Bringing up profits – part two

This is Part Two in a series of three articles outlining how you can bring up profits by addressing the various costs and expenses associated with doing business

The Bringing Up Profits Series

In Part One, we looked at expenses that are associated with your business like fixed costs.  In Part Two we’ll look at your vendor expenses and other variable costs.  Finally in Part Three we’ll talk about your home and personal expenses and how those relate to and affect your bottom line.  Many of these overlap but I’ve done my best to separate them.

Ready?  Let’s Go!

Variable Expenses

In Part One of the Bringing Up Profits series, we looked primarily at fixed expenses.  You’ll recall that:

Fixed expenses are things like insurance payments and rent payments.  Things that basically stay the same month to month whether you sell 10 ebooks or 1,000 ebooks.  Variable expenses are those that change based on your level of production if you increase sales of ebooks you may have to increase your hosting account bandwidth; if you increase the number of coaching hours you sell you may have to buy more office supplies to support more clients.

So variable expenses are like a moving target and can really affect your bottom line, but they are necessary expenses.  Let’s look at your vendor or supplier expenses first.

Vendor Expenses

I rarely beat up a vendor on price when it comes to my Porsche repair biz because the customer is paying for the part.  If I can save money on the part I usually pass the savings onto the customer.  Because I really feel like customers deserve a break when it comes to automotive repair costs, I generally don’t charge list price.  BUT that doesn’t mean I want to pay more than I should.  It is always a benefit when I can show the customer a saving.

Again, I rarely ask my vendors for a discount because when I need something from them I want to make sure I’m a great customer and that they don’t feel any qualms about taking in a warranty item that might be right on the edge of its expiration period.  There are, however, other ways to get costs down on items you use in the manufacture or production of your work without beating up on the sales guy.  Here are a few:

• Consider getting an account with the vendor.  Many times, because suppliers want to be paid quickly, you are given a discount for paying early.
• Use more than one vendor.  I have three that are regulars and a few others for back up.  I check price with each of them regularly to make sure I’m getting the best deal.
• Sign up for a rewards card with your usual suppliers.  Office supply stores generally have them as do other frequently used suppliers.
• Sometimes off-brand can be just as good as on-brand, but if quality is one of your differentiating factors make sure you check the quality of an off-brand product before buying in volume.
• Find out whether or not your vendor offers occasional sales, discounts or coupons.  Officemax and Staples in the US send out a $10 off or 25% off coupons every other month.
• Ask if you can get a discount on bulk purchases.  We use a lot of latex gloves for working on cars and I save a couple of dollars per box if I buy a case.

Credit Cards

Credit cards can be a huge help in your business and a burden.  The costs of having access to the leverage of credit cards can be high.  However, as a small business owner there are times when a credit card can save your patootee.  There are things you can do to make credit cards more reasonable:

• Always, always, always pay more than the minimum balance if you carry a balance.  Sure, there are bad months where you might only be able to pay the minimum but it should be a rare practice.
• Pay on time.  Every time.  I’ll admit there have been a few times when I missed by a day or two because I simply forgot to get it done.  I recommend having a good system in place to make sure you get stuff paid on time.  Goodhousekeeping.com suggests paying the credit card bill the day it arrives so that it doesn’t get paid late.  However, with a business, cash flow is always a consideration and that strategy might not make sense every month.
• If you are a model customer, call and ask for a decrease on your annual percentage rate.  If you are a model customer it shouldn’t be too big a deal for them to give you a better rate or increase your line of credit.  And if you are a model customer… they know you can get a better deal by transferring to another credit card company and closing your account with them.
• Don’t pay an annual fee.  American Express has had an annual fee forever and with American Express it makes sense.  The benefits are great and the rewards program better than most.  But if you are using another credit card company with a just so-so rewards program then paying an additional fee every year just doesn’t make sense.  Look for cards without fees and transfer your balance there.  Then, cancel the old card if it makes sense.
• Be wary of cancelling a ton of credit cards.  This can have an impact on your credit score.  If you are paying a yearly fee, I say go for it.  If not, throw the card in a drawer and don’t use it.  If you manage to replace one card with another that has a lower interest rate, you don’t need to cancel the higher interest rate card.  Just don’t use it.
• Finally, if you are earning reward points on your card, make sure you are maximizing their power.  Use your card for big purchases to earn more rewards when you know you can pay the balance off quickly.  Or save for the purchase, use your card and send in the saved funds as your next payment so that no interest accrues.  Another way to maximize your rewards is to consider how you might use the points.  I allocate the points on my American Express card to be used for air fares and I don’t use them for anything else.  It gives me the feeling that I’m working toward something I can really use.

Postage and Shipping

I admit that this savings tip is a new one for me.  I’ll also admit that the more your business makes and the better your profit margin the more likely you are to not worry about those incidental added costs.  But each and every one makes a difference.

Recently as I sat at my desk, I saw the mail delivery person coming down the street.  I kept working.  I didn’t have anything to send.

Later in the day I went out to get my mail.  On my front door was an orange post-it thingy saying that there was a piece of mail I needed to sign for and because I wasn’t home… I’d now have to drive to the Post Office and pick it up in a few days.

As you can imagine… I was not happy.  I’d been sitting there the whole time and the mail delivery person never even rang the bell.

I resolved to reduce my use of all shipping and postage costs.  Why pay for a stamp when I’m not getting any service for it?  I immediately set up my online bill-pay options with the bank and with those providers who have online bill-pay on their sites.  Savings… okay only about $8 a month but it’s $8 more profit on my bottom line!

So, use online bill-pay services when you can as long as they don’t charge a fee for using them.  Consider having some of your bills set up with auto pay so that you don’t have to remember to pay them each month.

Set up accounts with shippers you use frequently like UPS and FedX, there is generally a saving when you use their online services to price and pay for shipping.  And if you can use an online service to process postage when you have to use it, you’ll save on a trip to the Post Office.

Round Up

So we’ve looked at few of the variable expenses that can really affect what you charge for your products and more importantly the size of your profit margin.

Getting supply costs down can help you make more and keep customers happy.  Credit cards are useful but can really affect your bottom line if not managed properly.  Finally whether you pay shipping to get your supplies or to send out product, it can have a real effect on how your profit margin shapes up.

There are more variable costs depending upon your business type, so review them and look for ways to keep costs down and profits up.

Next up… Part Three in the series where we look at all those uncategorized incidental expenses because they can really add up.