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The Top Factors that Contribute to Overhead Costs

By: Brittany Engelmann-- 2016-10-14 7:00 am --

Profits are one of the primary performance indicators that signify the success of a company. Yet, oftentimes, business owners find that their profit margin is lower than desired. When analyzing the data of all factors contributing to gross profit margins, overhead costs are often identified as one of the key areas influencing low margins. Here are some of the top factors that contribute to your overhead costs, so you can innovate ways to slash spending and increase your gross profit margin.

Fixed Business Costs

Typically, fixed business costs will compose the largest chunk of all overhead costs. Fixed business costs refer to all of the fixed payments made to operate your business each month. This includes rent, utilities, payroll, and insurances. The costs are recurring each month, regardless of demand, and tend to remain steady in terms of the overall resources they require. 

There are some ways, however, that you can reduce fixed business costs and operate a more cost-effective business. Both utilities and payroll are two key areas that you can reduce spending on immediately. By switching to energy efficient lighting and appliances, you can scale back on utility expenses. Payroll expenses can be minimized by reducing employee turnover, since excess resources are spent on training new employees.

In terms of minimizing employee turnover, there are several key factors that have been determined to improve the employee experience and reduce turnover rates. One significant factor is the workplace culture and experience. By creating a professional and consistent business model, you can cultivate a workplace environment that enables employees to thrive, while allowing each employee to carve out their specific role within the company.

Variable Business Costs

Variable business costs compose the second largest chunk of overhead costs. These are any expenses that tend to fluctuate throughout the year, due to a variety of external factors. The need for office supplies, for instance, may ebb and flow throughout the year depending on the demand on your company. Marketing expenses may also vary throughout the year, depending on the total sales of your business.

Decreasing variable business costs is fairly simple, provided you create a strategy and stick to it. In terms of office supplies, the key way to scale back spending is by finding a wholesale vender that can continually offer low prices and consistent value. To decrease marketing costs, you should create a data-centric strategy that prioritizes customer relations, so you can increase leads and conversions from every advertisement you run.

The Wholesale Suppliers You Choose Can Make or Break Your Profits

Never underestimate the power that your suppliers hold over your company. The suppliers are the very people your business model will depend on. You need a supplier that you can not only trust, but that will also remain consistent with their pricing and services over the years. At DollarDays, we know that suppliers play a crucial part in the success of small businesses. That’s why we cherish all of our client relationships, and seek to create a trusting and mutually beneficial relationship that will enable our clients to thrive. Contact a representative today to learn more.