The best strategy to reduce overhead costs is by evaluating your expenses and negotiating better rates on your monthly bills.
Unfortunately, this is easier said than done.
Many companies know they’re paying too much on monthly expenses like waste, telecom, property tax, utilities, and maintenance contracts. With this insight in mind, few companies go about actually resolving these high costs. Why is this the case?
Indirect and passive expenses can often go unnoticed, particularly when they aren’t related to the core of your business. When companies don’t know the baseline for what these services should cost, it makes the process of negotiation all the more difficult.
Yet the results on reducing overhead costs can be tremendous, and the means to do so are within reach. In this blog, we examine how indirect spend influences your budget, and strategies for reducing the amount of money spent on general expenses.
Indirect spend constitutes the bottom 10-20% of a general ledger of expenses. These expenses accumulate across all levels of an organization, making them more difficult to contain and manage.
Waste removal, for instance, involves contracts scattered across multiple locations, and can often accumulate hidden fees that might not be immediately apparent when a contract is created.
Indirect expenses increase slowly, especially when you’re paying for services you don’t know you’re using or paying too much for. They are designed to fly beneath the radar.
Unmanaged spend isn’t the product of mistakes or errors – rather, it is the result of communication around vendor contracts. When information isn’t properly given across departments to billing, it is easy and common for price differences to occur.
Returning to waste removal, consider a construction dumpster that might be placed in a parking lot during a building remodel. A project might be completed, but along the way someone neglected to get that dumpster picked up, and the company continues to pay for it. Everyone sees the dumpster as they come to work and try to find parking. Unmanaged spend is like the elephant in the room that everyone assumes is the business of someone else.
Instances like this illustrate how a lapse in communication contributes to unmanaged spend. Does everyone who is authorized to sign a contract know how to communicate new and updated contract terms? When this isn’t the case, companies can get locked into bad contracts.
In addition, negotiating new contracts and verifying the rates every month is time consuming, and not often a priority. To reduce overhead costs, ongoing methods for avoiding this should include:
Every company wants to improve their bottom line – renegotiating vendor contracts is a proven method for recovering savings without reducing headcount or increasing sales. Contract consolidation has proven to be the most effective way of cost reduction, as it saves the time of waiting for contracts to expire, the expense of termination fees, and pushback from managers who don’t want to change vendors.
A different way of looking at a cost reduction initiative is this: $100,000 in sales equals the sale itself, minus the cost of labor and goods sold. Reducing overhead costs on indirect spend by $100,000 is $100,000.
The biggest drawback to companies is the amount of time and effort it takes to do this. Thankfully, there is an easy solution: us.
At SIB, we’ve analyzed over $5 billion in spend for over 75,000 locations nationwide, from industries ranging from hospitals, urgent care centers, dental offices, senior living facilities, hotels, restaurant groups, colleges, grocery stores, banks, manufacturers, and more.
We’re the experts on everything when it comes to analyzing and negotiating business expenses, and we have the data and know-how to turn these numbers into dramatically lowered expenses for your business. On average, we’re able to find cost savings for 98% of the businesses that we audit, lowering costs by 20-40% in most categories. If we are able to save you money, we share in the savings; if not, there is no cost to you.