I’m answering three questions here, emailed to me during last week, so excuse the long headline. I will give examples and will let you fill in the rest for yourself.
What are “Fixed Costs”?
Fixed costs are operating cost that are incurred when providing necessities for doing business and have no relation to the volume of production and sales. Examples are rent, some employee costs, property taxes, telephone, heating and interest/bank expense.
As opposed to “Variable Costs“, they only occur in proportion to activity within the business and hopefully that will lead to sales and revenue.
Why should I keep my “Fixed Costs” as low as possible?
When I talk about outsourcing, I’m talking about changing fixed cost into variable cost. Let me give you an obvious example to make my point.
Let us assume you have hired someone to answer the telephone, this person cost you $1,000 per month, and on average you get about 5 calls per day. Most of these calls are not even from clients, or you could take the calls while you are in the office. This $1,000 is a fixed cost, no matter how many calls you get, or if you are in the office or not.
So you outsource it to a virtual assistant, now you pay $100 per month and that includes 50 calls received, each extra call is $1 per call. The $100 are still fixed cost, but you have lowered your monthly fixed outgoings by $900. And depending how often you are in or out of your office, the 50 inclusive calls are probably enough to cover your needs. Combine this with online technology and you can stay in touch anywhere and anytime.
Should that not be the case, then you have “variable costs” of $1 per call, which means you are out of the office, working or enjoying life while it is quiet, for example during holiday season. You phone is professionally looked after in any case.
Outsourcing, bootstrapping (cutting costs), it all means the same for any small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer- or Personal business, like professional, contractors, freelancer, self-employed, sole-trader and virtual assistants, more money for you, less distractions, and a more recession proof small business, that is why business planning is so important.
Answer: Keep your “Fixed Costs” down. Stay mean and lean, while enjoying your work and life. ST.
Disclaimer: As with any of my readers questions, I do not have all the answers and here on my blog I can only give you some ideas, since I know very little about your small business. If any of you can add anything here do so for the benefit of my reader, who asked the question and everybody else, leave a comment below – I’d be most grateful.