How to Reduce Overhead Cost: A Quick Guide for CFOs

 

How to Reduce Overhead Cost: A Quick Guide for CFOs

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Your role as CFO is no small feat, as you need to manage and optimize company finances for sustained growth. You must also constantly look for ways to enhance profitability without compromising your product or service quality. The best way to do this is by keeping an eye on your organization’s overhead cost.

Reducing overheads can be challenging. After all, they’re essential to your business operations, so you can’t simply cut them out to save money. To help you out, this article discusses how to reduce overhead costs and keep your company finances efficient.

What Are Overhead Costs?

Overhead costs encompass business expenses that sustain day-to-day activities. Unlike direct costs, overheads do not directly contribute to the production or performance of your company’s goods or services. However, effectively managing them is still essential for optimizing resources and enhancing your company’s profitability.

There are three primary types of overhead costs: fixed, variable, and semi-variable.

  1. Fixed overheads are constant and don’t change depending on your business activities. They include office rent, government licenses, and salaries.
  2. Variable overheads increase or decrease with your business activity, such as marketing costs, legal expenses, and equipment maintenance.
  3. Semi-variable overheads come with a base rate plus a variable cost that depends on your activity level. Some examples are your IT infrastructure, utility bills, and software subscriptions.

How CFOs Can Reduce Overhead Costs

Handling your overheads gives your company more opportunities to save and invest in its growth, paving the way for a more sustainable future.

1. Review insurance policies

Insurance can quickly become unmanageable, especially if you pay premiums in a lump sum. Prioritize your insurance coverage by periodically assessing it. Align your protection with current business needs, so you’re neither over- or under-insured. If you can’t negotiate a favorable premium, exploring alternative providers can help.

2. Do away with underperforming products and services

How are your offerings doing? Chances are some might not be selling well, wasting the resources you put into maintaining them. Avoid this by evaluating your product and service portfolio to identify underperforming offerings. You can then direct the resources toward higher-yielding ventures that boost your bottom line.

3. Shift to remote work

The recent shift to home-based office setups has proven to be a transformative strategy for business finance-wise. In fact, experts claim that switching to remote work has saved companies up to $11,000 per employee since they avoid overheads like utilities and office rent. Your company can enjoy similar benefits by decentralizing your operations to minimize costs without compromising productivity.

4. Cut down on travel expenses

The global spending on business travel is slowly returning to its upward trajectory before the pandemic lockdowns. However, evaluate your operations: Do you need to travel?

While face-to-face client meetings are undeniably valuable for client rapport, consider if virtual meetings can accomplish similar objectives. Ask your clients if they would like a remote alternative—they might also want to save time and money by leveraging Zoom or Google Meet instead. This adjustment could drastically reduce your operating costs in the long run.

5. Renegotiate contracts with vendors

Your suppliers and vendors may be willing to adjust contracts in your favor, especially if you’re a long-time client. Contact them about renegotiations; you might even secure more agreeable terms, whether volume discounts, extended payment terms, or lower service fees. It could also build your partnership and, in effect, unlock cost efficiencies that better align with your financial objectives.

6. Streamline software licenses and subscriptions

Whether you’re using self-hosted programs or software-as-a-service (SaaS) products, their license and subscription fees can quickly rack up and increase your operational expenses significantly. So, minimize IT costs by thoroughly auditing your software array to identify underutilized tools. Then, consider cutting them off or picking a service tier that matches actual usage to avoid wasting your investment.

7. Automate where you can

Automation has become an essential investment for any industry. Stay competitive and implement it in your organization by identifying internal processes you could automate, such as logistics or HR. Find ways to integrate automated tools into client operations as well. Doing so lets you reduce the time and money spent on repetitive tasks and invest them in essential operations.

8. Consider outsourcing or offshoring

Delegating certain business operations to third-party service providers is an effective cost-cutting strategy that won’t sacrifice service quality. Outsource or offshore to competitive labor markets if you need help with non-core business tasks, like back-office functions, customer support, or digital marketing. 

This setup allows you to tap into specialized expertise and enjoy labor costs significantly lower than those of an in-house team.

Reduce Overhead Costs by Outsourcing with Manila Recruitment

Understanding how to minimize overheads and maximize resources is essential to your role as a CFO. So, implement the strategies we’ve discussed in your organization to give it the tools to facilitate more sustainable and cost-efficient operations that will catapult it to greater heights.

Need help? Reach out to Manila Recruitment, a top-tier outsourcing and recruitment agency in the Philippines, to cut your recruitment costs and find the best talent for your organization.

Contact us to learn more.


About Lawrence Barrett

Lawrence left the UK in 2010 after been headhunted to live and work in Shanghai in the financial services industry. Then in 2014 his company asked him to move to the Philippines to set up an office and establish a team to support our international business development efforts in the region and, like most people, he fell in love with the place. Lawrence always had an entrepreneurial mindset and so there was a burning desire to start a business he could call his own. In 2015 he decided to team up with a friend to start a business in the Oil & Gas industry that is centered around a globally patented pipeline sealing technology (The Halo Seal). As time went by he developed a close relationship with the Founder and CEO of Manila Recruitment and so in late 2017 he was invited to become an equity partner and to help expand the brand. And so here he is now, a part of the most dynamic headhunting firm in the Philippines. Connect with Lawrence Barrett on LinkedIn