How to Lower Expenses without Compromising Product or Service Quality

They are many good reasons to go into cost-cutting mode. Maybe you have a tight budget. Perhaps you want to widen your profit margins. Or maybe you just want to free up funds to reinvest in your business. Whatever the case may be, reducing costs could do the trick.

But if you’re concerned that this move would compromise product or service quality, fret not. It’s entirely doable to be on a tight budget and still delight your staff and customers.

Check out our tips below and see how you can apply them to your business.

Focus on customer retention

It’s more expensive to acquire new customers than it is to keep existing ones. That’s why it pays to have excellent customer retention strategies. Rather than spending loads of cash on customer acquisition methods (ex: advertising), implement customer retention strategies using resources and data you already have.

Here are a few examples:

Data-backed offers

You could go through your customer database and send an offer to people with birthdays coming up. This is an easy way to send targeted offers, and it likely won’t cost much.

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Apparel store Styles for Less does this well. Every month, the retailer sends out 20% off coupons to shoppers celebrating their birthday.

This is just one of many targeted campaigns that you can carry out. Depending on your data, you could launch personalized customer retention campaigns based on information like location, gender, previous purchases, and more.

Explore the shopper data you have and consider the different ways that you can slice and dice your database.

Element of surprise

Implementing a “surprise and delight” campaign is another great way to engage existing customers. By surprising people with perks that they won’t see coming, you’ll make people happy and be ultra-memorable at the same time.

Check out what Expedia did. According to COLLOQUY, in 2010, the airline company sent a $100 coupon to select members of its Elite Plus program. The effort generated an increase in transactions by almost 10%. But what’s more interesting is that while just 10% of recipients redeemed the coupon, Expedia found that even those who didn’t use the offer ended up traveling more with them.

High-quality products and customer service

While loyalty programs and other tactics can bring in repeat business, the best strategy is to offer top-notch products and services.

Providing merchandise and experiences that exceed expectations leads to loyal customers and increased word-of-mouth. This, in turn, lowers the costs of customer acquisition, PR, and more.

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Case in point: American Giant. The apparel store attracts customers not through traditional advertising or marketing, but by simply creating great products. Instead of investing in commercials, they invest in developing the best products in the market. They trust that their customers will not only purchase again and again but also become their advocates and spread the word.

The strategy has paid off quite well for the retailer. They have a loyal following, and their classic sweatshirt was even dubbed “The Greatest Hoodie Ever Made.” The product was so popular that at one point customers had to wait months just to get it. Now, that’s the power of producing exceptionally high-quality merchandise.

Sell fewer products

You may have products sitting on your shelves that are costing you money. Determine what these items are, then consider discontinuing them.

Doing this could help lower product development and marketing expenses. It could also free up capital tied up in inventory.

Consider the case of Scrubz Body, a natural skin care retailer. According to founder Roberta Perry, deciding to sell fewer items has saved them thousands of dollars.

“We had been working on ways to make more money and trimming expenses and realized the answer was in front of our face. The men’s line did not meet up with our true branding,” she said.

“The sample sizes cost us almost as much to make as the medium size. We had too many scents of each product. Something had to give, and it was those products.” Perry shared that they were able to lower expenses after discontinuing their men’s line because they had “fewer products sitting on the shelf, fewer labels to print, and fewer products or sizes to market.”

Not only that but the move also helped increased sales. “What is interesting is, with less to choose from, customers spend more. Go figure,” added Perry.

Sublet parts of your store

Subletting your location could help lower one of your biggest expenses — rent. Check with your landlord to see if you’re allowed to rent your space. If you get the green light, conduct a search for other shops who would be open to moving into your location.

One retailer that did this well is Metropolis, a gift-and-card shop in Seattle. In 2009, the retailer was hit by the recession and this prodded owner Terry Heiman to rent out the space.

After getting approval from his landlord, Heiman started subleasing a third of his store to other merchants.

According to Entrepreneur.com, “Heiman spent $1,000 to install a loft-style wall between the spaces, and each store has its own entrance, address, and separate utility metering, making for easy division of expenses. He collects the rent and writes one check to the landlord each month.”

Consider doing something similar in your business. If your lease agreement permits it, find retailers who would be willing to move in so you can share location expenses.

Increase order quantities

In most cases, you can reduce your cost of goods by ordering larger quantities. Cook up ways to increase your buying power. Go through your inventory data and see if you can up the orders for some of your merchandise.

See if it’s possible to consolidate different orders. Team up with other merchants so you can combine orders and lower costs. This is something that many large retailers are doing. Take Walmart, for example. A few years ago, the retailer looked for partners who can purchase raw materials with them so they could increase their buying clout.

Work with your vendors

Cultivate better relationships with your vendors. Be honest, pay on time, and practice ethical business. In short, earn their trust and be an excellent customer.

In doing so, you’ll find that your suppliers might be open to negotiating better terms with you. Some vendors, for example, may allow you to return unsold merchandise or give you more favorable rates because you’re easier to deal with.

Another tip? Negotiate better payment processing fees. If you accept credit cards (and you totally should), your payment provider takes a cut out of your sales. In many instances, these fees are quite fluid can thus be negotiated, particularly if your processor is using an interchange-plus or tiered pricing model.

Examine your credit card processing statement to figure out how much you’re paying, then negotiate processor (or shop around) to get better rates.

These things help lower expenses and prevent you from having too much capital tied up in inventory.

Take care of existing employees

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Invest in the happiness and education of your employees. Keep them motivated through positive reinforcement, training, and added perks. It may seem counterintuitive to spend extra money on perks or benefits (even if technically you don’t have to), but you’ll find that losing and replacing your staff is much more expensive.

As Cara Wood pointed out in her post on employee happiness, “Losing a $10/hr retail employee costs you $3,328. When you combine that with the retail industry’s turnover rate of 70%, and you have a store staffed by ten people you’re spending $23,296 a year unnecessarily.”

Note that you don’t have to spend a lot to keep your employees happy. Gestures such as giving them a thoughtful gift on their work anniversary or offering more flexibility with their work hours can go a long way.

Many businesses that can’t afford to raise salaries offer bonuses instead. Take, for example, flooring installation company Netfloor USA. When one of its employees, Ashley Chandler, performed admirably at her job, the company awarded her with three extra days of paid leave. And while getting a raise would’ve been great, Chandler appreciated what Netfloor USA did, nonetheless.

“Would I like to make more? I think everybody would like to make more,” she told the Washington Post. “But for me, what I liked most about it was the flexibility.”

Automate parts of the business

Think about your business processes and identify tasks that you can automate. These could include data entry, staff scheduling, generating stock orders, etc.

Putting such tasks on auto-pilot helps you save time and lower your operating costs. Remember, time is money. The more you spend on manual tasks, the less time there is to do things that move the needle — such as selling more or serving customers.

Not to mention, manual tasks can sometimes be prone to human error (which can also be expensive). By automating them, you can free up time and resources better spent on making sales or growing your business.

Start looking for solutions that can replace manual work. For instance, if you’re devoting a lot of time managing staff schedules, you can look at employee management apps such as Deputy. Spending too much time writing product orders? Look for a POS or inventory system that automatically generates stock orders when inventory levels reach particular thresholds.

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One example of a retailer that does a good job at automation is Crane Brothers, a contemporary menswear retailer. To save time and operating expenses, Murray Crane automated the task of transferring sales data to his accounting software. Rather than manually plugging the numbers into the program, he integrated his point-of-sale system (Vend) with his accounting software (Xero). He got the two tools talking to each other so that information is automatically transferred from one program to the next.

The result? Crane was able to free up time so he and his staff could devote more energy to helping customers. He estimates that the automated system in his store saves him forty to eighty hours a week —or one to two full-time employees.

Final words

You don’t have to throw quality out the window to effectively lower expenses. By focusing on retention and by using resources you already have, trimming costs while maintaining high standards is completely achievable.

Can you suggest other tips for lowering expenses without compromising product and service quality? Tell us in the comments.

About Francesca Nicasio

Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.

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