adult Toys – As “adult” is in the name, it’s an easy target for association with the adult entertainment market.
  • Airline Industry – Due to cancellations on high ticket purchases, this will put your airline company in the high risk category
  • Amazon Stores – By having a high rate of return, Amazon stores are seen as high risk.
  • Ammo Sales – Association with the weapons industry guarantees high risk status.
  • Annual Contracts – Any time an annual contract is involved it can be considered highrisk because most consumers forget they signed up and chance of chargeback can be high.
  • Antiques – With a high average ticket per item, antiques are considered a risky merchant type.
  • Astrology – The study of the celestial bodies and the influence on human affairs can be a chargeback target if customers feel like they aren’t getting the answers they want.
  • Auctions – Because of the nature of bidding on a product and not having a set price the risk level goes up.
  • Autographed Collectables – There is almost always a question as to whether an autograph is authentic, and therefore chargebacks are much higher in this industry.
  • Automotive Brokers – Brokers of automobiles have a very high average ticket are are therefore of higher risk.
  • Bankruptcy Attorneys – Since the people who are working with bankruptcy attorneys are usually in financial trouble, the odds that a payment would be charged back is higher.
  • Betting Services – In many states betting is illegal but for the legal states betting with a credit card has huge chargeback implications.
  • Brokering – When a third party is involved with selling a product the risk level goes up ten fold.
  • Business Loans (Merchant Cash Advances) – Loaning money is always risky, but with business loans and startup lending, high risk is present by the nature of the business.
  • Casino – Just like a betting service, if a customer gambles with their credit card the chargeback rate sky rockets.
  • CBD Products – CBD itself poses high chargebacks because of the legitimacy of the product and the health benefits promised.
  • CBD E commerce – CBD E Commerce has twice the charge back of retail CBD because many consumers don’t feel like the product they receive gives them the benefits promised.
  • Check Cashing (Check Processing) – The level of fraud in check cashing and cash advances is what gives this industry a higher risk consideration.
  • Cigarettes – With higher levels of risk for theft and criminal activity, cigarette sales are deemed high risk.
  • Collection Agencies (Collection Agency) – Many banks see collections as an unsustainable business model that is many times unreliable.
  • Collectible Coins – A higher level of chargeback in this industry gives it a high risk tag.
  • Collectible Currency – Due to the level of inauthentic collectibles, the risk of chargebacks are much higher with collectibles.
  • Copyrighted eBooks – When someone sells something copyrighted without permission many legal issues can arise.
  • Coupon Programs – With many coupon programs the coupons expire and once they expire the consumer wants the money back they spend.
  • Credit Counseling – Due to their clients usually being in financial problems, this industry is fraught with non-payment and fraud.
  • Credit Protection – Most people that need credit protection are bad with money so chargebacks abound.
  • Credit Repair – If a consumer needs credit repair then chances are they are a high risk for chargebacks.
  • Currency Sales – Many businesses that exchange currency do it at incorrect rates hence more chargebacks.
  • Dating Services – Dating is a volatile industry, and is also lumped in with the adult entertainment industry, making it a high risk account.
  • Debt Collection Services – As the collection of debt isn’t always possible, this industry retains the tag of risky.
  • Debt Consolidation Services (Debt Consolidators) – Consolidating debt is a challenging business and as debt is usually the problem, it’s seen as unsecure from a payment perspective.
  • Debt Repair Services – Since the clients of debt repair services are usually having financial challenges, it makes this industry seem a higher risk.
  • Discount Health Programs – Many people don’t feel they are really getting a discount so they try to get their money back and if they don’t the chargebacks sky rocket.
  • Discount Medical Care Programs – Just like the discount health programs if they don’t save the consumer wants their money back.
  • Drug Paraphernalia – Anything that is associated with the drug trade is considered high risk. Offshore merchant accounts are commonly used for this type of business.
  • E Commerce – As the source of the payment is unverifiable at the point of sale, any transaction without the card present has a higher risk of credit card fraud.
  • Ebay Stores – Many people sell items that aren’t as described so chargebacks can be an issue.
  • Electronic cigarettes – much like traditional cigarettes, e-cigarette sales are also deemed high risk.
  • Electronics – This industry has a much higher ticket compared with many other businesses. A chargeback for a $3,000 tv or two and your account can be in jeopardy rather quickly.
  • Escort Services – This is deemed a part of the adult entertainment industry and therefore needs a high risk merchant account and payment solution.
  • Event Ticket Brokers – If a customer buys a ticket and doesn’t use it they feel like they can charge the transaction back.
  • Extended Warranty Companies – Warranties are rarely used so people try to charge back the money that has been spent paying for them.
  • Federal Firearms License Dealers – Any organization associated with guns or firearms is automatically considered in this category.
  • Fantasy Sports Websites – Just like gambling, if a person starts to lose too often they try and charge back the transaction.
  • Finance Brokers – The entire financing industry is risky. By simply extending credit to other individuals, this business is betting that a majority of them will actually pay what they say they will.
  • Financial Advising/Consulting – The high risk tag on financial advisors isn’t about the advisors or their firm. It’s about the clientele and their current circumstances.
  • Financial Loan Modification Services – Due to a clientele in financial struggles, the high risk term is applied to any payments in this industry.
  • Financial Planning – Anything that includes risk for the consumer can have consumer implications with chargebacks.
  • Financial Strategy – Another risk and reward category, if money is lost, consumers try charging back making this a high risk industry.
  • Fortune Tellers – When a person doesn’t hear what they want to hear, or what is told doesn’t happen, the fortune teller can receive huge chargebacks.
  • Furniture Sellers – High risk only when its custom furniture.
  • Gambling – If money is lost the chargebacks rise.
  • Gaming – Chargeback levels skyrocket when consumers don’t win.
  • Get Rich Quick Programs – It’s rather common in this industry for an individual to purchase the training and then chargeback their purchase saying it didn’t deliver on what was promised.
  • Google Stores – With a high rate of return on their items, Google stores are considered high risk.
  • Gun Sales (Firearm Sales) – The gun and projectile industry is automatically associated with high risk credit card processing.
  • High Average Ticket Sales – With any high average ticket, just a couple of chargebacks can mean a massive shift in how risky the account is deemed by the processor.
  • Home/Vacation Rentals – Many issues with chargebacks can take place if the consumer decides not to travel.
  • Horoscopes – Many people believe this is hocum so will chargeback transactions.
  • How To Programs – A common practice in this industry is to purchase the program and charge it back with the description that it didn’t deliver what it promised.
  • Hypnotists – Many merchants will charge back these transactions if results they hoped for were not met.
  • Import/Export Business – Another example of taking goods over country borders which automatically brings in additional risk to any processing account.
  • Indirect Financial Consulting – When using a third party to consult, the high risk status gives the processor fraud protection.
  • International Cargo – Any time you introduce a multi-country element to credit card processing, the ability for fraud to be introduced skyrockets.
  • International Merchants operating in the US – Since the merchant isn’t operating from the United States, there are many unknowns about what is happening on the other side of their business, thus increasing the risk.
  • International Shipping – Transporting goods between countries is risky and introduces all sorts of elements to the financial stability of any transaction.
  • Investment Books – consumers get upset if the investor isn’t right which can lead to chargebacks.
  • Investment Firms – As investments are never a “sure thing” this is considered a risky industry for having a merchant account.
  • Investment Strategy – Anything with future promises can lead to chargeback.
  • Knife Sales – weapons of any kind are automatically given high risk status.
  • Kratom E Commerce – Accepting payments online is high risk, and Kratom is a substance in the health and wellness industry, which is also considered high risk.
  • Life Coaching – With no tangible goods involved in the transaction, life coaching is considered high risk.
  • Lingerie Businesses – Associated with the adult entertainment industry, chargebacks abound.
  • Lotteries – In most states you can buy lottery tickets with a credit card but if you’re allowed to and the ticket is not a winner, consumers try to chargeback the transactions.
  • Magazine Sales – Many magazine sales are recurring subscriptions, which can have issues with chargebacks.
  • Magazine Subscriptions – Same as magazine sales chargebacks can be huge when a recurring subscription happens. (often referred to as recurring billing.)
  • Mail Order Companies – When something is ordered through the mail chargeback risk can go up.
  • Marijuana Dispensaries – As marijuana isn’t a legal substance in every state, this is considered high risk due to the legality of the product. Cannabis credit card processing is available through Shift Processing.
  • Matchmaking Services – Another branch of the dating tree, and often associated with the adult entertainment industry.
  • Medical Devices – If a medical device doesn’t do what’s promised the purchaser may chargeback the transaction.
  • Membership Organizations – This is another instance of where the transactions don’t have any tangible product and are easily charged back to the merchant account.
  • Merchants on the MATCH list – If you are a merchant who has been reported to the MATCH list (Member Alert to Control High Risk Merchants) or the TMF (Terminated Merchant File) you are given high risk status.
  • Merchants with Poor Credit – Merchant accounts are given based on the credit score of the business owner. It’s assumed that the business owner is going to be making the financial decisions for the business, and a poor credit score reflects on the viability of any business transactions.
  • Modeling Agencies – At many agencies models are promised the world and it doesn’t happen. The consumer then wants their money back.
  • Movie Downloads – Transference of a digital product is considered of higher risk. Also, rarely is a physical card present at time of purchase.
  • Multilevel Marketing Sales – Often associated with pyramid schemes, MLM sales are considered a risky business.
  • Music Downloads – Purchasing any digital product is considered to be of higher risk than a physical transaction. Most of the time the card is not present in a digital transaction using a shopping cart.
  • Not A US Citizen Doing Business In The US – It’s possible to get a merchant account without a US social security number, but not having a SSN will increase the risk the processor will have in issuing a merchant account for your business.
  • Online Adult Membership Sites – If you’re running a website that is adult themed and requires payment for access, this is a highly volatile account and definitely high risk.
  • Offshore Corporations (Offshore Merchants) – The international element is what gives the high risk tag when looking for domestic merchant accounts.
  • Online Gambling (Online Gaming) – Without a card being present and gambling as the activity, there are two reasons why this would be on this list. Online payment alone is risky even without the gambling element.
  • Overseas Exporting Services – The introduction of the international element is what gains access to this list.
  • Pawn Shops – There’s a general stigma that goes along with pawn shops, and it’s reflected in their assignment to the high risk processors list.
  • Penny Auction Sites – Even though the customers are usually bidding at only a penny more per bid, users will commonly charge back the transaction when they don’t win.
  • Pepper Spray – Considered a type of weapon, pepper spray vendors are considered risky.
  • Points Programs – Points programs that cost money can cause chargeback issues if points are not used.
  • Pornographic Merchants – If you’re a part of the adult entertainment industry in any way, you’re considered high risk.
  • Precious Metals – Counterfeit metals can be a problem in this industry, making it more risky to accept payments for.
  • Prepaid Calling Cards – Anything prepaid that a consumer may not use increases chargeback issues.
  • Prepaid Debit Cards – When they expire or are lost consumers want their money back.
  • Psychic Services – “Honey, did you visit a psychic? No babe, I don’t remember visiting a psychic.” I’ll just reverse that charge then.
  • Real Estate – A common target for scams and identity theft is how real estate makes this list.
  • Replica Products (Watches, Handbags, Wallets, Sunglasses, Etc…) – As the product being sold isn’t authentic to the original manufacturer, the percentage of requests for refund is much higher than a traditional merchant.
  • Rewards Programs – If rewards are not spent, the consumer wants the money back.
  • Self-Defense – Since the payment provided is for instruction and not a physical product, the self-defense industry makes this list.
  • Self-Hypnosis Services – Yet another instance where the goods being transferred are of a service and not a physical product.
  • SEO Services – With a high rate of request for refund, SEO agencies make this list.
  • Social Networking Sites – Just like a dating site, if a consumer does not get what they want from it, they always like to chargeback.
  • Software Downloads – The software industry makes their way on to this list because of the digital nature of the goods being sold.
  • Sports Forecasting – An example of paying for information and not for a product, and usually not in person where the card would be present for the transaction.
  • Startups – Every startup is considered risky, and the percentage of startups that make it is quite small compared to the number that fail.
  • Student Loans – With the cost of a college education continually on the rise, so is the percentage of loans that default and never receive payment.
  • Strip Clubs – Associated with the adult entertainment industry gains the strip club access to this list.
  • Stun Gun Sales – considered a type of weapon, which makes it a high risk merchant.
  • Supplement Sales – The request for refund in this industry is quite high due to the nature of the product.
  • Sweepstakes – “Hey, I entered a sweepstake and I didn’t win. I’d like my money back please.”
  • Talent Agencies – “I paid thousands of dollars for headshots and glamorous outfits and I haven’t gotten any paid gigs. Pay me back my money please.”
  • Telemarketing Services – Telemarketing services many times do not have the results the purchaser would like to see, so the services are charged back.
  • Telephone Order Sales – Anything ordered over the phone has a increased risk of chargeback.
  • Timeshare Companies – When timeshares aren’t used, people want their money back.
  • Travel Agencies – If trips are not taken, consumers would like their funds returned.
  • Travel Clubs – Many travel club discounts aren’t what they were promised, increasing risk for chargebacks.
  • Vacation Rental Brokers – Third party brokers on prepaid vacation can have issues when customers cancel their trips.
  • Vape Shops – The level of criminal activity and theft is higher with vape shop merchants and therefore carries a high risk label.
  • Vitamin Sales – If the vitamins don’t provide the results the merchant would like to see they chargeback the transactions.
  • Web Designer – Because this service is prone to chargebacks, it has been classified as high risk.
  • Weight Loss – Considered risky because the results aren’t really up to the company, but rather the individual has to stick to the plan to get results, often resulting in chargebacks.
  • Yahoo Stores – Since the goods sold through Yahoo can easily be returned, they are considered a risky merchant.

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