Managing overhead costs is crucial for the profitability of your propane business. However, not every business owner finds it easy to oversee this vital component of their company’s finances. Here’s a guide detailing how to calculate these expenses along with a variety of effective strategies for reducing them.
What is Overhead?
Overhead includes all the costs of running your business that aren’t directly tied to making or selling propane. This encompasses rent or property expenses for your office or storage facilities, utilities such as electricity, water, and heating, as well as salaries for employees not directly involved in propane sales or delivery. It also includes insurance for various business aspects, office supplies, equipment maintenance, marketing/ advertising expenses, and administrative costs like accounting or legal fees.
Calculating Overhead
To calculate your overhead, start by gathering all expenses that count as overhead for a specific period of time, usually monthly or annually. Sum up these costs to get your total overhead. Then, divide this total by your total sales to find the overhead rate as a percentage. This calculation shows how much of each dollar of sales goes towards covering overhead costs.
Reducing Overhead
Begin by reviewing your expenses to determine which are essential and where you might find cheaper alternatives. Could you negotiate better terms with suppliers or landlords? Going digital can significantly cut costs related to paper use, ink, and storage by moving to digital records, communication, and billing. Investing in energy-efficient technologies for your office or storage can lower utility bills. Consider outsourcing or automating tasks like bookkeeping, which might be more cost-effective than hiring full-time staff.
Additional cost-saving measures could include optimizing the use of delivery vehicles by planning efficient routes to save on both fuel and maintenance expenses. Route optimization technology can greatly help with this goal. Sharing office space with another business can split rent, utilities, and other fixed costs. Focus your marketing budget on high-return channels to avoid wasteful spending. Review your insurance to ensure you’re not overpaying or covering unnecessary policies. Lastly, training your staff to handle multiple roles can reduce the need for specialized positions.