Keeping prices down while holding margins during an economic slump…

Everyone knows it, and office banter seems to keep reverting back to economic grumblings. Gas is at an all-time high, home ownership is becoming unreachable for the middle class, and foreclosures are increasing - yet salaries are stagnant. Sadly, we have seen this hit the food industry pretty hard as a result. Commodity prices and food ingredients are up – so much in some cases that an increasing number of food companies have been forced to close their doors (see: Hurley’s Boston Irish).

So what can you do to keep prices for your customers down without sacrificing your margins? The first step is to evaluate your fixed costs and look for ways to cut back. Here are a few good starting points:

Consider dropping your shopping cart in favor of online ordering partnerships

Based on a recent study of specialty food companies, we found that the average food company spends over $800 per year in e-Commerce related fees – not including per-transaction fees and maintenance/updates. For those whose online/mail-order business is a significant part of their overall business, this is not much of an expense. For others who only have e-Commerce on their site ‘just in case’, then these expenses can be hard to justify.

If you don’t sell much online, consider dropping your shopping cart in favor of online retail food sites, such as www.ibuygourmet.com that can handle your online orders for you. You can link your site visitors wishing to order online to a site like this and not lose any online orders. In the process, you can save on shopping cart fees, extra hosting, SSL, credit card processing, and other maintenance related fees. Additionally, outsourcing your e-Commerce will allow you to focus your efforts in other areas of your business (which probably make up the bulk of your revenues anyway).

 Cut down on phone expenses - consider VOIP

If you are paying for monthly phone service including long distance and also have high-speed internet access at your office, consider VOIP service (voice over IP). Basically, VOIP is phone service that uses your internet connection instead of a standard phone line. Skype offers phone service (including an actual phone number) that can keep your total expense at $100 per year or less. www.skype.com. Also, Vonage offers a pretty good plan for roughly $25 per month that includes unlimited US calling. www.vonage.com

Look into online PBX systems that are cheaper than standard PBX

If you are paying for a PBX system at your office (for example, and 800 number with extensions), consider a cheaper online version. A program like GotVmail (www.gotvmail.com) gives you an online PBX system that functions just like a traditional PBX system with a few extra features. It even allows you to forward calls to other numbers such as your cell phone, which is especially nice when you are traveling. Other extra goodies: the voicemail-as-MP3 service, which emails your voicemails to you as an MP3, and the fax-to-PDF feature, which emails your faxes as PDF files. The best part: plans start at $10 per month.

Evaluate web hosting – can you save money?

All too often, I hear about food companies that take the recommendation of their uncle’s friend’s brothers 2^nd cousin who ‘knows stuff about computers’ and end up paying way too much for hosting plans that are well below average. There are hundreds, if not thousands of companies selling website domains and hosting today, and if you are paying more than $10 per month for website hosting, it’s time to consider switching web hosts. If you need a free evaluation of your hosting, let me know. Need a hosting recommendation? Check out BlueHost - reasonably priced (7.95 per month) with more features than most know what to do with.

Shipping  - creative quantities for better shipping value

Gas is more expensive now than ever, and shipping rates follow in parallel. This is significantly impacting everyone in the supply chain; suppliers, wholesalers, retailers, mail order companies, and all the way down to the consumers as a result. 

Try bundling products in larger quantities at a discounted rate, and let your customers know why. Usually, when you ship in larger quantities, the shipping will end up being a better value per unit. For example (in a mail order scenario), when shipping one unit of caviar, the shipping is often the same (or very close) when shipping three units bundled. Offer the 3 pack at a discount to encourage the customer to order more – it will be a better value overall for them AND your total gross sale will be larger.

COGS (cost of goods sold) – Can you take advantage of economies of scale?

This option does not work for everyone, especially if cashflow is limited. If you can afford it, try to buy your ingredients/supplies in larger quantities, or run production with your co-packers in larger runs to get a bulk discount. Sure, it will cost a bit more up front for the larger purchase/run, but in the long run you may be able to drive your unit production cost down by as much as 15-25%. 

If any of these ideas work for you, I’d love to hear about it. Also, if you have any suggestions that have helped your company lower the cost of doing business, please share!