How Can You Reduce Your Overhead Costs?

Many of the CEO’s that I work with are surprised to learn which areas of indirect costs and overhead expenses yield the greatest percentage of savings. The nature of your business will determine the dollar savings you might achieve in specific categories, however, it is not uncommon to find savings as high as 40% in some areas. The bottom line is that many of us pay far too much for the day-to-day items almost all companies use.

So, where should you look for ‘easy wins' when planning your cost reduction initiative? And how should you go about achieving your goals?

ERA Canada achieves substantial average savings of around 20% for its clients across all cost areas. But, if we look specifically at some common categories, the figures are even more impressive. Here are a few examples of average savings:

Wireless telecommunications: 25%
Copiers and printers: 42%
Uniforms: 34%
Couriers: 19%
Office consumables and paper: 20%
Off-site printing: 20%
Cleaning and janitorial services: 19%
Insurance: 28%
Document storage and disposal: 26%
Waste management: 24%

Typically, people believe that there is not much room for negotiation on prices and few differences between suppliers' services in these common cost areas. Not true. The biggest challenge that buyer of these services is finding current information on the various markets for these products and services to ensure that they are paying a fair price. And since most companies have been subject to round after round of consolidation, they just don’t have the resources to focus on many of the overhead cost areas. However, all is not lost. Here are some simple tips to help ensure that you are not being overcharged:

Say "No" to price increases. When a supplier tells you its price list has changed, don't take it lying down. They may not back down completely, but there is a good chance that you can turn a 5% increase into 2%.
Do the best you can to track down any information on the prevailing market prices before you start price negotiations (don't rely on suppliers for this information).
You may believe your costs are under control based on historical trends, but what are your competitors paying? Benchmarking data is a useful tool to highlight areas that have the most potential for improvement and will help you to set priorities. Gather the data from outside agencies, consultants, or benchmarking services. Be careful to ensure that you understand the data as they apply to your situation and use them to negotiate with your suppliers from a position of strength.
Keep you ear to the ground looking for changes to the markets for the products and services that you are purchasing. The markets for many products and services change regularly (a vendor may be looking to boost market share in a particular area and is offering better pricing to get it). A good price 6 months ago may not be the best price today.
Determine your product and service requirements. Is there a better way to procure the goods and services you need? Look at total costs, including item price, the cost of holding inventory and administration costs. Don't accept premium services unless you really need them: for example, 10:30 a.m. next day courier delivery service if 5 p.m. is acceptable.
Find out if there are any new technologies or suppliers that can immediately reduce your costs and administrative time. Work with your suppliers and external experts to identify new cost-cutting strategies.

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