How to Reduce Operating Expenses in Retail Businesses

Operating costs are a necessary part of retailing. However, these expenses can eat into your budget and lower profit margins.

Not surprisingly, most business owners constantly think about how to reduce operating expenses in retail without sacrificing quality.

Although it isn’t possible to fully eliminate operating costs, there are several methods you could consider to lower them.

What Are Retail Expenses?

Retail expenses are costs required to run the business. These include inventory, rent, advertising, employee wages, and many more.

One of the most common categories of business expenses is operating expenses. These are the day-to-day expenses that companies incur to stay operational. They are not associated directly with the primary business activities, nor do they involve the production of goods and services.

Operating expenses are short-term and incurred during normal business operations. As much as possible, companies should maximize output relative to operating expenses to remain efficient. But, of course, it also helps to know how to reduce operating expenses in retail.

What Are Some Examples of Operating Expenses?

Although businesses have different costs, most have the following operating expenses:

• Rent
• Utilities
• Payroll
• Building or equipment repair and maintenance costs
• Sales and marketing
• Office supplies
• Advertising
• Employee benefits

Operating costs can amount to a significant total, making it even more crucial to learn how to reduce operating expenses in retail.

What Are Controllable Operating Expenses?

Controllable operating expenses fall under one of the main types of expenses in retailing. Therefore, knowing how to manage them effectively helps you improve profitability in your store.

But what exactly are controlled expenses? These are costs you can alter or adjust in the short term. An expense is deemed controllable if the decision to incur it rests on or is influenced by an employee or a business decision.

For instance, bonuses and commissions are controllable expenses if the sales manager influences them. Other examples are direct supply and material costs if the production manager controls them.

Costs are not controllable if the decision to incur them resides with multiple individuals or a third party imposes them, such as taxes.

There are various ways you can save money by managing your controllable costs. However, avoid choosing a method that will eventually lead to a loss in future sales.

How Can Operating Expenses Be Reduced?

Here are some suggestions on how to reduce operating expenses in retail and boost your profits.

Cut Unnecessary Expenses

Before attempting to lower your operating costs, audit your expenses first and determine which ones are essential and which are not. Weigh their cost against their contribution to your business profits, then cut those that are not essential.

If you have unusable items or excess stock, avoid storing them. Instead, replace them with useful ones. A few operational expenses to evaluate include:

• Utilities
• Phone, internet, and cable
• Credit card fees
• Administrative costs

Make sure no services or resources are pointless, and if possible, go for more cost-effective alternatives.

Outsource

Outsourced staff can save you a lot of money on labor costs. Sales incentives, salaries, and compensation can add up to a considerable amount. But by turning over customer service tasks like live chat management and sales promotion to a reliable external party, you can greatly reduce operating costs.

Go Online

Taking your store online does away with the need to maintain a large physical store. Additionally, you may be able to sell or rent your unused space. There are many advantages to offering an online shopping experience to customers, and creating a digital presence can drive sales while helping you cut operating costs.

Automate Tasks

Automation lets you spend less time and effort on unnecessary manual work. The more you automate, the more you can free up everyone’s time and increase productivity. This can ultimately result in improved workflow and reduced costs. Even if your retail business grows, automated solutions make it unnecessary to hire additional employees.

Negotiate With Suppliers

In retail, almost anything is negotiable. Try to make use of your business relationships with vendors to ask for discounts or special rates. Often, suppliers agree to reduce prices or fees when dealing with loyal clients.

How to Reduce Operating Expenses in Retail Using Call Center Services

Outsourcing some of your processes can be a smart move if you want to lower expenses.

Even if this means spending more money initially, you can end up spending less than doing certain tasks and services in-house.

Here are just a few of the ways a retail call center can reduce your operating expenses:

• There’s no need to maintain an HR or customer service department.
• You save on recruiting, interviewing, hiring, and training costs.
• You cut back on some marketing expenses.
• You don’t need to hire permanent employees for work processes that can be outsourced, such as billing support, customer care support, and other business support services.

Outsourcing opportunities may vary for every company, but once you discover the best method on how to reduce operating expenses in retail, then you can focus more on growing your business.