Business leaders want to believe their businesses operate efficiently and spend their money wisely; thus ensuring the survival and growth of the business. But that’s not always the case. Keeping track of where you spend all your pennies in support of your business is difficult, particularly when your organization has multiple layers and dozens of staff. But, you might find your business wasting money that is better spent on activities to support your business.
If you notice that you struggle to make ends meet or can’t seem to get ahead but can’t figure out why it might be because your business is wasting money in stupid ways. Here are some examples.
Ways you might find you’re wasting money
To discover whether you’re wasting money on unnecessary expenses or investing in tactics with too little return, your financial statements are the first line of inquiry. However, don’t stop with simple income statements and balance sheets. You need more nuanced information to determine whether you’re wasting money. Here are some options:
- Compare budgeted and actual expenditures as big differences might signify waste.
- Determine the ROI (return on investment) for each tactic in the planning stage. Eliminate tactics that don’t return some minimum percentage of ROI. See below to determine how to calculate ROI.
- Are you spending money on late fees or not taking advantage of discounts for prompt payment.
Sometimes it’s hard to see you’re wasting money when looking at your aggregate spending. Spreading the information down to the department or even campaign level often makes it easier to find waste.
Armed with some tools for finding waste, let’s talk about some of the biggest sources of waste along with some ways to eliminate the waste.
1. Unnecessary travel
Business travel sounds glamorous, but it is rarely productive, as we discovered during the pandemic. International commercial travel declined by around 85 percent during the pandemic, but the lack of in-person networking barely had any tangible effect on businesses. Instead, they simply switched to much cheaper online conferencing and meeting options, such as Zoom. New options for virtual conferencing using VR make even more travel situations unnecessary.
Take a look at your travel expenses. Ask yourself whether long-haul flights are really worth it or whether you could achieve the same value through a virtual option. Also, recognize that sales calls are very expensive, both in terms of time and travel cost. Instead of rewarding your salesforce for making as many calls as possible, force them to focus on those prospects and customers with the highest conversion potential.
2. Hiring the wrong people
Payroll is a massive expense, especially in service businesses. Hence, any savings in this area translates into a huge impact on your bottom line.
In terms of payroll, you must first determine whether you need all the employees you currently use, then evaluate whether they are efficient in performing their roles. You may find there are cheaper ways to satisfy your needs and meet customer demand other than hiring full-time employees with their associated benefits. For instance, hiring temporary workers to staff high-demand periods makes a lot of sense, as does hiring a gig worker to perform tasks that aren’t a routine part of your operation, such as graphic design for your new brochure. Never hire workers unless you can envision full-time employment for them. Idle time wastes money. Also, consider the cost savings potential from hiring an agency to handle tasks rather than employing folks. Below, you can see the cost savings associated with hiring a digital agency versus hiring employees.
Next, view productivity. Are some workers more productive than others? If so, consider training programs to increase productivity for low-performing staff or to raise the productivity of your entire staff.
By the same token, insufficient staffing results in costly mistakes, poor customer service, and employee burnout that reduce your business performance and may impact long-term survival. The same goes for low-balling salaries in an effort to save money as there’s a positive relationship between pay and productivity.
If you have staff bloat, speak with a business transformation consultant. Getting outside help gives you the knowledge you need to make your business leaner and healthier.
3. Ineffective marketing
Companies will often invest in marketing without the right metrics and analysis to determine whether the tactics meet certain levels of return or they focus all their analysis on bottom-of-the-funnel marketing efforts, especially conversion. This ignores the vast impact of top-of-the-funnel metrics on your bottom line. Instead, set goals for all aspects of the marketing funnel and compare performance against these metrics to ensure you meet your goals. Note below how a small increase in funnel performance generates a high ROI.
A more nuanced view of marketing requires you to evaluate each marketing campaign and every tactic used to determine which actions pay for themselves and which don’t. You must also analyze your top-performing marketing tactics to learn what made them successful so you can transfer that understanding to existing and new marketing campaigns.
Refocus your spending on marketing campaigns that work and refine campaigns with low performance or eliminate them. Then, once you’re ready, ramp up your marketing. Don’t try to do it the other way around.
4. Unnecessary fees
There’s a fine line between incurring unnecessary fees and ignoring threats in your efforts to stop wasting money. For instance, legal fees are a necessary element of your business to ensure you protect your assets and that contracts are enforceable. You also need attorneys to respond to legal challenges, such as lawsuits. But, don’t over-litigate by filing nonsense lawsuits and don’t feel every action requires oversight from an attorney.
The same holds for subscriptions you don’t use, bank fees, and fees for credit cards. Find alternate solutions with a lower cost. For instance, processing fees for Discover and American Express are higher than other credit options with AMEX reflecting the highest fee. Reduce banking fees by managing cash flow so you never overdraw your account.
5. Office space
Many firms discovered during the pandemic that costs for office space were wasting money. And, in cities, the cost of quality office space is astronomical. Instead of paying for a massive office, consider allowing employees to work from home, which is much less expensive, then rent a conference room or other facility for periodic times when you require employees meet face to face. Or, eliminate assigned office space or desks in favor of shared spaces. For instance, you might stagger employee workdays and have several employees share an office or desk on their own schedule. You’ll need a few extra desks or a conference room when employee schedules overlap.
These are just 5 ways you might be wasting money in your business, resulting in poor performance that hampers growth and survival. Of course, there are lots of other wasteful actions within your business, such as:
- investing in assets that don’t contribute to your mission
- poor employee procedures resulting in high turnover rates
- improver leverage of assets; rent versus buy decisions not analyzed properly
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Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.