Managing money in a business is usually a game of two halves. You've got your fixed costs—the rent, the insurance, the salaries—that just sit there like a stubborn weight. Then you have the variable stuff. This is the electricity, the raw materials, the shipping, and the commissions that fluctuate based on how much you're actually doing. Most bosses look at their P&L and start sweating when they see the variable line items creeping up. They wonder: how might a company reduce its variable expense without accidentally kneecapping the sales team or making the product feel cheap?
It’s a delicate balance. Cut too deep into sales commissions and your best people walk. Squeeze your suppliers too hard and they’ll prioritize their "nicer" customers when the supply chain inevitably breaks again.
The Raw Material Reality Check
If you're making a physical product, your raw materials are likely your biggest variable headache. It’s easy to say "buy in bulk," but that ties up your cash flow in inventory that might just sit in a warehouse gathering dust. Instead of just buying more, smart companies are looking at waste reduction.
Take a look at Toyota’s classic Lean methodology. They didn't just try to buy steel cheaper; they obsessed over how much steel ended up on the floor as scrap. If you can reduce your scrap rate from 5% to 2%, you’ve just given yourself a 3% raise without talking to a single vendor. Honestly, it's often easier to fix your internal processes than it is to win a price war with a global supplier.
You should also be looking at substitution. Not the "make it worse" kind of substitution, but the engineering kind. Can you use a 3D-printed component instead of a milled one? Is there a composite material that performs just as well as aluminum but costs half as much? In 2024, many manufacturers started moving toward "modular design" where different products share the same internal parts. This consolidates your buying power. Instead of buying 10 different types of screws, you buy a million of one type. The volume discount kicks in naturally.
Rethinking the "Ship It" Mentality
Shipping is the silent killer of margins. Fuel surcharges, "last-mile" delivery fees, and dimensional weight pricing can turn a profitable order into a loss-maker in seconds. If you're asking how might a company reduce its variable expense, start with your packaging.
Most companies ship way too much air.
If you can shrink your box size by 10%, you might fit 20% more units on a single pallet. That’s a massive win for your freight-out costs. There’s also the "zone skipping" strategy. Instead of shipping 500 individual packages from New York to California, you ship one massive pallet to a hub in Los Angeles and let the local carriers handle the final leg. It’s cheaper. It’s faster. It’s just better business.
Don't forget about returns. Returns are a variable expense that many people treat as "just a cost of doing business." It’s not. It’s a leak. Zappos famously leaned into free returns, but they have the scale to eat that cost. For a mid-sized firm, reducing your return rate by providing better sizing charts or clearer product videos is one of the fastest ways to shore up your variable margins.
Why Your Energy Bill Is a Choice
For heavy industry or even data-heavy tech firms, energy is a huge variable cost. You’d be surprised how many companies just pay the bill without looking at the "peak demand" charges.
Utilities often charge you based on your highest point of usage during the month. If you turn on every machine in the factory at 8:00 AM, you’re setting a high peak that dictates your rate for the next 30 days. Shifting heavy loads to "off-peak" hours—basically running the big stuff at night or staggering start times—can shave thousands off a monthly bill.
Some companies are even installing IoT sensors to track real-time usage. These sensors can tell you if a specific machine is drawing too much power, which usually means it's about to break. So, you’re not just saving on electricity; you’re preventing a massive repair bill and the variable labor cost of an emergency fix.
The Variable Labor Trap
Labor is tricky. You have your salaried staff, but then you have overtime, temporary contractors, and commissions.
Overtime is a massive drain. It’s usually 1.5x the cost for a tired employee who is significantly more likely to make a mistake. When a company wonders how might a company reduce its variable expense, they often look at cutting staff, but they should be looking at cross-training.
If Mary in accounting knows how to help with light shipping tasks during a seasonal surge, you don't need to hire a temp. If your sales team is trained to handle basic customer support queries, you don't need to scale up your call center every time you launch a new promo.
Regarding commissions: don't cut the percentage. That’s a death wish for morale. Instead, cap the accelerators or tie the commission to gross margin rather than just revenue. If a salesperson gets a bigger check for selling high-margin products, they’ll stop discounting your services just to close a deal. You’re essentially training your team to protect the company’s variable costs for you.
Software and the "SaaS Tax"
We live in a world of subscriptions. It feels like every tool—from Slack to Salesforce—wants a piece of your monthly revenue. This is a variable expense because as you add more users, your bill goes up.
Audit your seats. Seriously.
Most companies are paying for "Pro" versions of software for employees who only use the basic features. Or worse, they’re paying for seats for people who left the company six months ago. Conduct a "SaaS Audit" every quarter. If a tool hasn't been logged into for 30 days, kill the license. It’s boring work, but it’s pure profit once you finish.
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The Outsourcing Paradox
Sometimes the best way to reduce a variable expense is to make it someone else's problem.
Third-party logistics (3PL) providers are a great example. If you own your own warehouse, you’re paying for the space, the heat, and the staff whether you’re busy or not. By moving to a 3PL, you only pay for the space you use and the number of boxes they ship. Your fixed cost becomes a variable cost.
Wait—wasn't this article about reducing variable expenses?
Yes. But by making costs variable, you gain the ability to scale down instantly when the market dips. You aren't stuck with a 10-year lease and a fleet of idle forklifts. Flexibility is its own kind of savings.
Actionable Next Steps
If you’re ready to actually cut these costs without breaking your company culture, here is how you start:
Step 1: The Pareto Analysis
Pull your ledger from the last twelve months. Identify the top 20% of variable expenses. In most businesses, these few items (shipping, raw materials, or ad spend) account for 80% of the total cost. Ignore the small stuff like office snacks for now. Focus your energy where the big numbers live.
Step 2: The Vendor "Tough Love" Conversation
Call your top three suppliers. Don't ask for a discount; ask for a partnership in efficiency. Ask them: "How can we change our ordering habits to make it cheaper for you to serve us?" Maybe they want you to order on Tuesdays instead of Fridays. Maybe they prefer a different pallet size. If you save them money, they are usually willing to pass some of those savings back to you.
Step 3: Internal "Waste Walk"
Physically walk through your office or factory. Look for the literal trash. Are lights left on in empty rooms? Are printers churning out hundreds of pages that nobody picks up? Is the manufacturing line stopping every twenty minutes because a tool is missing? Document these small frictions. They add up to a massive "hidden" variable expense over a year.
Step 4: Tighten the Ad Spend
If you use digital marketing, your ad spend is a massive variable cost. Check your "Attribution Models." Are you paying for Google Ads for people who were going to buy from you anyway? Many companies find they can cut their ad spend by 15% with zero impact on sales by simply removing "branded" keywords that they already rank #1 for organically.
Reducing variable expenses isn't about being cheap. It's about being surgical. It's about ensuring that every dollar you spend is actually contributing to the product or the customer experience, rather than just leaking out of the bottom of the boat. Keep your eyes on the data, talk to your vendors, and stop paying for air in your boxes.