Your business’s recurring expenses add up to a significant chunk of your budget. You can permanently cut some of those costs by negotiating discounts and lower rates with the service providers and suppliers.
When there’s a downturn in business or inflation impacts small businesses, companies look for as many ways as possible to reduce discretionary spending. But most businesses’ biggest expenses aren’t discretionary or one-time purchases. Next to labor costs, the top costs are usually the company’s recurring expenditures for goods and services. Thus, the key to the biggest cost reduction could be to reduce or eliminate some of those recurring expenses.
Some ongoing costs you can’t do anything about, of course. But if you try, you may be able to negotiate some significant savings on expenses you didn’t think you could reduce. Although you may be hesitant to ask your suppliers for deals, the truth is that many business-to-business (B2B) companies expect their clients to haggle for prices.
Here are ways to you may be able to reduce your recurring costs and improve your bottom line.
Analyze your recurring expenses
Before you start negotiating price reductions, be sure you still need all the recurring services you’re paying for. Your needs may have changed since you first contracted for certain products or services.
For instance, if you’ve laid off one or more employees and don’t plan to fill those positions soon, do you still need as many phone lines as you did before? If you’re charged a fee each month for each line, call the utility and drop the lines you’re not using. Ask if they’ll redirect any incoming calls from the dropped lines to one of the lines you’re retaining.
Audit your credit card statements to be sure you catch all the recurring charges you’re paying, too. You may discover some subscriptions or other recurring charges for services you no longer want or need.
Ask service providers for a lower price
This is sometimes the quickest and easiest way to reduce recurring expenses for things like office phones, mobile phones, Internet connection, and other services. Often, these service providers will lower their price if you ask them.
Some have client retention departments that deal with such requests regularly and have the authority to give discounts to retain customers. Furthermore, they may have lowered their monthly fees since you started doing business with them. They won’t offer you the lower price unless you ask.
To get started, check the company’s website to see what their current advertised prices are, and if they’re lower than what you’re paying now. (Use in-private or incognito mode in your web browser to avoid seeing your regular log in page.) Ask other business people in your area what they’re paying for the same service. Finally, check competitor prices, too.
With that information in hand, call customer service and tell them you want to talk to someone about lowering your costs.
Ask your landlord to reduce your rent
If your lease is coming up for renewal soon and there’s a lot of vacant commercial space in your area, ask your landlord for a rate reduction on your lease. They may be willing to lower the rent to keep you as a tenant.
If they won’t reduce your rent, shop around for a new location with lower rent. Before deciding, be sure to consider your cost for moving the business to the new location.
If your lease isn’t up for renewal but your business is struggling, ask the landlord if they’ll give you a temporary break on costs. If they like you as a tenant and have no one to replace you, there’s a chance they may give you at least temporary relief.
If your lease isn’t up for renewal, and the landlord won’t budge on price, look at the lease document you signed and see if there’s an “out” clause in it. An “out” clause is an option in the lease that lets you get out of the lease if you notify your landlord in advance. Typically the advance notice is 3 to 6 months. If you can get lower rent elsewhere, or even operate your business from home, consider taking advantage of the advance notice option.
Renegotiate merchant account provider fees
If you’ve been using the same merchant account provider for a number of years and your account is in good standing, contact them about reducing their fees.
Before you call them, contact some other merchant providers to find out what fees they’d charge for your type of business and volume of sales. If you have a high-volume business, reducing the fees you are charged to process credit cards could save you a significant amount of money every month.
Create an RFP for major purchases
Consider using RFPs to solicit proposals for major purchases. An RFP is a Request for Proposal. It’s a formal document used to list your project requirements and to solicit bids from vendors or service providers.
Many small businesses submit RFPs when attempting to choose providers. Small and midsize businesses might send RFPs to marketing companies, technology developers, or website designers. Using an RFP has two benefits. One, it makes you list and focus on the key requirements for the project success. Two, it ensures you provide the same details to all potential vendors so you’ll be better able to compare their responses. Be sure to do some research on the cost of the desired goods or services in your area, so you can go into the situation with realistic expectations.
For best results, create a detailed document that offers information about your company and the project in question. The more information you can provide vendors with upfront, the more accurate your quotes will be. Putting an RFP together is time-consuming, and these documents are best used for larger purchases.
Alter your ordering strategy
If vendors aren’t offering the prices you desire, you might consider changing your overall ordering strategy. In many cases, small businesses can cut overall costs by either consolidating orders or breaking them down.
Generally, consolidating orders and buying goods in bulk both increase your value to suppliers and boost the odds of them giving you deals. After all, vendors have cash flow problems, too. If you place a bigger order with a larger initial deposit, the supplier might be willing to negotiate with you on cost per item. As an added perk, it could lower your total shipping costs, too.
As a note of caution: avoid purchasing in bulk for inventory that is likely to expire or become outdated. For best results, confer with your sales department and accounting team before buying in bulk. You don’t want to tie up cash that you need for other purchases or have to dispose of items you can no longer sell.
Change your payment strategy
If you typically pay your bills at the last minute, you might want to rethink this strategy. Some suppliers offer discounts to customers who pay within a short time. For instance, they might give a 2% discount for payment within 10 days. This might be written on your invoices as 2/10 Net 30.
Another option: if you usually pay by credit card, ask if the vendor will give you a discount if you pay with a check. The vendor may be willing to do so because they’ll save the fee the merchant account company charges them on the purchase. (Be sure the discount you get will amount to more money than you’d get back if you pay with a cash-back credit card.) And, of course, avoid paying bills late, as doing so can result in added fees and penalties that send your overall costs skyrocketing.
Create competition among vendors
You might be hesitant to tell your current paper supplier that you’re shopping around for a new vendor. However, creating some healthy competition is a good way to keep costs down. In fact, when a supplier knows that you’re pursuing other options, he or she is more likely to offer you the best deal possible — even if it’s not the one stated on the website.
If your vendor of choice won’t work with you on price, shop around for another vendor. Depending on what you need, you may be able to find multiple suppliers. Sometimes the most competitive prices for some items (like paper goods, for example) might be at a local wholesale club like Costco or Sam’s club. If so, you could save on the cost of supplies and shipping. To be sure the new supplier really meets your standards, by a small quantity at first.
Renegotiate credit cards
Few small businesses have mountains of cash available to purchase all their products and services outright. As a result, small and midsize businesses often wind up charging some of their expenses to credit cards. Unfortunately, choosing the wrong credit card company can result in higher interest rates that send your debt level skyrocketing.
If you’re a good customer who pays bills on time, the odds are good that your card company will want to keep you around. Before approaching your card carrier, take time to gather offers from other cards. You can also research balance transfer services to see what options are available to you. Then, call your carrier and ask to speak to a supervisor about the situation. Let them know you’re thinking of switching card companies, and they might be willing to negotiate terms, rates, and even payment amounts to keep you as a customer.
Ask for other perks
Sometimes vendors simply refuse to lower their prices. In these cases, small businesses might want to request other perks, such as faster shipping, longer product warranties, and lower down-payments. You can often work out an agreement that is beneficial to both parties — you just have to ask.
Remember: most suppliers would rather negotiate with you than lose you as a customer altogether. Follow the above tips to keep your business in the black for the long haul.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.