5 Costs start-ups should convert from fixed to variable to increase their chances of success
Virtual options are providing more flexibility than before for many people to start their own businesses and have higher chances of being successful. Flexibility translates into variable costs instead of fixed costs. Fixed costs are usually a heavy burden when starting a business and you should try to avoid them as much as you can.
Typically a new business would have to rent out space, hire a couple of employees and engage in a series of contracts (utilities, communications, leases, etc) before they can be “Open for business”.
With the virtual options growing quickly, such as virtual offices, this is becoming a thing of the past.
The following types of start-ups can greatly benefit from having reduced start-up costs, or have more variable than fixed costs when launching:
1. Independent professionals such as attorneys, accountants and consultants
2. Companies entering new markets
3. Mobile workers
4. Home based businesses that want to have a professional image
So, what are the fixed costs you can convert to variable to reduce the start-up burden?
Here’s a quick lists of how you can substitute some of the most common fixed costs when starting up:
Fixed cost No. 1: Office space
Perhaps one of the most common fixed costs when starting up. Usually requires a commitment of at least 6 months plus a set of additional costs such as utilities, maintenance, cleaning, etc.
Alternative: Virtual offices
You can get a prestigious address at a fraction of the cost and avoid all of the costs associated with having an office. This is a pay as you use option. You can rent meeting rooms by the hour and have a professional image towards your clients, only when needed.
Fixed cost No. 2: Employees
This is perhaps the second most common fixed costs when starting up. It also brings with each employee, social security and benefits that need to be paid.
Alternative: Virtual outsourcing
As with the virtual office space, with this option you only pay for the hours used, plus you can outsource to locations where labor force is cheaper. Not only your cost becomes variable, but the market you can tap to find professionals is much larger.
Fixed cost No. 3: Sales employees
Typically start-ups would hire a sales person to develop the sales needed. This employee would be hired with a fixed salary plus commissions. Again, it also brings the burden of having to provide physical space and paying benefits.
Alternative: 100% commissions
Consider a higher commission rate (even twice than what you would normally pay) and an ongoing maintenance commission (a commission paid for ongoing business). This way the sales person can eventually have fixed pay if a portfolio of ongoing clients is developed, but without you having to commit to a monthly pay at the beginning.
Fixed cost No. 4: Marketing costs
You will need advertising when starting up, otherwise, how are your prospects going to find out about you? Traditionally you would consider a couple of ads on newspaper and ads on specialized magazines on your geographic region. The cost of traditional printed advertising, although might not be fixed, is expensive.
Alternative: Go digital
On the digital world the majority of the ads (Google and others) offer a CPC (Cost Per Click) alternative. You only pay for the clicks your ads get. You can control this budget quite easily online. Of course you will need a decent website to drive prospects to..
Fixed cost No. 5: Web Design
This can range from $500 for a landing page up to $10,000 if you need a more elaborated website with professional images, responsive design, a blog, a client portal, and a mobile app to go with it. This can be a significant start-up costs for many.
Alternative: Web and App design charged on a monthly basis
Find a web design firm that can provide all you need but charge you on a monthly basis. Yes, this is not a variable option, but it gives you more time to start generating revenues instead of having to wait to save enough for this start-up cost.
The list can be larger depending on your individual needs. Feel free to drop us an e-mail at firstname.lastname@example.org to let us know what fixed costs you have and we’ll be happy to provide some ideas on how to make them variable!