How Do I Reduce Indirect Costs?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 November 2019
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Effectively managing indirect costs is a task that companies of all sizes and types engage in as a means of keeping net profits as high as possible. Costs of this type can cover a wide range of expenses that are important to the business even though they are not directly involved with the production effort. With indirect costs, the goal is to identify which ones can reasonably be reduced without creating difficulties for the overall operation. This can often be accomplished by reviewing each indirect cost, determining its value to the company, then taking steps to minimize usage.

One of the more common indirect costs associated with business operations is the use of utilities like electricity, water, or natural gas. In order to reduce the actual monthly expense associated with these utilities, it is important to understand how those resources are used each month. Often, making simple changes like shutting off lights and air conditioning to areas that are not in use, repairing leaky water pipes, or closing off gas mains to areas that do not require heating will decrease the amount of the monthly bills, effectively freeing more of the income stream for other purposes.


For companies that lease office space or other facilities as part of the business operation, reducing indirect costs may involve combining two locations into one or moving a single operation to a smaller and more cost effective building. For example, a company that currently maintains a sales office across town may find that clearing some unused office space at the main plant for the sales team would make it possible to eliminate the lease on that office altogether, while still providing the sales team with a base of operations.

Shipping costs are another example of indirect costs that can be trimmed by exploring different shipping options. Some companies will find that volume discounts can be secured from a single shipper rather than using the services of multiple shippers at standard rates. In some cases, this can cut indirect costs related to shipping by as much as half, all in exchange for concentrating usage with one shipper and agreeing to do so for at least a couple of years.

Don’t overlook the possibility of trimming indirect costs by renting out unused space at the company headquarters. Leasing office space to smaller businesses creates the ability to take areas of the facility that are currently not involved in production or filling some other useful purpose and turn them into sources of revenue generation. That money can be used to offset the indirect costs associated with upkeep and maintenance of the facility, an arrangement that helps everyone involved.


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