Fixed Cost or Overhead Cost are those that will exist even if the business does not hypothetically produce anything.
Alternatively, they can be thought of as costs that do not vary directly with production output.
They include things like office and factory space, furniture & fittings and realistically speaking include all labour other than casual labour.
After all, you can’t easily vary the size of your workforce.
We will look at labour separately shortly.
In C2.4.4 Locations to Abandon, you may have identified some that you can remove from your portfolio.
Now is the time to begin to wind that back.
It should be a simple exercise, if you have a decent set of accounts, to rank all your fixed costs by the size of their expenditure using the 80/20 principles.
See the Skills Module article: SM2.1 The Amazing 80/20 Rule
Work through the areas that are relevant to your business.
It makes every sense to focus on your highest cost items with a view to attempting to reduce them.
Example:
- You are in rather palatial working spaces, perhaps you can reduce the fixed cost by changing to a less expensive space.
This can mean moving from a CBD location to a suburban one with lower overhead costs.
With much improved levels of communication available to people these days, being centrally located is not necessarily as important as it might have been a decade or more ago. - Many overhead costs will be spread across the entire company: like power and telecommunications.
Group them together to see the sum of expenditure in these areas.
If you do, an assessment of your various suppliers, and perhaps starting a tender with these company-wide costs, may lead to better prices and therefore savings that go straight to your Profit bottom line.
