6 Types of Operating Costs Brick-and-Mortar Businesses Should Manage Effectively

The art of cost management is a crucial practice that transcends industry boundaries and company sizes. Being able to manage costs in an effective manner is a linchpin for financial sustainability and growth. No matter if you’re running a physical store or a bustling manufacturing facility, your ability to navigate operational expenses and make informed decisions can determine the fate of your enterprise. More than just a mere exercise in crunching numbers, effective cost management entails strategic finesse and a clear understanding of where to allocate resources optimally. Here are some of the operational expenses you should anticipate and prepare for as well as tips on how to keep them down.

Employee Salaries and Benefits

Labor costs are often one of the largest components of operating expenses. Effective management of employee salaries and benefits, then, is crucial to ensuring a brick-and-mortar business’s financial health.

Managing labor costs effectively starts by conducting regular salary and benefits benchmarking. This step ensures that the establishment’s compensation packages remain competitive in its industry and region. Next, consider implementing performance-based compensation structures to incentivize productivity and reduce labor costs. Additionally, monitor staffing levels to avoid overstaffing during slow periods and understaffing during peak times. Offering flexible working arrangements or part-time employment is another strategy that can help optimize labor costs while accommodating employee preferences. By carefully managing employee benefits, the business can control labor expenses without compromising employee satisfaction.

Utilities and Services

Utilities such as electricity, water, gas, heating, and cooling costs are necessary for the day-to-day operations of a brick-and-mortar business. The use of energy-efficient technologies such as LED lighting and programmable thermostats can go a long way in controlling these types of costs. It’s also a good idea to regularly monitor and assess the establishment’s energy usage and look for patterns and areas where consumption can be reduced.

On top of everyday utilities, businesses should also factor in the cost of the services that support their operations. For instance, brick-and-mortar shops need to use a POS (point of sale) solution to quickly and accurately record their transactions and provide their customers with excellent shopping experiences. Now, the traditional options for POS Philippines’ businesses tend to use often require a substantial investment. To save on upfront and maintenance costs, many tech-savvy entrepreneurs choose to rely on payment solutions providers like Maya Business to process their in-store transactions. Maya Terminal, which is a portable POS device offered by Maya Business, serves as a modern POS system that lets brick-and-mortar shops process cashless in-store transactions made using credit and debit cards, QR codes, and digital wallets. Using the Maya Terminal only requires businesses to pay a monthly subscription fee that starts at PHP 949, making this tool an affordable alternative to traditional and expensive POS systems. Exploring such options for other services that are crucial to operations can help businesses save on costs.

Rent and Lease Costs

Unlike ventures based solely online, brick-and-mortar businesses have to confront the cost of rent and lease. These establishments, after all, need a space where they can carry out their day-to-day operations, display their offerings to the market, or accommodate potential customers and clients. Rent and lease expenses typically represent a significant portion of a business’s overhead, and managing these costs is crucial to maintaining profitability and financial stability.

The key to properly managing rent and lease costs is getting it right from the very beginning. It’s essential to negotiate favorable lease terms when entering into agreements. Also, when given the chance to rent a high-traffic but costly location, businesses should consider whether or not this choice can result in a potential increase in revenue. Meanwhile, upon renting a space, businesses should make every effort to explore opportunities to reduce square footage, sublet unused space, or renegotiate lease terms in the event of changes in market conditions.

Inventory Costs

Businesses, particularly in retail and manufacturing sectors, have the opportunity to keep expenses at a minimum by keeping a close eye on inventory costs. This is because properly managing inventory costs is essential to reducing carrying costs, avoiding overstocking, and preventing the obsolescence of goods.

The use of an inventory control system can provide a business with real-time insights into stock levels and demand trends. This system can help a business carry out regular inventory audits, identify slow-moving or obsolete items, and consider whether or not it’s practical to discount or liquidate such stock. At the same time, implementing a just-in-time inventory system can help reduce storage costs, and negotiating favorable terms with suppliers is an effective means of reducing procurement costs. Effective forecasting systems and demand planning can help establishments optimize inventory turnover and reduce carrying costs while ensuring that there are enough of the right products on hand to meet customer demand.

Marketing and Advertising Costs

Marketing and advertising are vital for promoting brick-and-mortar businesses and attracting customers. However, these costs must be managed effectively to ensure a positive return on investment (ROI). Start by creating a well-defined marketing plan that outlines the business’s target audience and the most cost-effective advertising channels. Then, regularly review and analyze marketing campaigns to identify which ones are generating the highest ROI and which should be adjusted or discontinued. It’s also a good idea to consider implementing digital marketing strategies, such as social media advertising and pay-per-click (PPC) advertising to track and measure results more accurately. With a well-planned and properly executed marketing strategy, a brick-and-mortar shop can reach its target audience more efficiently while minimizing the unnecessary costs that typically come with this activity.

Maintenance and Repairs

Routine maintenance, repairs, and facility upkeep are essential for ensuring the safety, functionality, and aesthetics of a physical space. Keeping maintenance and repair costs low requires a preemptive approach, which is to implement a preventive maintenance schedule to address issues before they become costly emergencies.

Conducting regular inspections of the premises enables business owners to identify potential maintenance needs, such as HVAC system maintenance, plumbing repairs, and structural upkeep. On top of inspecting equipment, it’s also a must for staff members to keep detailed records of maintenance activities and expenses to track trends and make data-driven decisions. Whenever possible, explore cost-effective maintenance options and negotiate contracts with service providers to secure favorable terms. Prioritizing maintenance and repairs not only reduces long-term costs but also enhances customer experience. It also maintains the appeal of a physical shop, a quality that can contribute to improving the staff’s productivity levels or catching a consumer’s eye.

Successfully managing costs is akin to fine-tuning the engine of a high-performance car—it propels an enterprise forward with efficiency and precision. By following these meticulous approaches to reducing costs, businesses can preserve financial stability and safeguard profitability while ensuring compliance with regulatory obligations and enhancing their competitive edge. Ultimately, the businesses that master the art of cost management can have a better chance of emerging as resilient leaders in their fields.