Rising business costs are a huge challenge for UK companies right now, especially new businesses and SMEs. From rent and tax hikes to increased staffing costs and pressure to modernise systems and processes, businesses are seeking ways to reduce expenditure, make savings and combat mounting operational costs.

In this handy guide, we discuss how to calculate overheads and outgoings, offer practical tips on how to reduce business costs and outline the role of working capital finance in covering business expenses.

The main business costs to monitor

Your business costs include all expenditure involved in running the company, from everyday expenses and regular bills to long-term investments. Tracking and managing these costs can help you keep a healthy cash flow, ensure costs don’t escalate and stay profitable, while adapting to market changes.

Business costs are broadly categorised into three types: fixed costs, variable costs and total costs. Here is a quick overview:

• Fixed costs: Expenses that remain constant regardless of the level of production or sales (think rent, salaries, insurance premiums, loan repayments, etc.). They provide stability but also require careful management to avoid financial strain when other costs change.
• Variable costs: Outgoings that fluctuate with your business performance/activity. These include raw materials, utilities, shipping costs and things like sales commission and employee bonuses. Managing variable costs effectively is crucial for maintaining profitability, as they can quickly increase with higher production levels.
• Total costs: The sum of your fixed and variable costs, which provides a high-level view of all your business expenditure. Understanding total costs is essential for all your overall business planning and should feed into your budgeting, growth plans and operational (and pricing) strategy.

These costs (and how they’re managed) directly impact your bottom line. Below, we look at the factors that affect commercial expenses and how to reduce business costs, so your money can go further.  

How to calculate your business costs

Before trying to reduce your business costs, you need to understand how to pinpoint and monitor them. Let’s outline how to calculate fixed, variable and total business costs, with an example business scenario: A furniture company.

Calculating fixed business costs

Our hypothetical furniture company, Sofa So Good for You, reviews its fixed costs and lists them as follows: 

• £2,500 for facility rent
• £25,000 for staff salaries
• £1,200 for equipment leases
• £150 for website maintenance

The total fixed costs = £28,850

Calculating variable business costs

To calculate its variable costs, the business must multiply the costs involved in producing each unit of furniture by the total number of units produced in a particular period. So, the company must determine the regular variable operational expenses in the period and how many units were produced.

An example of the variable costs is as follows:

• £9,000 for raw materials 
• £6,000 for labour costs
• £3,500 for shipping costs
• £1,500 for sales commission

The total variable costs = £20,000

If, say, 200 units were produced, the variable cost per unit would be £100 (£20,000 / 200).

How variable costs affect profit

Variable costs have a direct relationship with profit margins. As they increase, the cost of producing each unit of a product also increases, which can reduce profit margins if sales prices are not adjusted accordingly. On the flip side, reducing variable costs can boost profitability. 

Changing variable costs should be part of your pricing and production decisions, especially as you scale your business.

How to calculate the total costs

Calculating total costs is a straightforward formula:

Total costs = Fixed costs + variable costs

This calculation helps you understand your overall financial obligations and support your planning, pricing and budgeting. Taking the example of the furniture company, the total business costs for the set period would be as follows:

• Total costs: £28,850 (fixed costs) + £20,000 (variable costs) = £48,850

How to use the total cost calculation practically

There are various ways to use the calculation of your total business cost for operational and strategic purposes, such as: 

• Setting appropriate pricing to cover all expenses: While fixed and variable costs may be managed in their own workflows, the total costs are your overall target figure that helps dictate pricing and profit forecasting.
• Determining your break-even point: The break-even point is where total revenue equals total costs. This determines the minimum sales required to cover all expenses. Here’s how to work out your break-even point:
  
  • Break-even point (in units) = Fixed costs / (sales price per unit - variable cost per unit). If our furniture company sells goods at £300 per unit and the variable cost per unit is £100, the break-even point would be: £28,850 / (£300 - £100) = 144 units.
• Forecasting profit potential based on various sales scenarios: By projecting different sales volumes and calculating the total costs and revenues, you can forecast potential profits and plan for various scenarios. Here’s how the profit forecast plays out in our example if selling 300 units:
  
  • Total revenue: 300 units x £300 = £90,000
  • Total costs: £28,850 (fixed costs) + (£100 x 300) = £58,850
  • Profit potential: £90,000 (total revenue) - £58,850 (total costs) = £31,150

Strategic steps to reduce your business costs

You should aim to keep costs in line with your pricing to ensure you’re making the most of the resources available. If your costs are escalating and impacting profits, you need to find ways to minimise the impact.

In mid-2025, iwoca SME research revealed the ongoing concerns small businesses had over operating costs. Nearly half (48%) of brokers cited rising running costs as the main concern of UK businesses seeking finance.

Below are various tactics and strategies for reducing business costs across a range of operational areas. We’re focusing on three main types of cost savings: 

• Incremental savings (which can see you make up to 10% savings) – things like consolidating processes/events, reviewing minor expenses and renegotiating small-scale contracts and supplier deals.
• Redesign savings (which can garner up to 20% or slightly higher) – significant process changes, implementing automation and AI workflows, using modern digital tools, etc.
• Major structural savings (which can save you as much as 30% or more) – likely company-wide alignment, large-scale restructuring and outsourcing certain functions.

How to reduce fixed costs in your business

We’ll start with ways you can reduce fixed costs within your business, with tactics for each level of cost savings:

Incremental savings

• Review your software subscriptions – remove obsolete solutions and user accounts/seats, downgrade plans (if higher tiers are no longer needed) or switch to annual billing to enjoy discounted pricing.
• Reduce hardware costs and consider sharing certain equipment, such as printers or other devices.
• Negotiate supplier contracts, which can lead to better terms, payment schedules or loyalty benefits.
• Compare utilities or solution providers, including telecoms/broadband or payment solutions, either switching or encouraging existing providers to offer new deals.
• Bulk-buy essentials or shift to more efficient services – larger orders typically bring prices down, while you may want to consider digital alternatives, where relevant.
• Apply flexible staffing or reduce overtime to ensure staffing matches demand and avoid wasted time/resources.

Redesign savings

• Optimise stock levels – efficient inventory management, backed by smart forecasting and demand planning tools, reduces storage costs and minimises risks of overstocking.
• Consider consolidating suppliers – while being overreliant on certain suppliers has its risks, larger orders with fewer suppliers may enable you to enjoy better rates.
• Outsource various tasks/functions (or vice versa) – many companies are exploring outsourcing to reduce overheads, with functions like HR, accounting, and marketing being popular options, while bringing some previously external functions in-house can save you money too.
• Embrace hybrid/remote work models – as COVID-19 accelerated the need for better remote working solutions, many companies are now able to deliver hybrid working models at scale and enjoy various cost savings on office space, equipment, energy usage, and more.
• Replace manual processes with automation and digital solutions – if you’re not automating various manual, time-consuming processes and leveraging digital workflow and smart CRM tools, you’ll be left behind. 

Major structural savings

• Move work premises – consider relocating to smaller offices and cheaper regions with lower rents/rates, especially if offering more hybrid working.
• Subletting or sharing office space – a related option is sharing office space with other companies or subletting part of your leased premises.
• Using asset and equipment financing – while some forms of asset finance have high overall borrowing costs, renting or leasing equipment rather than buying it outright can save you a lot, especially for temporary needs.
• Department restructuring and hierarchical change – cost-efficiency reviews can reveal areas where roles are becoming obsolete or where process changes require teams, roles and responsibilities to be redesigned.

How to reduce variable costs in your business

Now, let’s look at some ways you can bring down variable costs for your business, again with small, minor cost-saving measures right up to large-scale changes that can significantly reduce your variable business costs:

Incremental savings

• Regularly review expenses to track, identify and reduce wasteful spending.
• Standardise system use and purchasing processes to ensure fewer unnecessary tools are used, and assets/stock are purchased at optimal.
• Ensure adequate training – keeping staff up to speed and informed of different practices, processes and systems will increase efficiency and reduce costly risks.
• Reduce operational waste, such as energy, materials, IT use and more.

Redesign savings

• Improve forecasting (cash flow and demand) processes and tools – being proactive than reactive will prevent last-minute panic, orders and actions that cost more in the long run.
• Implement cost-efficient systems, equipment and practices – from EVs and smarter business tools to sustainable practices and energy-saving tactics, widespread changes can make big savings.
• Enable smooth, recurring business purchases – automated procurement processes for recurring goods and services, where possible, reduce the need for expensive ad-hoc purchases, increasing cost efficiency.

Major structural savings

• Renegotiate large supplier contracts – as your business scales, ensure key supply chains and providers are offering competitive terms.
• Consider using cheaper (reputable) providers if existing suppliers aren’t willing to provide better terms, or if they’re underperforming.
• Centralise processes across multiple locations – centralisation, including for procurement and system use, helps ensure consistency, reduces risks of misuse/breaches and keeps processes as efficient as possible. 
• Overhaul key processes or product/service offering – as technology advances and markets shift, you may need to rethink processes, modernise systems/infrastructure and diversify to stay lean and competitive.

Industry-specific tactics for reducing  operating costs and overheads

Operating costs and overheads in different businesses across industries can vary widely. And utilities and business insurance are key areas where costs can really rack up, as companies seek to operate efficiently, with minimal disruption, and cover all risks involved in producing goods and delivering services. 

Below, we look at how to reduce energy costs and business insurance premiums in different sectors:

How to reduce energy costs in business premises

Businesses can reduce energy costs by switching to cheaper tariffs, regularly comparing suppliers to get the best deals and using the most energy-efficient solutions. Audits and risk assessments identify areas to improve and opportunities to reduce waste, such as preventive measures and replacing old systems.

Here are some tactics for lowering business energy costs in different industries:

• Retail shops/convenience stores – install things like door sensors to reduce heat loss, timers for electrical devices and energy-efficient refrigeration.
• Hospitality (cafes, pubs, restaurants, etc.) – use induction hobs and other energy-efficient kitchen equipment and batch-cook and pre-prepare certain food items/elements or dishes during off-peak hours.
• Hotels and B&Bs – use key-card energy control systems in hotel rooms, implement programmable heating and air conditioning and use signage for customers to minimise energy use (such as for toilets, sinks and towel/bedding washing).
• Salons (hair, beauty, grooming, etc.) – upgrade your tools of the trade for more energy-efficient models and be conscious when washing materials to use less power and water.
• Offices – roll out energy-saving policies for your offices, zonal heating and efficiency solutions, from hotdesking and leaner workstations to greater remote working capabilities. 

Some of these tactics can be used in other sectors/business types, from construction and manufacturing to professional services and remote workers.

How to reduce insurance premiums in your industry

There are various ways to reduce insurance premiums and costly instances of overinsurance in the event of claims. However, it’s also vital to avoid the risk of underinsurance.

The following are general best practices for keeping premiums down: 

• Bundling insurance policies
• Regularly monitoring coverage to ensure optimal levels
• Conducting robust risk assessments
• Paying annually instead of monthly premiums
• Shopping around for the best offers
• Seek insurance advice and support from specialist brokers

However, every industry has unique risks and requirements, so different approaches are needed to maintain the right insurance solutions and adequate policies. Below are some useful tactics to reduce insurance costs in your industry:

Barbers, hairdressers, stylists and salons

Tips on how to reduce hair and beauty insurance premiums:

• Ensure patch testing to reduce claims risks
• Maintain sterilisation/hygiene records and equipment safety logs
• Use floor-grip mats and organise cabling to minimise risks of slips and trips
• Install fire-retardant bins for chemical waste
• Ensure employees have adequate credentials/training certificates

Commercial landlords

Tips on how to reduce commercial landlord insurance costs:

• Install quality fire alarms, extinguishers and related systems
• Ensure regular safety checks are carried out and recorded
• Keep properties well-maintained and follow proper safety protocols to reduce liability risks
• Verify tenants and take steps to ensure they’re reputable

Newsagents and convenience stores

Tips on how to reduce newsagent and convenience store insurance costs:

• Seek to enhance security, including CCTV, alarms and other systems
• Ensure stock and asset valuations are accurate when taking out and renewing policies 
• Avoid storing large amounts of cash overnight to minimise risk

Pubs, restaurants, cafes and takeaways

Tips on how to reduce hospitality and food business insurance costs:

• Strive for top hygiene levels and ratings
• Install fire prevention/suppression systems
• Store food and drink responsibly
• Maintain strict ID rules and training
• Ensure staff and signage are clear on potential allergy risks

Hotels and B&Bs

Tips on how to reduce hotel and B&B insurance costs:

• Keep incident logs and act promptly to address issues and plan preventative steps
• Install sufficient fire alarms and carbon monoxide detectors
• Implement clear evacuation plans for guests and staff
• Ensure appliances are PAT-tested
• Consider recommendations that also apply to pubs, restaurants and other establishments providing food and drink

Manufacturing and construction firms and builders

Tips on how to reduce manufacturing and construction business insurance costs:

• Improve site security to reduce risks of tools/equipment theft or damage
• Ensure subcontractors have valid insurance in place
• Use certified and quality materials, tools and machinery
• Carry out and document all training 
• Maintain machinery servicing logs
• Conduct responsible recruitment practices for projects

Plumbers, cleaners and similar traders

Tips on how to reduce insurance costs for tradesmen:

• Use written quotes and client sign-offs, and ensure clear communication 
• Take photos before and after each job to minimise the risk of work quality disputes or damage claims
• Ensure vans and other vehicles have security locks to combat tool theft
• Store chemicals and tools safely and use them responsibly

Retail, ecommerce and online businesses

Tips on how to reduce retail, ecommerce and online business insurance costs:

• Enhance cybersecurity and implement robust and regular cyber training
• Create clear business continuity plans to show you’re prepared for unexpected events, which can lower business interruption insurance costs
• Back up your data regularly and demonstrate compliance with data processing/consent rules
• Keep packaging areas safe to reduce injury risks
• Improve security to protect high-value stock
• Tighten inventory management and consider dropshipping options
• For bricks-and-mortar stores, display clear signage for potential danger spots, such as heavy goods or wet floors (after cleaning)
• Maintain tidy, safe and hygienic store and storage areas

Gyms

Tips on how to reduce gym business insurance costs:

• Ensure employees are fully trained and have first-aid certifications
• Carry out regular equipment checks and keep inspection logs
• Use clear signage for faulty equipment and to express the need for responsible use to prevent injury
• Implement regular cleaning and maintenance schedules
• Boost security protocols and improve safety measures

Charities

Tips on how to reduce insurance costs for charities and community-based businesses:

• Create and maintain strong safeguarding procedures
• Provide extensive staff and volunteer training 
• Ensure that donation collection and handling are done responsibly
• Follow GDPR and other data protection/consent rules

Engineers

Tips on how to reduce engineering business insurance costs:

• Keep certificates and records for various tools and equipment
• Provide CPD logs to insurers, where relevant
• Maintain up-to-date and sufficient professional indemnity coverage to reduce the risk/impact of potential claims

Butchers and bakers

Tips on how to reduce business insurance costs for bakers and butchers:

• Ensure food hygiene ratings and documentation are up to scratch
• Maintain refrigeration and storage logs
• Carry out regular blade/industrial tool inspections
• Keep your work environment safe, secure, well-cleaned/treated and your staff fully trained
• Follow good food handling practices and use adequate signage for customers

Wholesalers

Tips on how to reduce wholesale business insurance costs:

• Enforce adequate safety protocols and systems to prevent risks with machines and racking
• Keep maintenance logs for forklifts and other warehouse vehicles and tools
• Store goods responsibly, safely and at the right temperature and for the right duration, while keeping documentation and data updated

Gardeners and florists

Tips on how to reduce insurance costs for florists and gardening businesses:

• Maintain secure storage for gardening tools and things like fertiliser
• Ensure adequate training and protocols for vehicle, equipment and chemical use
• Bolster vehicle and trailer security

How to reduce shipping costs in small businesses

Shipping costs are another area where small businesses need to focus on when looking to minimise overheads and operating expenses.

Here are a handful of ways to help reduce your shipping costs:

• Negotiate lower courier/delivery costs by using volume projections and leveraging multi-carrier shipping software to get cheaper rates
• If you’re a retailer, encourage in-store collection and partner with local shops as collection points
• Use persuasive tactics to incentivise higher value orders 
• Conduct efficient packaging (reusing where possible) and use suitable parcel sizes/weights
• Bundle deliveries to reduce pickup fees and use batch shipping solutions
• Ecommerce businesses can cut shipping costs by using fulfilment partners for better bulk rates
• Manufacturers and wholesalers can reduce shipping costs through pallet shipping and freight consolidation

Using short-term finance to manage business costs 

With market conditions constantly changing, business owners need flexibility to manage costs in real-time. Short-term finance solutions can provide this flexibility to address key challenges, offering the following benefits:

• Bridging cash flow gaps: Short-term business finance can plug gaps during slower periods, ensuring that you can cover fixed and variable costs without disrupting operations, including stocking up on inventory ahead of busy holiday seasons and managing expenses during off-peak months.
• Covering unexpected expenses: Unforeseen expenses can arise at any time, whether it’s urgent equipment repairs or a sudden increase in raw material costs. Short-term loans or revolving lines of credit can provide liquidity to address issues promptly, preventing them from escalating.
• Supporting growth and expansion: Additional capital borrowing enables businesses to act swiftly, whether it’s launching a new product line, entering a new market or capitalising on a limited-time offer from a supplier.
• Investing in marketing and sales: Growing businesses need to invest in marketing and sales initiatives to drive leads and revenue, while boosting promotional activities during key seasons can maximise sales opportunities.

Using flexible business loans from iwoca

Unsecured business loans from providers like iwoca offer quick and easy access to funds without requiring collateral. Our business loans are designed to meet the needs of SMEs, helping UK businesses manage overheads, ease cash flow concerns and stay agile in competitive markets and tough economic conditions.

You can borrow from £1,000 to £1 million for a few days, weeks or as long as 60 months. Loan terms/repayments are tailored to your needs and cash flow, and you only pay interest on funds you use.

Apply online with iwoca in minutes and get an approval decision in as little as 24 hours, with transparent terms and interest rates. Also, use our business loan calculator to check your likely repayments.