We’re probably not the first to tell you that your business’s utility expenses can significantly impact your bottom line. 

From maintaining the electricity and gas bill, to keeping the water and internet services running, it takes effective management and control to help improve your profit margin.  

This is why our goal is to equip our customers with the necessary tools to estimate, analyze, and control their utility costs for their specific business. Providing you with valuable insights and practical tips to estimate and manage these expenses effectively. 

By exploring the key factors that influence utility costs, understanding how to estimate expenses for the different utilities, and discovering strategies to reduce energy usage, you will gain the knowledge needed to optimize your utility budget.

No matter the business you are in (i.e. a retail store, a restaurant, a small manufacturing facility, etc.) this article will serve as a guide to help you navigate the complex landscape of utility costs. 

Let’s get started!

What Are The Different Small Business Utility Expenses You’ll Encounter?

Look, we get it, every business is unique. There isn’t a one size fits all for managing your utilities. 

However, if you want to win as a business owner, you have to have laser focus on your costs, and utilities fall into this bucket as a major expense line item within your operating costs.

With all that being said, nearly every business will have the following utility costs: 

• Electricity
• Gas
• Water
• Internet
• Telecommunication
• Waste

The utility costs for each business owner can vary greatly depending on the type of business, the square footage, the location, the energy efficiency tactics used and so much more. 

Let’s explore the most common utility expenses incurred by small businesses:

Electricity

Electricity covers the costs associated with powering lighting, equipment, and HVAC systems for your business.

Electricity rates are typically structured in tiers or based on usage levels. The more electricity your business consumes, the higher the rate per kilowatt-hour (kWh) you may be charged. It’s essential to be aware of the specific tariff structure in your region and how it applies to your business.

Keep in mind, electricity costs can (and do) fluctuate over time due to factors such as changes in utility rates, regulatory policies, and market conditions. Regularly monitoring your business’s electricity usage, staying informed about rate changes, and exploring energy-saving initiatives will help you effectively manage and control electricity utility costs.

Estimating the Cost of Electricity

1. To stay on top of your electricity expenses, research the average electricity rates specific to your location and industry. This information can be obtained from local utility providers or government energy departments.
2. Identify the key factors that contribute to your business’s electricity usage, such as lighting systems, equipment, HVAC systems, and electronics.
3. Analyze historical electricity consumption data and identify patterns. Estimate future electricity expenses by considering business growth, changes in operations, and implementing energy-efficient practices.

Gas

Gas utility expenses include the costs of natural gas used for heating, cooking, and certain manufacturing processes.

Gas rates are typically measured in units such as therm or cubic feet (ft³). The cost of natural gas can vary based on factors such as geographic location, regional market conditions, and supply and demand dynamics. Gas rates are determined by utility providers or gas suppliers in your area.

Gas consumption within a business can vary depending on the industry and specific operations. The efficiency of gas-powered equipment, such as heating systems or cooking appliances, can significantly impact gas utility costs. Upgrading to energy-efficient gas equipment can reduce gas consumption and lower associated expenses.

Estimating the Cost of Gas

1. Research the average gas rates applicable to your business’s location. Contact gas utility providers or consult government resources for accurate pricing information.
2. Identify the main areas of gas consumption in your business, such as heating, cooking, or manufacturing processes. Assess equipment efficiency and usage to estimate gas consumption accurately.
3. Calculate gas expenses by multiplying the gas consumption estimate by the average gas rates per therm or cubic foot.

Water

Water utility expenses account for the costs associated with water supply, usage, and wastewater management.

Water rates vary based on location and are determined by local utility providers. These rates often follow a tiered pricing structure, where the cost per unit of water increases as usage levels rise. 

Analyzing the water usage patterns within your business is crucial for managing costs and staying within budget. You can identify areas where water is consumed, such as bathrooms, kitchens, or manufacturing processes, to help understand the key drivers of water usage. This data can also provide insights into usage trends and opportunities for conservation.

Estimating the Cost of Water

1. Research the water rates applicable to your area, considering any tiered pricing structures that may apply based on usage levels.
2. Identify the primary areas where water is consumed within your business, such as bathrooms, kitchens, or manufacturing processes. Monitor water usage patterns to estimate consumption accurately.
3. Implement water-saving measures like low-flow fixtures, water-efficient appliances, and leak detection systems to reduce water consumption and associated costs.

Internet

The internet is an essential expense these days for any business and it covers both connectivity and your businesses data usage.

Internet utility costs can vary depending on the service provider and pricing model chosen by the business. Different internet service providers (ISPs) offer various plans and packages, such as fixed monthly rates or usage-based pricing. 

Assessing the bandwidth requirements of a business and understanding its internet usage patterns are necessary when estimating internet costs. Bandwidth requirements depend on the number of users, online activities, and the volume of data transmitted. Analyzing internet usage patterns helps identify peak usage hours and data-intensive tasks, enabling businesses to choose appropriate plans and avoid overpaying for unnecessary bandwidth.

Telecommunication

Telecommunication utilities include phone lines, mobile plans, and other communication services necessary for business operations.

Similar to the internet, these costs can vary depending on the service provider and the pricing models they offer. Different providers offer a range of plans and packages tailored to different business needs. It’s important to research and compare pricing plans, taking into consideration factors such as the number of lines or extensions required, call volume, and data usage.

Estimating the Cost of Internet and Telecommunications

1. Research the available internet and telecommunication service providers in your area. Compare their pricing plans and packages to determine the most cost-effective options for your business.
2. Understand your business’s internet usage demands, including browsing, file transfers, video conferencing, and cloud services. Assess your communication needs, such as phone lines and mobile plans, based on usage patterns.
3. Consider bundle packages, negotiate with service providers for better rates, or explore alternatives such as Voice over Internet Protocol (VoIP) for cost savings.

Waste Management

Waste management utilities involve the disposal, recycling, and proper handling of waste materials produced by the business.

Waste disposal services involve the collection and transport of waste materials from your business premises to designated disposal facilities. The cost of waste disposal services can vary depending on factors such as the volume and type of waste generated, the frequency of collection, and the local waste management regulations. Service providers typically charge fees based on factors such as the size of waste containers, the number of pickups, and the distance to the disposal site.

Implementing recycling programs can help reduce waste management costs and promote sustainability. Some waste management companies offer recycling services alongside waste disposal. The costs associated with recycling programs may depend on factors such as the type and volume of recyclable materials, the availability of recycling facilities in your area, and any applicable recycling regulations or incentives.

Implementing waste reduction strategies can lead to cost savings in waste management. Businesses can adopt practices such as source reduction, reuse of materials, and composting, which can minimize the volume of waste generated. By reducing waste at the source, businesses can lower disposal costs and potentially explore waste-to-energy initiatives, which can generate additional value from waste materials.

Estimating the Cost of Waste Management

1. Begin by assessing the volume of waste generated by your business. Determine the type of waste produced (e.g., general waste, recyclables, hazardous waste) and its approximate quantity. This assessment will help you understand the scale of waste management services required and provide a basis for estimating costs.
2. Research waste management service providers in your area and gather information about their pricing structures. Contact multiple providers to obtain quotes or price lists based on your waste volume and disposal needs. Different providers may have different pricing models, such as per container, per collection, or bundled pricing. Compare the pricing information obtained to get an idea of the average cost range for waste management services.
3. In addition to waste volume and service provider pricing, consider other factors that can influence the cost of waste management. This may include factors such as the frequency of waste collection, special handling requirements for certain waste types, any additional fees or surcharges for hazardous materials, and the distance to the disposal facility. Evaluate these factors and incorporate them into your cost estimation to ensure a more accurate representation of the total waste management expenses.

Key Factors Affecting Small Business Utility Costs

While there are many costs that play a role in running a business, there are a few key factors every business owner should know of that affect their business uniquely. 

Type of Business and Its Specific Energy Requirements

Considering the hundreds of industries out there, it’s no surprise there are a vast amount of different types of businesses to service them. Each with varying different structures and energy demands based on their operations. 

For instance, a retail store may primarily require electricity for lighting and operating point-of-sale systems, while a manufacturing facility may have higher energy demands for operating heavy machinery. 

By focusing on the type of business you operate and identifying the specific energy requirements for that type of business, you can better estimate and allocate resources for utility costs.

Size and Square Footage of the Business Premises

The size and square footage of your business premises play a significant role in utility costs. This is one of those areas where bigger does not necessarily mean better. Larger spaces generally require more energy for heating, cooling, lighting, and other operational needs. 

Understanding the size of your premises and its impact on energy consumption will enable you to estimate utility costs more accurately.

Geographic Location and Regional Utility Rates

Not only will your rent be affected by location (i.e operating out of New York City instead of San Antonio), but different regions will also have different pricing structures and tariffs for electricity, gas, and water. 

Researching and understanding the regional utility rates relevant to your business location is essential for estimating utility expenses more precisely. 

Seasonal Variations and Weather Conditions

The changing of the seasons and weather patterns can greatly influence your business’s utility costs too. For example, businesses located in colder climates may have higher heating costs during winter months, while those in warmer regions may experience increased cooling expenses during summer. 

Being aware of the seasonal fluctuations and weather patterns in your area will help you anticipate and budget for these variations in utility costs.

Energy Efficiency

If you have not looked into energy-efficient alternatives in each area of your utility costs, then you are probably over-spending. Implementing energy efficiency measures can have a significant impact on reducing utility costs. 

All businesses have ways of incorporating energy-efficient equipment, insulation, lighting systems, and smart technologies to help optimize energy consumption and lower utility expenses. By investing in energy-saving initiatives, you can not only reduce costs but also contribute to sustainability and environmental goals.

Top Strategies For Managing and Reducing Utility Costs

Managing and reducing utility costs is a crucial aspect of financial sustainability for businesses of all sizes. With the utilities we discussed earlier (electricity, gas, water, telecommunications, etc.) being essential for day-to-day operations, optimizing their usage and expenses becomes imperative. 

Fortunately, there are effective strategies that businesses can implement to realize significant savings and improved efficiency. 

For the small business owner, these strategies will provide valuable guidance to help you take control of your utility expenses and enhance your bottom line.

Conducting an Energy Audit

Conducting an energy audit plays a crucial role in managing and reducing utility costs for businesses. An energy audit involves a comprehensive assessment of energy usage patterns, equipment efficiency, insulation, lighting systems, and other factors that impact energy consumption. 

By conducting an audit, businesses can identify areas of energy inefficiency within their operations. This includes pinpointing equipment or systems that consume excessive energy or identifying areas where energy loss occurs. By identifying these inefficiencies, businesses can take targeted actions to optimize energy usage and reduce utility costs.

An energy audit also provides valuable insights and recommendations for energy-saving measures. Auditors, who are often professionals or specialists in energy management, analyze the audit data and provide customized recommendations specific to the business’s needs. 

These recommendations can range from implementing energy-efficient technologies and equipment to adopting energy conservation practices and optimizing operational processes. By implementing these recommendations, businesses can make informed decisions to reduce energy consumption and, subsequently, lower utility costs.

Energy audits will equally help small business owners evaluate the potential return on investment (ROI) for energy-saving measures. The audit report may include estimates of cost savings that can be achieved by implementing specific recommendations. This allows businesses to assess the financial viability of energy-efficient upgrades or modifications. 

Implementing Energy-Efficient Technologies and Equipment

To reduce utility costs, upgrade to energy-efficient technologies and equipment that consume less energy while providing the same or better performance. By upgrading to energy-efficient lighting systems, HVAC systems, appliances, and other equipment, businesses can significantly reduce their energy consumption. This leads to lower utility bills and reduced overall energy expenses.

While the upfront investment in energy-efficient technologies and equipment may be higher, the long-term cost savings are substantial. Energy-efficient equipment often operates more efficiently, resulting in lower ongoing energy expenses. Additionally, some energy-efficient technologies, such as LED lighting or smart thermostats, have longer lifespans and require less maintenance, reducing maintenance and replacement costs over time.

Implementing energy-efficient methods also has positive environmental impacts. By consuming less energy, businesses can reduce their carbon footprint and contribute to sustainability efforts. This aligns with the growing demand for environmentally responsible business practices, which can enhance a business’s reputation and attract environmentally conscious customers.

Many regions offer incentives, rebates, or tax credits to businesses that invest in energy-efficient technologies and equipment. These incentives can help offset the initial costs of implementing energy-efficient upgrades, making them more financially viable. By taking advantage of such programs, businesses can further reduce the payback period and enhance the cost-effectiveness of their energy-efficient investments.

Promoting Employee Awareness and Engagement

Educating and involving employees in energy conservation efforts is a valuable strategy for managing and reducing utility costs within a business. This will encourage them to adopt energy-saving practices such as turning off lights and equipment when not in use, properly managing thermostat settings, and reducing water consumption. If you foster a culture of energy consciousness throughout your business you will be amazed about how it can drive long-term savings.

By educating employees about the importance of energy conservation and providing them with information on best practices, businesses can inspire behavior change. Employees who are aware of the impact of their actions on utility costs are more likely to adopt energy-saving habits. These small changes in behavior can collectively lead to significant energy savings and reduced utility costs.

Actively involving employees in energy management initiatives fosters a sense of ownership and empowerment. Encourage employees to share their ideas for improving energy efficiency and reducing utility costs. They may offer unique insights or suggest practical solutions that can result in tangible savings. By promoting an open and collaborative environment, businesses can tap into the collective knowledge and creativity of their workforce to identify innovative ways to manage and reduce utility costs.

Engaged employees can play a role in monitoring and reporting energy wastage or equipment malfunctions. Encouraging employees to be vigilant and report any energy-related issues, such as leaks, inefficient equipment, or energy-intensive processes, allows for timely detection and resolution. Promptly addressing such issues can prevent unnecessary energy waste and potential damage, leading to lower utility costs and improved efficiency.

Providing training and educational resources on energy management and conservation techniques equips employees with the knowledge and skills to make informed decisions. Conduct workshops, seminars, or online training sessions to educate employees about energy-saving practices, the impact of energy consumption on utility costs, and the company’s energy goals. Empowered employees are more likely to take ownership of their actions and actively contribute to the organization’s energy-saving efforts.

Negotiating with Utility Providers

Negotiating with utility providers is a proactive strategy for cost reduction. Small business owners should explore the possibility of negotiating better utility rates or customized plans with their service providers. 

By engaging in discussions with providers, businesses can inquire about available discounts, special rates, or promotional offers that can help reduce utility costs. The utility company’s representative may offer customized pricing plans based on factors such as consumption volume, usage patterns, or long-term contracts. Negotiating for favorable rates or terms can result in significant cost savings over time.

Reviewing and negotiating utility contracts enables businesses to optimize their agreements to align with their specific needs and goals. Businesses can negotiate contract terms such as contract length, termination clauses, pricing adjustments, or service-level agreements. This flexibility allows businesses to secure more favorable terms, pricing structures, or added services that better suit their operational requirements. By optimizing contracts, businesses can potentially lower costs and improve the overall value received from utility services.

Some utility providers offer incentives or programs to encourage energy efficiency and conservation. These programs may include rebates, grants, or credits for implementing energy-saving measures or adopting renewable energy sources. By negotiating with utility providers, businesses can inquire about such incentive programs and explore how to participate. Taking advantage of these incentives can offset costs related to energy-efficient upgrades, incentivizing businesses to invest in sustainable practices and ultimately reduce utility expenses.

Regular communication with utility providers helps businesses stay informed about changes in pricing, policies, or new services that may impact utility costs. Establishing a relationship with utility providers and maintaining open lines of communication allows businesses to stay up-to-date on industry trends, pricing updates, or new technologies that can contribute to cost savings. By proactively reviewing utility contracts, conducting periodic cost comparisons, and exploring alternative providers, businesses can ensure they are receiving the most competitive rates and services available.

Exploring Renewable Energy Options and Incentives

Investigate renewable energy alternatives such as solar panels or wind turbines. These sources can help offset traditional utility costs and reduce reliance on grid-based electricity. Additionally, research federal, state, or local incentives, grants, or tax credits available for businesses transitioning to renewable energy solutions.

By adopting these strategies, small businesses can effectively manage and reduce their utility costs, improving their financial efficiency and environmental sustainability. In the next section, we will present case studies featuring real-life examples of small business utility costs, providing insights into successful cost-saving initiatives and their outcomes.

Are You Overpaying On Your Utilities?

Small businesses often face the challenge of high utility costs, which can significantly impact their profitability. If you’re concerned about overpaying for utilities and want to explore cost-saving options, it’s essential to consider professional services like Wolf Expense Solutions. 

As a leading expense management provider, Wolf Expense Solutions specializes in helping small businesses optimize their utility expenses and reduce unnecessary spending.

We offer a comprehensive utility audit to identify areas where your small business may be overpaying for utilities. Their team of experts will analyze your utility bills, contracts, and usage data to uncover potential errors, overcharges, or inefficiencies. 

Take control of your utility expenses and explore the potential savings that await your small business.

Frequently Asked Questions

Here is a list of frequently asked questions about average small business utility costs:

How can I estimate my small business’s electricity costs accurately?

To estimate your small business’s electricity costs accurately, start by reviewing your electricity bills from previous months to understand your average usage and associated costs. Consider factors such as the size of your premises, the type and number of electrical appliances, and the hours of operation.

What factors influence gas expenses for small businesses?

Here are the most common factors to consider:

• Size of the premises
• Type of business activities
• Heating and cooking requirements
• Geographic location
• Insulation levels

How can I reduce water costs for my small business?

Monitoring water usage regularly and adjusting consumption based on actual needs is the best way to reduce your overall water costs