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How to Estimate Utility Costs for SMBs

Utility costs vary greatly depending on a number of factors. But businesses spend an average of $2.14 per square foot on commercial building utilities. Those costs can add up quickly, making it important for business owners to estimate utility costs and factor them into their budget. This is particularly crucial if you’re launching a startup and want to ensure your business is able to profit. Knowing how to estimate utility costs and taking steps toward utility expense reduction can maximize efficiency and profitability.

Factors Contributing to Utility Costs

There are myriad factors that can increase utility expenses. While some might quickly come to mind, others can come at a surprising cost. For example, refrigeration was the largest use of electricity for commercial businesses in 2018, with businesses spending 13.9% of their electrical utility budget on this element alone.

The types of technology you use can also heavily influence utility costs. One example of this is lighting. This utility is expected to see a 54% decrease in electricity intensity by 2050. This is due to a growing number of businesses adopting compact fluorescent lamps and LED bulbs. Solar panels and other more sustainable technologies will also make a difference. Businesses that employ these solutions can be more energy efficient while helping to reduce their energy expenses.

In addition to these factors, demand and energy consumption further contribute to energy costs. This often varies based on the industry. Certain facilities use more energy than others, depending on the specific type of business. For instance, hospitals and other buildings often consume energy on a 24-hour basis. Also, restaurants and other food service facilities rely on refrigeration to keep food items from spoiling. The amount of power a facility requires every hour during billing cycles also affects demand charges that account for much of an energy bill.

If you want to know how to estimate utility costs, you must also understand the specific utilities you’re paying for. Depending on your business, that could include electricity, natural gas, garbage pickup, phone, and internet.

How to Estimate Utility Costs for Small Businesses

Business owner reviewing past payments to estimate utility costs over the next year

In determining utility costs, you’ll be able to come up with a more accurate estimate if you’ve been in operation for a minimum of one year. Over the course of your first year, you’ll be able to better determine how to estimate utility costs for the future. However, you don’t necessarily need to rely on your first year of data with sufficient research into costs. You may be able to develop a utilities estimator that enables you to forecast future utility expenses. Over time, you can optimize your strategy as you learn about expenses through previous bills.

To help you learn how to estimate utility costs for SMBs, the following are some specific steps you can take as you seek to grow your business.

1. Collect Your Past Bills

The first step is to collect all utility bills that accumulated over a particular period. Again, you would ideally have an entire year’s worth of bills available to help you gauge average expenses and figure out how much you’ll pay in the future. If you don’t have a year’s worth of bills available to use, you can look up utility costs in your area or in your industry. 

In addition, you could reach out to each utility service provider to learn about costs. They may provide fixed pricing or accurate estimates based on the size of your property, depending on the utility. 

If you want to ensure you’re only paying for what you need, you can also enroll in a utility audit program. A utility bill audit can identify any inefficiencies or errors based on past bills and comparisons with local businesses. Reach out to the experts at Util Auditors to request a utility audit for your facility today.

2. Determine the Total Cost of Utilities by Adding All Expenses

With your bills collected, you can add the estimates or totals over a specific period. It helps to have a robust software solution that can give you a more accurate total. Look for options that also enable you to gain insights into different periods. 

Comparing the costs over different periods can give you some actionable data that helps you determine how much you’ll spend during a given month or season. For example, you might discover that refrigeration consumes more energy in the summer months than it does during the winter. In that case, you can more accurately gauge how much you’ll spend during different times of the year.

3. Compare All Utility Costs to All Expenses Within the Same Period

After adding up your expenses, compare the sum of all utility expenses to the total amount you spent within the same period. You’ll then be able to determine how much you spent on utilities compared to other business expenses. You might find that utilities take up a large portion of your expenses alongside other elements, such as advertising and marketing, office supplies and equipment, rent, and more.

Now that you know how to estimate utility costs, you can better determine how to optimize your business’s energy efficiency to increase profits.

How a Utility Bill Audit Can Help

Taking these steps can help you gauge how much you’re actually spending on utilities to better prepare for the future. But you can get even better results with a professional utility audit. Knowing how to estimate utility costs on your own is valuable; an audit can paint a much clearer picture of spending and help you save more money in the long term. You may be able to take steps to reduce energy consumption. Then an audit may identify areas you missed, such as inefficient technologies or errors that compromise profitability. 

Ultimately, an audit with the right auditor will use past payments, agreements, and other documentation to identify areas where you can save. 

If you would like to find out how a utility bill audit can enable your business to grow through reduced utility expenses, reach out to Util Auditors today to discuss your first audit. 

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