The same is true for both families and businesses: no matter how much money you pull in every month, overhead whittles it away to virtually nothing.
In the Internet Age, the overhead associated with high employee costs, like space and equipment, should have disappeared already. Everyone should be telecommuting to work either via the Internet or through robots designed to take their places. But unfortunately, the world is not yet at that point.
Your employees cost you more than just their salaries. The costs associated with housing them for 40 hours a week are growing, too. In places like Silicon Valley, the office space alone can cost up to $96 per foot. This does not even include the frozen yogurt bar, the yoga and meditation space or the professional dry cleaners that some companies use to attract the best employees.
Businesses build sprawling campuses to keep up with the giants that they want to emulate, but admiration does not lead to revenue. Instead, it just leaves the company with a huge amount of overhead every month that can really eat into profits.
Less Is More
Decreasing your square footage can actually provide a direct route to increasing your profits. It may sound complicated or uncomfortable, but this is within all of the basic principles of business. Although you want to scale your business to match your reality, you also want to keep the cost of customer acquisition lower than the lifetime value of the customer.
The cost of customer acquisition increases when you are burning through expenses faster than you need to. This does not just endanger your profit but your whole company.
Cutting expenses is not just something you do. You need to create an organized and planned program to cut your overhead. In business, less can be more, if you plan correctly.
Reducing Costs and Making More Money
Your goal should be to pay the right price for your prosperity. You should be negotiating all of your expenses, like your lease or mortgage, before you sign the dotted line.
Of course, you do not want to create an office environment that resembles a budget airline. The last thing you want is to have your employees sit in each other’s laps. That would be an HR nightmare in more ways than one.
But what you can do is get a group of knowledgeable people together to determine where your costs are too high. You should also make sure to include a board member, accountant or someone outside the company who does not have an agenda outside of boosting profits. This will help ensure your expenses get cut fairly and in a balanced manner.
Profiting for Success
Obviously, you know that you want to be running a profitable business and that cutting costs is a good way to do that. If you’re looking for more motivation for yourself or your employees, think about where these profits can go. You can reinvest the money back into the business through research and development.
While happy employees sell more products, they are better aided by a great product and a strong company that believes in itself enough to choose a smaller office over smaller profits.
Whatever you do, make sure that you are making intelligent decisions about your expenses whether you want to cut them or not. These decisions can make or break a company in its early stages and can help propel you into greatness once you are more secure.
Remember that investing in your employees is not always about investing in a cold press juice bar. What your employees and your customers really need is an investment in long term profits.