5 Tactics to Reduce Operating Costs for Thriving Startups

With the financial pressures of the last few years, it’s no wonder that many startups are on the lookout for ways to reduce operating costs. When you’re keen to get going and start making money, it’s all too easy to make the wrong decision – especially when time is of the essence. For these reasons, it’s important to review operating expenses and see where you can cut back, reduce costs, and improve your bottom line. In this article, we’ll go through five tactics you can use to reduce operating costs and make your startup business thrive.

1. Cancel unnecessary expenses

When you’re first starting out, there are so many decisions to make and tasks to tick off the to-do list. You may not have time to crunch the numbers and evaluate the necessity of certain software and services, which may lead to paying more than you should be, or signing up for something you don’t really need.

Start by auditing your monthly statements line-by-line to check exactly what you’re paying for. Identify which of these charges are essential and non-essential, and start reviewing these non-essential items with your team. It may be that aninexpensive tool greatly increases productivity and workflows, while another actually isn’t being used at all.

Canceling some of these unnecessary subscriptions is a great cost-saving exercise. If you’re not getting any use out of a tool, or you find that you’ve got multiple tools with similar capabilities, you can cut this out of your budget and save some cash. If you do really need the programme, you could save operational costs by reducing the number of licenses you’re currently paying for.

One of the benefits of enterprise architecture is that it can track old applications, duplicate tools or unused software to identify where money is being wasted and help you reduce operating costs.

2. Negotiate with vendors

Maintaining good relationships with the vendors you rely on is crucial to a successful business, especially in the early days. Building goodwill and treating suppliers with respect and gratitude is critical, but you also need to make sure your contracts are reasonable and cost-effective.

If you’re looking for ways to reduce operating costs, negotiating prices, discounts, and payment terms with vendors could pay dividends. You could ask about bulk discounts, lower prices or more favorable payment terms. 

Additionally, developing tailored pricing strategies can further optimize expenditures by ensuring you're not only getting the best price but also aligning vendor costs with market trends and business objectives.

Paying in advance might save you some money for example, or if you know you’ll need a certain number of products for the year, you could order them ahead of time and benefit from bulk pricing.

Even if vendors aren’t forthcoming with deals, it never hurts to ask. If you’re a loyal and frequent customer, they’re more likely to offer you a better price or give you early access to promotions.

It’s always a good idea to do some market research to ensure you’re paying a fair price, too. Don’t be afraid to ask around for quotes – this will help you understand if you’re getting a competitive rate and can strengthen your negotiating position. If you’re happy with your supplier and the quality they deliver, take this information to them and see if they’d be willing to match their prices.

Regularly reviewing your vendor contracts is essential to make sure you’re getting the most value for your money. Lots of suppliers offer new customer discounts and seasonal price cuts, so it’s a good idea to review your contracts every so often.

3. Outsource and automate tasks

Outsourcing or automating tasks can save you a bunch of time, money and hassle in the long run. ‘But wait…’ you might be thinking. ‘Won’t outsourcing add to my costs?’ Understanding where your strengths lie and which tasks to delegate allows you to focus on what you do best, whilst making sure other work is performed by experts in that field. This frees up time to concentrate on your areas of expertise, and ensures you’re not wasting long hours on work you’re not qualified to do.

First, identify your core competencies as well as the areas you are less experienced in and have less time to focus on. This will give you an idea of which tasks must stay within the business, and which you’d prefer to outsource. Implementing an admin and calendar management solution, for instance, will save you a significant amount of time, give you added flexibility, and boost your productivity.

You should also think about any tedious, time-consuming and manual tasks your team has to perform on a regular basis. Is there a way these processes can be automated? Nowadays, the answer is usually yes – there are so many ways to benefit from business and marketing automation. 

Review the tools you are currently using to understand if you can leverage these platforms to automate repetitive tasks – reach out to their customer service teams if you’re unsure, or ask for a demo to make sure you’re getting the most out of the solution. If you compare enterprise architecture vs solution architecture for example, you’ll find that enterprise architecture offers impressive automation capabilities that could prove useful for your thriving startup.

4. Review hiring measures

Investing in your workforce is important for any business. Making sure you have the right people in the right job and treating them well is key to a happy team, reduced staff turnover and maximum productivity.

If you are looking to cut fixed costs, you might consider hiring less experienced employees. Interns or graduates are a great option if you want someone eager to get stuck in and gain some experience, especially for a position that doesn’t require a lot of qualifications or training. Hiring someone part-time or on a freelance basis would also help reduce operating expenses.

If you have a couple of open positions to fill, focus on finding applicants with multiple skills. There may be candidates out there who tick several boxes, which will help you reduce yearly HR expenditure and talent acquisition costs.

When cash flow is limited, a hiring freeze might be necessary. This might not help reduce costs initially, but it will ensure overhead costs don’t grow. If you had previously budgeted some money on future salaries, you can instead put this towards emerging priorities and projects. You could also invest funds into upskilling your existing team to fill any skill gaps.

Effective data collection methods can be crucial here to assess the performance and efficiency of your recruitment process, ensuring that every hiring decision is backed by solid data and analytics.

Benefit cuts, reduced bonuses and layoffs are usually a last resort for any business. If this is completely unavoidable, consider the impact these measures will have on your workforce. Cutting salaries will likely affect your highest-paid employees less drastically than the lowest-paid – for the former it’s an inconvenience, but for the latter it could mean they can’t afford their rent.

5. Go remote

Remote work is becoming more and more popular around the world. Not only does this give your employees more flexibility and mobility, but it also significantly lowers your operating costs.

Working from home eliminates the need for office space, meaning you don’t have to spend excessive amounts of money on rent, bills, parking and so on. Moreover, the use of e-commerce tools can further enhance your team's ability to manage online transactions and customer interactions efficiently, even from disparate locations. You also don’t need to spend time and money installing expensive hardware and infrastructure.

Instead, you can invest in an affordable IP phone system and resource management solution to maintain communication across your remote teams, manage flexible working, and monitor resource capacity. This will ensure your employees can work as productively as possible, and you can identify and plan ahead for any resource gaps.

Empowering your team to work remotely greatly enhances employee satisfaction, and means talented individuals who require more flexibility – for example parents or disabled workers – can continue working in a way that best suits their needs. Employees working from home are less likely to take sick days, and the flexible hours allow them to work during their most productive hours. Offering these work-from-home perks not only promotes work-life balance, but also tends to reduce staff turnover and the associated costs.

One of the other advantages of remote working is the access it gives you to a wider talent pool. No longer limited by geography, you can expand your talent search to lower-cost regions and benefit from lower-cost salary demands. Without a central office, this also means you don’t have to think about helping employees with relocation costs.

Conclusion

Reducing operating costs is a vital strategy for startups aiming to thrive in a competitive market. Implementing cost-saving measures helps maintain a healthy cash flow, so you can focus on making your business a success. By canceling unnecessary expenses, negotiating with vendors, outsourcing tasks, reviewing your hiring measures and going remote, you can ensure your startup remains competitive and poised for growth in any economic climate.