40 cost cutting tips to boost profits.
If you're like most CEOs we've talked with, you may start out thinking a cut here and a cut there is what you'll need to get costs under control in your company. Then you'll discover that what you really need to do is to examine your entire business. But still, even knowing that, who can resist a money-saving tip or two? Here are some simple things that companies we know have done to boost profits on their way to becoming more streamlined, focused organizations.
* Rethink your mailings. Walker Communications, a $1.6-million advertising and public relations firm, decided there was no reason 11,000 pieces of non-time-sensitive material couldn't be sent third class presorted rather than first class. Savings: $4,500 on each bulk mailing.
* If you're in a soft real-estate market, take another look at your lease. Stuart Pearlman, who heads a five-person Manhattan public-relations firm, was paying $31 a square foot for his 1,356-square-foot office. When his lease was up, he negotiated a new five-year lease with far better terms -- $29 a square foot for the next two years, $30 in years three and four, and back up to $31 in year five. Plus a three-month rent abatement, and some free renovations. Savings: $13,221 in the first year of the new lease.
* Is your switchboard necessary? By installing a $16,000 24-hour phone-routing system, Paxar, a $74-million Pearl River, N.Y.-based label manufacturer, replaced its two part-time receptionists, who worked 9:00 a.m. to 5:00 p.m. Monday through Friday. Savings: $4,000 a year.
* Why not send your invoices along with the shipped product, rather than mail them separately? Charlie Bodenstab of Battery & Tire Warehouse, an $11.5-million distributor, adapted the packing slip used by his warehouse to fill orders so it could do double duty as the customer's invoice. Savings: $20,000 a year in mailing expenses.
* Monitor customers to find out which advertising they remember. Salespeople at Law Auto Sales, a $2.8-million Wayne, Mich., dealership, filled out survey cards on each customer, asking them where they'd heard or read about the dealership. They eliminated the nonperformers from their $100,000 ad budget. Savings: $35,000.
* Renegotiate your credit-card interest rates. Mike Kennedy's retail chain, City Sports, saw 1989 revenues rise to $6 million, of which $2.3 million was charged to credit cards. That was enough volume to give him leverage in bidding out the credit account, which lowered his interest rate by 0.7%. Savings: $16,000 projected for next year.
* Chuck products that don't pay for themselves. Jerry Brandon of Branwood Manufacturing, a $3-million maker of oak furniture, pared the number of stains he offered from three to one and eliminated several other products, reducing the cost of carrying inventory and of labor. Savings: $50,000 a year.
* Many suppliers offer free freight once you hit a certain volume. See if you can bundle orders together to take advantage of the savings. Sheila West of $4-million Archery Center International planned her purchases this year. Savings: $4,000 in the first quarter.
* If you have to visit more than one city on a business trip, consider scheduling one of your meetings at the airport. The airlines allow up to a four-hour layover each time you change planes. So, say you're in New York City and you have to see one client in Denver and one in San Francisco. You could route your ticket NYC-San Francisco-San Francisco-Denver-Denver-NYC, and pay $1,043. But you'll pay only $693 if you go NYC-San Francisco-NYC (with a four-hour layover in Denver during one of the legs). Savings: $350 a trip.
* Have department heads make up "must have/nice to have" lists to refocus everybody's requests and priorities.
* Bid out long-term contracts: legal, medical, accounting, insurance.
* In making hotel reservations, ask about corporate rates and any in-house specials.
* See if you can sell your used paper or scrap to recyclers.
* Encourage -- with extra days or cash incentives, if necessary -- employees to take some of their vacation time during slower periods.
* Many domestic airlines offer fares that are about 50% less if you stay over a Saturday night. Encourage traveling employees to do so by picking up the weekend hotel bill -- or share the savings in fares.
* For psychological and cash-flow reasons, try just-in-time supply-cabinet inventory.
* To generate cost-cutting ideas, invite your vendors to a cost-cutting party.
* Invest in automated equipment and software to handle invoicing, billing, and payables.
* Double check to see that hotels aren't sending room charges to both the company and the traveler's personal account.
* Keep up with new technologies. You may be able to drop outside services and do things cheaper in-house.
* Become a landlord. Sublet your superfluous space.
* Restrict your traveling employees' use of their frequent-flyer miles to business travel -- but pay them a portion of savings.
* Cut inventory, especially when suppliers are nearby.
* Work through the junior associates on your legal account whenever possible. They're cheaper by about $60 to $100 an hour; are likely to be more responsive; and can involve the partners if necessary.
* Remove the owner from workers' compensation if covered elsewhere.
* See if your bank will accept quarterly financial statements from you, instead of requiring monthly numbers as a condition of your loan.
* As an alternative to budgets, ask people to justify everything they spend.
* If you must have layoffs, offer people the option of working four days a week for a 20% cut in pay so you don't lose them forever.
* If things are going well during your annual meeting with your banker, suggest that the bank lower your loan rate by 0.5% -- or more.
* Limit the number of employees who have access to your law firm to avoid multiple billings for redundant advice.
* Cut down on use of headhunters and recruiters when business contacts and newspaper ads will get the job done.
* Negotiate a contractual "engagement letter" that specifies exactly what your lawyer will be charging you for.
* Award bonuses, or a percentage of the savings, for employee help in reducing customer theft.
* If you have a toll-free number for incoming fax orders, cut the length of calls by shortening your order form.
* Push for cash discounts.
* Consider selling off equipment you currently own and lease it back.
* Leave supply closets unlocked; otherwise, highly paid employees waste time trying to get hold of a pencil.
* Try for bulk discounts from airlines, hotels, and other vendors.
* Have employees who are traveling toward the end of the week compare daily rental car rates with weekend rates, most of which run Thursday through Sunday.
* Instead of an annual audit, which can easily cost $15,000, ask if your bank will accept an accountant's review. Ignore this if you're planning to go public or to sell your company.
Reported by Leslie Brokaw, Paul B. Brown, and Bruce G. Posner