Profit margin is everything in business, but when you’re a small business, every penny really does count.
Yes, you need to spend money to make money, but spending efficiently is crucial if you want to sustain or even grow your venture. After all, your sales are less likely to move the needle if you’re wasting money elsewhere.
Here are three areas you should examine to see if you can make important business savings.
1. Overspending on SaaS
Most modern businesses will use Software as a Service (SaaS) to some degree, whether that’s CRM software, project management platforms, or programs for team communication and employee engagement. Whatever your need, there is probably a SaaS business out there that can help you, offering flexibility plus time and money savings when used optimally. However, it’s all too easy to oversubscribe and ultimately end up spending far too much on this technology.
For example, maybe you have multiple SaaS programs that serve the same functions, or ones that your employees simply don’t use. There might even be SaaS platforms you don’t know about if your employees have installed things without you or your IT team knowing (this is also known as ‘shadow IT’).
The first step in reducing your SaaS spend is to gain oversight over your existing software stack — this is called application rationalisation. As explained by SaaS spend management experts Vertice: “Application rationalisation helps to consolidate your SaaS contracts and reduce any unnecessary spending that occurs due to poor procurement practices. You can also uncover and target any instances of duplicate, redundant, and under-utilised SaaS to minimise your wasted spend.”
To do this, you need to compile an inventory of all your business’s SaaS platforms and assess their usage and the value they bring, then consult your employees to learn whether your current stack is meeting their needs.
This should help you decide which tools you should keep using and which to terminate (make sure you keep track of subscription renewal dates so you aren’t locked into contracts that don’t benefit your business). Make sure the application rationalisation process is ongoing so you can always have confidence you’re getting good value for money from your SaaS products.
2. Poor hiring strategy
You need to have the right people in your team for your business to function how you want it to, but it’s important to be strategic about who and when you hire to be cost-effective in this area. According to the British Business Bank, it costs £62,890 in the first year to hire a new UK employee on a £27,600 salary. This includes salary, National Insurance and pension contributions, recruiter costs, training, office space and equipment, benefits, bonuses, and other essential expenses.
Hiring prematurely is a common problem for small businesses, so it’s always worth exploring whether you can contract the work out or hire a part-time employee, as these options will be far cheaper. Rather than rushing out and overhiring, it’s better to watch out for signs suggesting extra help may be required, such as drops in productivity, and speak to your employees to see how they’d feel about it.
It’s also very expensive to replace an employee who has left your business. According to research by Oxford Economics and Unum, it costs £30,614 on average to replace an employee earning £25,000 a year or more. Therefore, not only is it important to hire at the right time, but it’s equally important to hire the right people. Think carefully about the skills and experience you need for each role and look for candidates with proven track records.
3. Expensive office spaces
There are lots of benefits to having an office, such as better collaboration, improved creativity, and a greater sense that your workforce is a team with a common purpose. That said, you need to seriously consider whether the perks of an office are worth the money you pay for the space.
The Lambert Smith Hampton: Total Office Cost Survey 2022 found that the total cost per workstation in a new building was:
- £7,203 in Belfast
- £8,568 in Birmingham
- £7,518 in Cardiff
- £9,233 in Edinburgh
- £8,254 in Leeds
- £6,788 in Liverpool
- £13,303 London (City)
- £8,959 in Manchester
- £7,411 in Newcastle
- £7,158 in Nottingham
- £7,416 in Sheffield
- £8,382 in Southampton
Therefore, if you have the option, going at least partially remote could save you thousands of pounds a year as it means you can reduce your office space. As well as cost savings, there are other benefits to this too. According to the Office for National Statistics, 78% of Brits who worked from home in some capacity said that this gave them an improved work-life balance.
If remote work isn’t possible, then you could try to find cheaper office space. For example, city centre locations will be more expensive than those on the outskirts, so see whether it’s feasible to move further out in terms of transport and amenities for you and your employees. Or perhaps consider downgrading your facilities if, for instance, you have meeting rooms that are rarely used or your current contract includes pricy perks like on-site gyms or access to exclusive events and discounts.