One of the distinguishing factors of any business is in how it manages its expenses. In accounting and business there are three types of expenses:
1) Fixed Costs
Fixed costs are expenses that can’t be changed in the current year. An example is a house or rent payment, you can expect them to be the same amount each month over the course of the agreement.
2) Variable Costs
Variable costs are expenses that can be changed in the current year. For LuLaRoe, I would consider inventory costs to be variable. You can change how much each order costs and the number of orders per year.
3) Overhead Costs
Overhead costs are the expenses that are difficult to track to specific sales. Examples of overhead costs includes rent/mortgage, electricity, office supplies, camera, laptop, accounting, and other expenses that are not directly related to selling products.
From the Initial Investments post, it was calculated that the gross margin on the average LLR article is about 60%. That means that 2-thirds of your sales price can be used to cover other costs.
The first step to cutting costs is knowing where you currently are and where you have been. There is no exact roadmap to running a business but if you analyze your history, you can project where things might be going. The best way to know where you stand is to hire a bookkeeper who uses a software to keep track of expenses and to perform calculations. I recommend using the Xero software, they make accounting easy.
Once you know where you are, you can see the areas where cuts can be made. You can also evaluate which expenses should be increased and which should be stopped completely.
Most stay-at-home Mompreneurs already know who to shop on a budget with coupons and sales. All you need to do is apply the same ideas to your business.
So tell me, what are some of the things you are doing to cut costs with your business? Feel free to leave a comment, your idea might help out a fellow LLR owner!
Which is better a cold bed or a warm one?