36/52 Nine Ways to Reduce Fixed Costs in a Small Business

KEY CONCEPT:  Discover nine proven strategies to reduce fixed costs and grow your small business. Boost profits with actionable tips for sustainable, long-term success.

This is the 36th of 52 articles about what business owners can do to grow their businesses.

Introduction

With changes in the economy, world instability, taxes creeping up, costs rising, and the volume of work/billables reducing, small business owners are facing more challenges in the viability stakes than ever before. Reducing fixed costs to grow a small business is strategically essential knowledge.

Business costs can be categorised as either fixed costs or variable costs. In this blog, we focus on FIXED COSTS. Next week, we will review VARIABLE COSTS (37/52).

As a business owner concerned about cost increases, you need to focus on actionable and impactful methods supported by expert advice and best practices. [6]

What are Fixed Costs (vs variable ones)?

Fixed costs do not change with production or sales volume. They remain the same whether you invoice £10 or £1000. Examples of fixed costs include:

• Rent
• Property taxes/Council Tax/Business Rates
• Business insurances
• Utilities – gas, water, electricity (note: utilities may be a variable cost in a manufacturing company as they will increase as demand increases)
• Communication costs – phones, website, etc
• Salaries/drawings depending on the business set-up/structure
• Subscriptions – journals, newspapers, water cooler replenishment, software, data and cloud storage/backup
• Professional memberships
• Cleaner/cleaning costs – office cleaning, window cleaner, gardening or plant services
• Other costs, paid for monthly or yearly.

The actual fixed costs of your business may be different, so reviewing and identifying the fixed costs of your business is essential.

For clarity, variable costs change with what you invoice, your billables, and may include:

• Raw materials
• Shipping costs
• Staff costs if short-term contractors are brought in during periods of high demand
• Sales commissions
• Payment processing fees
• Packaging costs
• Credit card fees
• Marketing and advertising
• Professional services

We need to remember that the importance of reducing fixed costs is that it improves cash flow and resilience during slow periods. That may make the difference between your business just surviving or thriving.

Why does Reducing Fixed Costs Matter?

• Frees up resources for marketing, innovation, or hiring.
• Provides flexibility in scaling operations.
• Increases agility and adaptability to market changes when overheads are low(er). [6]
• Reduces break-even point, making profitability more straightforward to achieve.
• Improves profit margins, freeing up cash for reinvestment and growth initiatives. [6]
• Increases stability and the ability to withstand market downturns. [6]
• Increases competitiveness in pricing. [8]

Practical Strategies for Reducing Fixed Costs

1. Rethink Workspace & Rent, Reassess Office and Utility Expenses

• Consider downsizing office/retail space or moving to co-working/shared facilities. In value, these are often the most significant expenses, so it makes sense to reduce these overhead costs.
• Explore hybrid/remote setups to cut rent, utilities, and commuting perks.
• Evaluate whether downsizing office space, transitioning to co-working or shared office environments, or adopting remote/hybrid work can lead to reduced rent, utility, and maintenance costs. [5]
• Conduct energy audits and invest in energy-efficient equipment to cut ongoing utility expenses.[4]

2. Technology, Enbracing Outsourcing & Automation

• Audit software subscriptions and cancel any unused ones.
• Use all-in-one platforms (e.g., project management, accounting, CRM) instead of paying for multiple tools.
• Automate repetitive tasks (invoicing, scheduling) to reduce admin overhead.
• Outsource non-core functions like IT support, HR, or accounting to convert fixed costs into variable ones, paying only as needed. [13]
• Invest in technology and automation for tasks like payroll, inventory, and customer relationship management, reducing the need for full-time staff and minimising errors. [5]

3. Negotiate with Vendors & Optimise Service/Suppliers

• Renegotiate contracts (rent, internet, insurance, suppliers).
• Shop around for better deals annually (utilities, insurance, SaaS).
• Regularly renegotiate supplier contracts and seek out better deals, bulk discounts, or consolidated services to save money. [1]
• Compare multiple suppliers for necessary services and materials and leverage competition for improved terms. [2]

4. Outsourcing & Flexible Staffing

• Outsource non-core tasks (accounting, IT, HR) instead of hiring full-time.
• Use freelancers/contractors for seasonal or project-based work.

5. Energy & Utilities

• Adopt energy-efficient practices (LED lighting, smart thermostats, remote work).
• Monitor utility bills and switch providers where possible.

6. Shared Resources & Partnerships

• Share equipment or logistics with other small businesses.
• Explore joint purchasing agreements for better supplier rates.

7. Reinvest Savings Into Growth

Suggest ways to redirect freed-up money:

• Marketing campaigns.
• Training staff.
• Upgrading customer experience.
• Building cash reserves.

8. Monitor and Limit Unnecessary Spending

• Set spending limits on discretionary expenses such as office supplies, subscriptions, and perks. [2]
• Cut back on travel by replacing meetings with video calls and reducing non-essential trips. [4]

9. Review Insurance, Loans, and Long-term Contracts

• Shop around for better rates on insurance and other recurring fees. [8]
• Refinance or renegotiate business loans or leases when possible. [4]

What can you do NOW:

Because it makes sense to lower small business costs, look for the quick wins (the low-hanging fruit, if you know that analogy):

• Audit your fixed costs quarterly. Schedule these ongoing reviews because cost-cutting isn’t a one-time activity but a habit.
• Negotiate with suppliers of fixed costs or change your supplier, e.g. rent, insurance, utilities, etc.
• Develop your mindset shift from cutting costs to “business cost optimisation”. It’s about smart trimming, not penny-pinching. But remember, avoid cutting costs that hurt customer experience or growth potential.
• Why not share YOUR success story or challenges in reducing fixed costs, and let’s see how we can help you.

In Summary

Identify and work on reducing your business’s fixed costs. As a small business owner, it is essential to explore ways to cut your business expenses. It makes the difference between going under, surviving and thriving. The sooner you embrace the process, the better. Remember, if you don’t measure it, you can’t manage it. If you can’t manage it, it will manage you.

In Conclusion

Reducing fixed costs in a small business is about beating the odds and surviving beyond 5 years (when 40-50% have collapsed and closed). These cost reduction strategies for small businesses will bolster your business and power it through challenging times.

#HaywardHub #MakeADifference #ChangeOneThing #BusinessGrowth #Reduce Fixed Costs in a Small Business

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Other blogs in this series

37.52 Reduce Variable costs and improve margins – coming soon

35.52 Audit Your Business Finances: Cut Costs and Gain Control

34.52  Small Business, Big Efficiency: Online Shopping and Online Booking Apps Are Game-Changers

References

1. https://www.enterprisenation.com/learn-something/how-to-cut-costs-small-business/
2. https://www.xero.com/uk/guides/business-cost-saving-ideas/
3. https://www.bbc.co.uk/bitesize/guides/zkwnnrd/revision/5
4. https://dsraccountants.co.uk/weekly-digests/cost-reduction-tactics-for-small-businesses/
5. https://www.towerleasing.co.uk/business-finance/reduce-operational-costs/
6. https://www.getsmartaccountants.co.uk/business-fixed-costs/
7. https://www.sage.com/en-gb/blog/fixed-costs/
8. https://metrobi.com/blog/optimize-fixed-costs/
9. https://accountantsilkeston.co.uk/reducing-restaurant-overhead-cut-fixed-costs/
10. https://www.bill.com/blog/reduce-fixed-costs
11. https://uk.indeed.com/career-advice/career-development/how-to-reduce-costs
12. https://www.bench.co/blog/accounting/fixed-costs
13. https://crmoxford.co.uk/news/5-ways-to-cut-costs-and-boost-efficiency-without-sacrificing-quality
14. https://www.qualitycompanyformations.co.uk/blog/price-products-and-services-for-small-businesses/
15. https://www.british-business-bank.co.uk/business-guidance/guidance-articles/finance/10-ways-to-reduce-your-business-costs
16. https://www.salesforce.com/blog/create-a-budget-for-your-small-business/