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Fixed costs are costs that are not dependent on the number of goods or services that your produce. They stay the same regardless of any increase or decrease in your business’s production output. They also tend to be recurring, i.e. you must pay for them periodically.

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Some fixed costs you may incur include rent, salaries, utility bills, insurance, property taxes, and interest on loans you have taken. They differ from variable costs, which vary with the quantity or level of output your business produces.

You may want to shrink your fixed costs if you believe you’re spending too much on them or would like to increase your profit margins. This article explains five ways you can do just that.

Use A Budget

The first thing you’ll want to do is to closely track your expenses. This will let you know what you’re spending on and, therefore, where the cuts need to happen. When you’ve done this, you can work with a budget that contains your preferred level of expenses. It may be a bit more difficult to shave off some naira from your list of expenses, but it’s certainly doable. Track your spending over time, identify what leeway you have around limiting your spending, and take advantage of it.

Decrease Inventory Handling And Storage Costs

Inventory storage costs also count as fixed costs. That’s because you’ll have to cover them regardless of the number of goods you’re storing. Inventory management software can help you lower this cost.

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It’ll enable you to track your stock’s movement, generate sales performance reports, and integrate sales with other aspects of your business. These benefits will translate to fewer hours spent on accounting and reconciliation and, ultimately, reduced fixed costs.

Reduce Labour Costs

If you’re an employer, you’ll be spending a fair portion of your revenues on salaries. But you may struggle to meet your financial obligation to your workers if your business is struggling. There are several ways to reduce labour costs: hiring interns or entry-level employees, reducing staff turnover by promoting a decent work environment and outsourcing non-critical tasks. And depending on the nature of the job your staff does, you may pay them in commissions (a base wage plus commissions), thus tying their financial reward to the success of your business.

Cut Vendor Rates

Examine your vendor subscriptions, and compare them with what’s on offer from other product or service providers. You may need to switch if you can get a better deal elsewhere.

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You might also consider negotiating lower prices with your current vendors. Perhaps you could agree on service packages that are less expensive but not too far off the product or service quality that you presently enjoy.

Reduce Rent

Rent typically takes a large share of the costs that businesses incur. While you may wish to be able to negotiate this cost downward, it’s often not possible to do so. Your only option may be to move to a location that you consider more affordable. You can sublease underused parts of your office spaces in a few cases, so you’ll have some of your rental costs covered by your subtenant. You could also ask your employees to work remotely if the nature of their job (and your business) makes this reasonable.

Final Words

You probably won’t be able to get rid of fixed costs. But you can make them less burdensome. Work to trim them around the edges, and take advantage of any opportunity you have to bring them down. You can do this by following the tips we’ve shared here.

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This article was first published on 4th October 2022


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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One thought on “Business Growth Tips: How To Reduce Fixed Costs In Your Business”

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