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4 Ways Service-Based Startups Can Cut Operational Costs

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Updated Feb 21, 2024, 02:34pm EST

The biggest mistake you can make in your service-based start-up is conflating gross revenue with success. One of the hallmarks of a successful business operator is having a pulse on the key metrics that drive the business forward.

The name of the game is driving up your net profit, which will allow you to sell your business for the amount you desire.

We will focus on four strategies to help you operate your service-based business with the exit in mind.

1. Streamline Service Delivery With Technology

Service-based businesses rely heavily on efficiently managing schedules and maximizing time between appointments and locations. The statistics affirm that scheduling technology is a game changer. 59% of customers are dissatisfied with being put on hold and the disruptive office hours associated with phone bookings. When I speak to my business coaching clients, I tell them to make it easy to do business with you. If you have a clunky scheduling process, customers will be turned off and you’ll lose them.

Another statistic to keep in mind when considering service delivery is online scheduling leads to a 26% bump in new customers than traditional phone booking.

Scheduling customers is just the beginning of their impression of your firm. You must maintain a consistent customer service process. Obtaining a CRM to help your business manage customer communications will ensure expectations are met.

The ROI benefits of using a CRM system are indisputable. In fact, every dollar spent on a CRM system in a business returned $30.48 in 2023. Leverage this ubiquitous technology in your business, and you will be part of the minority of service-based companies that are using this technology.

2. Utilize Freelancers And Contractors For Scalability

The most significant cost burden any firm will incur is the cost of labor. Payroll costs make up a considerable portion of an operating budget, not only the cost to manage payroll and its fees but also, depending on the state you are operating in, there may be other associated costs like required benefits, sick time, etc.

One of the ways to reduce the cost of employees is to use freelancers and contractors for services they can provide on behalf of your company. For example, hiring a freelance marketing professional may cost less than bringing that function in-house. Suppose you own an HVAC company and need an electrician. In that case, hiring the electrical work from an outside electrician may be more cost-effective until the cost of electrical work makes more sense to bring in-house.

Independent contractors can save a service-based business 20%-30%. The apparent drawback is that you need more control over the work and can't direct the work, according to the IRS. Be careful to avoid violating the IRS's regulations regarding how to treat independent contractors vs employees. The penalties can be expensive.

3. Optimize Marketing Costs With Targeted Strategies

Marketing shouldn't be random, but there needs to be a strategy behind your marketing efforts. Of the roughly $600 billion spent on digital advertising in 2022, $35.7 billion was wasted on fake traffic.

Many marketing companies pitch their service with fancy hooks that sound good and chart out fancy tables and data visuals on how effective digital marketing is and its ROIs. We know that digital marketing yields results, but the question is, do their digital marketing strategies work, and will it work for your business?

Business owners must vet these marketing firms, ask for case studies on their program for clients with businesses like yours, and see if they have genuine testimonials. You should also be able to contact their former/current clients and understand what it was like to work with them and the result.

The statistics on the effect of optimizing your digital marketing strategies are eye-opening. 76% of customers feel targeted advertising helps them discover new products, and over 80% of internet users are likelier to click on an ad targeted to their interest, according to The 2024 Gitnux Marketdata Report.

In 2024, there is no reason to waste marketing dollars. As a service-based business, you must dial your customer avatar in. That means, who is purchasing your service? Where does the customer live? How much do they spend on a service like yours? And, when do they usually buy it?

4. Implement Process Optimization And Continuous Improvement

Dialing in your processes to maximize efficiency in scaling your business and slashing operational costs would be best. Creating SOPs for the entire operation of your business will give you peace of mind that you are delivering your service identically every time.

It would be best to value inclusive collaboration with your employees, setting time to review your processes with them. You are setting yourself apart from most other business operators by having weekly staff meetings to understand the microenvironment of your business functions and quarterly process meetings to understand if your SOPs are performing optimally.

Finally, remember to include your customers in your feedback loop. After completing your service, you should immediately collect information about the entire process of dealing with your company. Often, you can automate this with your CRM system.

In the competitive landscape of small business, you must ensure that you deliver the highest value to your customers at the lowest possible cost. This guide should assist you in running a lean company that will maintain your profit margins and give you options if a future suitor comes calling.

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