The past year has affected all of our businesses in one way or another. High demand, soaring lumber prices, and an economy that is about to go red hot from stimulus money means inflation is likely to be on the rise. One of the most critical items to keep an eye on right now is costs. If you're not carefully monitoring cost increases, and adjusting your pricing to reflect it, your overhead, as a percentage of sales, will increase. In some cases this percentage could increase dramatically. Now is the time to be nimble and thrifty. Not flat footed and bloated.
Take time to re-evaluate your pricing model and all of your overhead expenses. You may be surprised, as you start digging, that there are things you can do without. Here are a few thoughts to consider as you look for ways to reduce costs:
- Ask your accountant or bookkeeper for a report showing all of your costs for the previous year. Scour each line item for potential savings,
- Start with big ticket items like office rents, mortgages, etc. You may be able to renegotiate some terms or reconsider your true office needs.
- Consider outsourcing some of your back office needs. It is incredible what can be done virtually and remotely these days and can lead to a substantial cost savings.
- Wages can tend to be one of the largest expenses for most service companies. Be very realistic about what your pipeline looks like and how your company can handle future wage increases. Will you pass these increases along to your clients?
- Monitor your cost of goods, materials, trades, etc. In some cases vendors and suppliers have been seeing price increases on a daily basis. If you don't use an escalation clause in your contracts, or use a cost plus model to recoup these costs, you could very well end up eating cost increases and this will destroy your profits.
One thing is certain, companies that operate using a scalable and low overhead model will be better prepared for a hot market like the one we are in now and the inevitable slowdown that will come down the road.