Costs have been skyrocketing for the past year and trades business owners are some of the people feeling that the most. Customers want to spend less while your vendors are all demanding that you spend more. So here are three super tactical ways that you can reduce your costs and we’ll also give you our exact methodology that we use when working with our clients to reduce their costs.
Starting off at number one is vendor negotiations. Like we said, vendors just keep putting their prices up. However, negotiating with them is actually pretty simple. The main concept here is to figure out how both sides can win and then present it to them. If you never ask for a deal, you won’t get it.
The first part of the equation is figuring out what the vendor can do for you. This could be something from a simple price reduction (hence the topic of the article) but you can explore other areas like having your price locked in for a certain amount of time, or simply more convenient terms for you. So in the event that your vendor cannot reduce the price any further, or you’ve already gotten a good price reduction, don’t be afraid to explore other ways that they can help you out.
On the other hand, you need to figure out what you can give to your vendor. The key here is that in their eyes it is of the same or higher value than what you gave them. But when thinking about what you should offer think of things like higher purchase volumes, bringing them other buyers, exclusively buying from them, placing larger orders, or anything else that your vendor may want. A simple conversation with them can often be all you need to understand exactly what you need to offer them.
With negotiations it’s really important that not only you start them but you focus on making sure both sides are always winning. If you can make that happen, you can get almost anything you want.
Second on our list is going to be drive time. Now there is a lot of talk about gas prices being high but the biggest expense related to driving is the actual employees driving and riding in that vehicle. Now if you don’t pay your employees hourly, you can ignore this step, but if you pay them hourly, this is the most impactful expense you can cut in your business.
There are two main ways to tackle this. The first is improving your routing. Most field management softwares will automatically do this but you can also do it manually. The key is to let customers pick what day of the week they want to be serviced and then you choose what time based on the other appointments you have for that day.
The second way to reduce drive time is to use the GPS. Even if you already know how to get there. While the main purpose of the GPS is to show you how to get somewhere, another huge feature is that it tells you the road conditions ahead as well as the fastest route possible based on that data. So by following the GPS or just using it to learn of the road conditions ahead you can cut out some driving time with basically no added effort.
Staying on the topic of people costs, losing people is an even bigger one. Losing an employee is extremely expensive. Not only do you lose the revenue they provided until you can get a new employee but getting a new employee is extremely expensive as well. You need to post job listings, host interviews, higher someone, train that person, and then wait for them to get completely up to speed and at the level of your previous employee. Not only is that entire process extremely time consuming and expensive, that whole time you’re missing out on the revenue that your previous employee was making.
So don’t be cheap when it comes to treating your employees well. Figure out what your cost to acquire a new employee is and be willing to spend up to that amount to retain your current ones. It will usually be much cheaper to retain an employee than it will to get a new one, especially in the trades.
Finally, we can go onto how to find more costs to cut in your business. Our methodology is actually really simple, look at the gain of removing that expense, against the cost of removing that expense.
For example, if we have an employee who is doing absolutely nothing and just wasting time all day and we pay them $80,000 a year, by firing them, we have a gain of $80,000. Our cost is just what it takes to fire them, so not much compared to the gain from firing them, we get back their whole salary. So therefore this would be a good expense to cut. Just make sure that the gain is higher than the cost.
If you need help scaling your business, whether that’s because of high costs, or anything else stopping you from growing your business, come join our free Business Scaler Challenge. We’ll help you break whatever is stopping you from growing and you’ll get to do it alongside other business owners so it’s a great way to gain tremendous amounts of perspective on your issues. If you’re interested, sign up here: https://www.woopenvironmental.com/business-scaler-challenge/
Always so helpful! Very responsive. Super professional. Great information and advice for growth!!!