![]() Now that you know how to calculate operating expenses, here are some operational cost reduction ideas that can improve the efficiency and profitability of your business.Īutomation can contribute to operational cost reductions by saving time and reducing manpower. 7 strategies to reduce operational costs and expenses for your business Operating Profit = (Revenues – Cost of Goods Sold – Operating Expenses – Amortization). Subtract the cost of what you sell, operating expenses and amortization from your revenues. Revenue = Operating Expense Ratio (OER) Calculate your operating profitĪnother important operating expenses formula is this one that measures how much profit your company makes. If the number is large, you may be burning through too much of your revenue just to keep the doors open. ![]() That makes it easy to compare your operations with other companies, no matter their industry or size.Ī small number means you are using a smaller portion of your revenue to cover your operations. It shows your costs as a percentage of your revenue. The operating expense ratio is calculated using a formula that measures the financial health of your company. Operating expenses = (Rent + Payroll and other employee expenses + Travel and business entertainment + Utilities + Insurance + Maintenance and repairs + Property taxes + Office supplies + Asset depreciation + Sales, marketing and advertising) What is the average operating expense ratio? They can serve as a guide and a scorecard as you work to reduce operating expenses in your business. These two are particularly useful for calculating the cost structure and efficiency of your business. Use an operating expenses formula to get a clear view of your situation. How to calculate your business’s operating expenses The categories of expenses to track will vary by business and industry As you go through your books to find operating expenses, consider these most common ones when figuring out how to calculate expenses: What’s included in operating expenses for small businesses? ![]() You can categorize past expenses and average them by year to get a good idea of what it’s been costing to run your business–and to track your spending trends. ![]() We make it easy to estimate utility costs and take steps to lower your small business utility bills. They typically include rent or mortgage payments for your place of business, the cost of buying or renting equipment, maintenance expenses, what you pay for inventory, as well as spending on marketing, payroll, insurance, electricity and other utilities.īefore you can reduce operating expenses in business, you will need to estimate your spend. How Constellation can help your small business save on operating expenses.Strategies to reduce operational costs and expenses for your business.Determine your average operating expense ratio.Calculate your business’s operating expenses.What’s included in my small business’s operating expenses?. ![]() In today’s tougher economic climate and with uncertainty in many industries, keeping tabs on the costs to run your business is critical to the financial health and success of your company. Understanding how to calculate operating expenses and finding effective operational cost reduction strategies have always been important to well-run businesses. ![]()
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