Across the nation, marketers are experiencing competitive pressure on gross margins. You just can’t earn the same profit on a gallon of fuel as you did in the good old days. Some marketers are responding with creative new products and services to bolster declining fuel profits. Many more, however, are searching for ways to trim operating costs.
Recently, at a Meridian event, a large audience of a few hundred business leaders broke into workout groups with the task of sharing their best operating cost saving ideas with each other. Working in groups of 7 to 12 people, each person told their story. Each group then selected the top cost-saving idea to be presented to the general session.
The following techniques listed are in order of presentation, not by dollar value.
1. Put tankwagon driver’s wages on a percentage of their total profit generated. The formula we used was Sales minus Costs of Product minus taxes minus Fuel and other truck costs minus office labor minus company pension minus truck depreciation. Our drivers became extremely cost-conscious and efficient using this formula and took pride in the profit they were bringing to the company.
2. Negotiate telephone carriers. In our area, we have choices in local as well as long-distance service. Our savings was $250 per month or $3,000 for the year.
3. We lowered our interest rate by one-half percent by negotiating with our banker.
4. First we reviewed our insurance coverage and eliminated items that did not need coverage. Then we negotiated our premium. Our savings was in the thousands of dollars.
5. We did a labor study and eliminated unnecessary employees. (It was an unpopular decision but it saved us a lot of money.)
6. Debt we borrowed when we replaced and updated our underground tanks was paid off early which made a large reduction in our interest expense for the year.
7. We created a preventative maintenance schedule for each type of equipment. Then we tracked unexpected repairs by unit and replaced old equipment that was no longer cost effective.
8. We reduced our open hours. We did a study of our sales and decided to close during the slowest times. Our savings was $17,000 per year.
9. We retrofitted every location with energy efficient lighting. (Editor’s Note: most utility companies will do a free evaluation of your lighting.)
10. We eliminated all of our managers and now use only supervisory level employees. It was just too expensive to have traditional managers. The supervisors are doing a great job.
11. We changed banks to one with lower bank statement service charges.
12. We eliminated all overtime.
13. We reviewed all suppliers. We contracted with new suppliers that had lower prices.
14. Our company purchased a check encoding machine to encode our own checks. Our largest bank charge was for encoding that we now do in-house. A $2,000 machine has saved us many times that amount.
15. We hired a combination mechanic/driver so we could do all truck maintenance in-house.
16. We cut out one fuel route. We kept only the profitable customers, adding them to existing routes. Our savings was $35,000.
17. We used an alternative financing program for agricultural accounts (Farm Plan) so we didn’t have to carry the receivables. Now we get immediate cash for those sales. (Editor’s Note: for information on Farm Plan, call 800-356-3446. Be sure to specify that you are selling directly to farmers.)
Other proven techniques to reduce costs not mentioned are:
• Use temporary and part-time help in lieu of full-time, full-benefit employees.
• Tie bonuses and company retirement plans to company profit performance. Incentive experts suggest payouts must be no less frequent than quarterly and ideally should be monthly.
• Bid out all employee benefits such as health insurance annually.
• Purchases office supplies from large discount houses that guarantee absolute lowest prices.
• Negotiate with all vendors. Use the phrase “Is this the best you can do for us?” or “Does this include our discount?” and see what happens.
• Review equipment rent expense to determine if frequently rented items should be purchased for savings.
• For officer’s life insurance, term is much less costly than whole life for temporary needs.
• Much labor and paper is wasted on reports that no one reads or acts upon. Stop all automatic reports then wait to see who yells for what. You’ll isolate what’s really needed.
• Travel clubs offer discounts on airfares and lodging. One of the most popular is the Entertainment Book with 50% off on hotel rates nationwide, deep car rental discounts and a variety of local restaurant and retail deals. This discount book is available from non-profit groups in most cities.
For more operating cost reduction ideas, MFA highly recommends a book by Bob Fifer entitled Double Your Profits in Six Months or Less. This book is available in the business section of most popular book stores.
As you institute cost-savings at your company, consider involving your employees in the process through a carefully structured incentive plan. You’ll be amazed at the money you can save when your whole team is working towards and actively involved in the company goal.
