Are your costs on the rise?
Don't bother answering — it's a rhetorical question. Inflation recently reached a 17-year high, and the economy is still dragging along at a maybe-we're-not-technically- in-a-recession-but- it-sure-feels-like-it pace. Earlier this year, there were lots of optimistic predictions that growth would pick up in the fall, but you don't hear that kind of talk much anymore.
Businesses need to find every possible way to cut costs — while, ideally, avoiding morale-busters like layoffs. Here are five ways companies are doing just that.
1. Send Your Employees Home
Amount saved: $48,000
Earlier this year, David Nilssen went searching for ways to cut down on office space. His Bellevue, Washington, financial services company, Guidant Financial Group, has 110 employees and occupies about 11,000 square feet of space. Despite the real estate downturn, commercial rents are still high in the Bellevue area, thanks in part to neighbors like Microsoft. So Nilssen decided to send some of his employees home. Starting this month, Guidant's 15-person Web publishing team will be working remotely, bringing the total number of telecommuters at the company to 20. Nilssen will supply these employees with laptops and Internet connections -- costs he would incur even if they worked in the office. Guidant has also begun testing out four-day, 40-hour weeks for some administrative employees. The workers will have rotating schedules and share desks to cut back on the need for space.
The arrangement does present some challenges. Nilssen knows he will need to work harder to communicate with his remote staff and to organize events that bring everyone in the office together. But he thinks the savings will make it all worthwhile: This month, he won't renew the lease on 3,000 square feet of office space, which will save the company $48,000 in rent and operations costs next year.
2. Share Your Staff
Amount saved: $24,000 to $30,000
During downturns, many companies lay off administrative workers, HR staff, or others who aren't directly involved in production or sales. Tom Darrow, founder and principal of Talent Connections, a 12-person recruiting firm in Roswell, Georgia, took a different approach. When sales slowed earlier this year, he helped his marketing project manager, who earned an annual salary of around $32,000, find a part-time job with another firm. Now, he pays her to work 10 hours a week while she works another 30 hours somewhere else. "The last thing I want to do is downsize because of its negative effect on morale," says Darrow. "We found a way to bridge the hard times and keep a popular and productive employee on board until the market rebounds."
Dennis Brown also turned to some creative job sharing at Logistic Dynamics, a third-party logistics provider in Amherst, New York. When Brown needed to hire an HR person to manage payroll and benefits for his 25 employees, he teamed up with another company housed in his building. Brown and his neighbor hired a joint HR manager, who splits her time between the two companies, with each shouldering roughly half of her $60,000 salary. "Rather than hire someone we could afford but who might be unqualified, we now have a true professional who meets our needs at half the cost," says Brown.
3. Get Customers to Put Away Their Credit Cards
Amount saved: $49,000
Like many business owners, Matthew Kirk is tired of paying fees on every credit card payment he accepts. ClickSpeed, Kirk's online marketing company, does about $7 million in annual sales, and as of a year ago, about half of that revenue came via credit cards. The company, based in Overland Park, Kansas, pays about 3.2 percent in fees on each transaction, which added up to more than $100,000 last year. "Our customers like the convenience of using their credit cards," Kirk says. "But I thought if we could come up with incentives for our customers to pay us directly, we could both make out."
He knew many of his customers paid with plastic because they earned points they could redeem for cash or airline miles. So Kirk decided to offer similar perks. About a year ago, he told his customers that if they paid their monthly invoices with electronic debits from their checking accounts, he would give them a cash-back bonus equal to 1.25 percent of their payments. Kirk got about 70 percent of his credit card customers, representing $2.5 million in revenue, to make the switch. Now, about 12 months later, even though he has paid out bonuses of some $31,000, Kirk has saved $49,000 by eliminating fees he would have paid to the credit card middlemen.
4. Cut Back on Travel
Amount saved: $115,000
Nearly every company is being squeezed by rising fuel costs, but Midwest Recreational Clearinghouse, based in Cannon Falls, Minnesota, is suffering more than most. It runs an online auction site, CrankyApe.com, that sells repossessed recreational vehicles like snowmobiles. The company must pick up most of those vehicles by truck before prepping them for sale. MRC originally operated out of a single warehouse, which made sense when its vehicles came principally from Minnesota. From 2004 to 2006, as the company expanded, it opened one more warehouse each year. But in 2007, MRC's co-owners, Jay Adams and Brian Livingston, along with their controller, Holly Ward, realized the company could cut travel costs if it opened even more warehouses.
"After we started adding up the costs of airfare, equipment rental, labor time, and fuel, we saw opportunities to save money," says Ward. In the past year, MRC has opened three additional locations, bringing the total to seven. MRC's trucks now make shorter trips and, whenever possible, pick up multiple vehicles on each one. Ward expects to save about $115,000, even after taking into account the expense of leasing and operating the facilities. No surprise, then, that the company is eyeing two more locations for 2009.
5. Try Do-It-Yourself Marketing
Amount saved: $66,000
These days, some of the best marketing is cheap or even free, so think about whether you really need to spend big bucks on marketing consultants or advertising firms. "With sales of $6 million, we can't afford to waste a single dollar on marketing," says Scott Millwood, CEO of CustomerEffective, an IT services company in Greenville, South Carolina, that specializes in installing and maintaining customer relationship management, or CRM, software. Last year, Millwood spent about $85,000 on a consultant who was supposed to improve CustomerEffective's Web site traffic and another $16,000 buying Google ads. Yet the company landed only one deal, worth $5,000, from leads generated online. So Millwood started looking for alternatives.
Last November, Millwood fired the consultant and quit paying for Google AdWords. Instead, he turned his tech staff into bloggers and created a bonus program. Over the past 11 months, he has paid eight of his workers a monthly bonus of up to $2,000 to blog about CRM in their spare time. The results have been promising: His investment in bonuses has been $35,000 so far, and the firm's search-engine rankings have improved dramatically. Qualified prospects, including one from England, have begun to fill up the firm's sales pipeline. Revenue from the new project in England alone could pay for the bonus program. "Now we can put that money we used to give to Google to better work elsewhere," Millwood says.