This is my advanced guide on how to cut business costs without sacrificing quality.
Prior to writing this I've done quite a lot of research and I've also included some real-life examples from my experience.
I've tried to be very comprehensive. This is the reason why this turned out to be 6000+ words post. Feel free to use the Table of Contents below to skip to the parts that interest you the most.
I've intentionally avoided some cost reduction techniques, because in the end they'll bring more harm than good. I'll add them to the Bad cost cutting section.
Before we begin I have to make 1 thing clear:
It will be best to implement these strategies before you actually need to. You should look at this article more as a business optimisation guide, that focuses on reducing unnecessary costs, rather than a salvage my company kind of guide.
The main idea is to achieve effective, sustainable, long-term cost reduction for your company, without sacrificing any of the quality or value you provide.
What I'm trying to say is:
If your revenue is low and your reserves are non-existent, then it's probably a bit late.
The reasons for this are:
- It's better to never reach a moment when your business actually needs to reduce expenditure in order to stay afloat. This makes you vulnerable to making bad decisions.
- The best ways to reduce costs usually require an upfront investment. Which is hard to do, when you don't have enough money.
- It takes time to see the positive effects.
Here's the best part about this approach:
If you do this right, you're probably going to increase the overall effectiveness of your business, which should be one of the main goals for every businessman.
Now that we are past the disclaimer let's dive right in!
General tips for sustainable business cost reduction
Monitor, analyze, optimize.
I know it sounds a little bit generic, but this is probably the most important and effective thing anybody can do in their efforts to reduce business expenditure, increase revenue and get the maximum return for your investments.
This is the reason why different business intelligence and management systems are so wide spread.
They can give you invaluable insights about where you can easily make changes, that will be very profitable and will help you identify hidden blockages and "leaks".
From small things like:
- One department using a few times more office supplies than the others, because employees use them for personal stuff
- Workers coming systematically too late to work
To bigger things like:
- Some drivers driving way more carelessly than others and thus causing cars to break down faster
- Drivers running personal errands and thus increasing fuel expenditure significantly.
To some, who did major shifts, like changing their whole process, because they saw how this will help them reduce operating expenses.
Planning and budgeting.
This sounds more complicated than it really is.
Business planning is essential to every company, no matter the size.
It gives you well defined goals to pursue and the steps to accomplish them. It keeps you focused on what's important for growth, improving organization and reducing time and money wasted.
This is how you do it:
- Set a goal you want your business to achieve.
- Determine the steps that you need to take to reach that goal.
- Allocate the needed resources for each step.
- Start executing the steps.
- Analyze the results and eventually adjust course if they are not the expected ones.
A simple rule of thumb:
If you can't figure out how to do a certain step or how to budget for it - break it down into smaller steps. If you accomplish the smaller steps, you have accomplished the big one as well.
A good business planning or management software can help a lot with that. The detailed statistics provided by such tools are great for planning. You'll be able to examine closely how your business functioned in previous periods, keeping everything on track.
Automate as much as possible.
A lot of businesses struggle with that. Either because they don't want to invest in it, thinking it won't benefit them, or because they are afraid something will go wrong and believe they are perfectly fine the way they are.
Even if you are OK at the moment it doesn't mean you shouldn't try to improve.
Some of the biggest companies in the world are successfully cutting costs with automation. At "Alibaba" they use robots in their warehouses, "Spread" uses robotics to farm lettuce and "Adidas" uses robots to make running shoes.
There are many more examples, just check out what the guys at Boston Dynamics are doing:
This shows us that saving with automation works and it works really well. Otherwise nobody would have put the time and effort to research and create fully automated manufacturing facilities.
It doesn't matter if you can do it on this scale or not.
You can always use the help of computers to automate some of the smaller things in your business and reduce your expenses this way.
With recent advances a lot of stuff that was pretty hard to do in the past is easily achievable today.
Some examples, just to get you started:
- You can automate communication to get custom alerts, whenever something you care about happens. E.g. when a server is down, when you receive comment on your blogs, whenever somebody tries to access resources without proper authorization, etc.
- You can automate sending different "Thank you" messages or even client onboarding. More advanced features are made available from the different customer support tools out there.
- You can automate price estimates, orders, invoices, billing, etc.
Outsource everything you can.
Nowadays there's a company for everything.
You don't want to deal with HR?
There's a company that does this.
You don't want to deal with sales?
Marketing? Advertising? Accounting?
In general outsourcing everything that is not your forte is the way to go.
Hiring personnel is expensive and it's not worth it outside your core activity.
You'll waste a lot of time finding the right candidate. The lack of experience can lead to serious problems and expenses and since you aren't a pro yourself you can't really train somebody. You can just hope for the best, which isn't the best strategy for anything.
There is the option to hire a trainer to train your staff.
I think that's even worse.
Instead of paying somebody to do the task at hand, you'll be paying somebody to teach you (or your employees) how to do it. And you'll be paying premium, because trainers usually aren't cheap.
Besides I'm far from convinced that when the training is done the trainees will be as good at the task at hand as the trainer is.
Hiring a highly specialized company will give you all the benefits and none of the problems. You get a lot of experience, skills, contacts, tools, knowledge, know-how, etc. that you would otherwise have to spend a fortune on.
More importantly you get a partner, that is highly motivated to help you, because that's their business.
Your only concern is probably going to be management. But provided you have the right management software you should be fine.
Reduce operating expenses in business.
Use ERP or other management software.
There's a reason why these tools are so widely adopted in businesses over the globe:
When it comes to cost reduction seeing data organised in charts and tables is invaluable.
You also get the benefit of having everything centralized. This way finding information (e.g. supplier details, products pricing, etc.) is much faster.
Every ERP can generate customized reports. Throwing out irrelevant data from a report makes working with it more productive.
With an ERP you will have the ultimate stock control. You'll be able to identify hidden problems with ease.
After integrating an ERP and doing some A/B testing one of my clients reported, that buying a different brand of screwdriver bits resulted in spending 20% less for bits and using them 15% longer on average.
See how you can save easily on smaller things?
OK, next one:
Use your fixed assets as efficiently as you can.
It could be office space, production real estate, big machinery, etc. but it should be used to its fullest potential.
I don't mean using your meeting rooms twice a week or your multi spindle drilling machine 7 times a month. You have to be putting your assets to work as close to 100% of the time as you can get.
Here are a couple of ways to do it:
- Some of your office spaces can have two functions. Your meeting room can be your break room or you can combine storage and printing.
- You can rent out spaces you're currently not using.
- You can offer usage of your assets as a service. Smaller companies, DIYers, handymen, etc. that don't have access to such big machines will gladly use that.
There's of course one problem that can quickly arise:
It can be easily remedied with a good management or scheduling software. This way you'll always be in control of your schedules and there won't be any mix-ups.
If you own a sports facility, then good scheduling is crucial for you. You need it in order to optimize your usage of the playgrounds and maximize the time in which you're making money out of them, thus reducing loses.
If you are a bit more enthusiastic about automation in a lot of cases you can integrate a great deal of interconnected devices and an admin dashboard for them. This way you will be able to control your schedules and the devices from the same application. This is a real time and money saver - if we go back to the sports facility example turning the lights and music off and locking a room could be happening with a mouse click.
My next tip is better suited for smaller businesses (of course it'll work well for medium sized companies as well):
Use coworking office spaces or even work fully remotely.
Now this can save a substantial amount of cash. Shared offices are cheaper in comparison to renting or buying a traditional office.
Also you get the added benefit of somebody taking care of utilities, maintenance, etc.
If you want to expand this further and if your business allows it - you can offer telecommuting or even go the fully remote (or office-free) way. A lot of companies are doing this and the trend is going up.
It's good for office morale and for your wallet. Working remotely usually means happier employees, which is always a good thing. But it'll also potentially save you from utility costs (like electricity, water, internet, etc.) and office space.
(After that I'm talking about a potential issue with remote work and how to solve it)
The potential issue I mentioned is this:
Managing a team remotely can be a challenge. You have to figure out ways of communication (don't forget that you might have personnel in different time zones), task assignments, file sharing, etc.
My experience shows that technology can help a lot for this. You have different issue tracking systems like: JIRA, Asana, Trello. Everybody is using messaging apps nowadays, so I'm only going to mention Skype, Slack and Google Hangouts as the most popular ones. File sharing is also pretty easy: DropBox, Google Drive are just 2 of the many alternatives you can use. In the end it all comes down to preference, but the more things you can do with one app and the more it's suited for your specific needs - the better. You will easily save time and headaches if you can consolidate your management efforts in as little applications as possible or in a single customized one.
Meetings are time wasters.
Yes, that's right, unless you're actually making key decisions or making money you're wasting time.
Often people tend to steer off of the agenda, talk about unrelated stuff and also forget about things they talked about later.
You can easily drop most of the meetings if you use some kind of team tracking, organization and management app.
This way you will gain the following benefits:
- You will have history of everything that has been "said" on the given issue/task/theme/etc.
- It'll be a lot easier to assign tasks and have people do them.
- You can benefit from the so called "agile" methodologies for team management.
- If somebody starts working on a given issue later they'll be able to easily follow everything that was discussed prior to them joining.
- You don't have to do recaps and waste more time.
If you have remote workforce you'll save even more from travel expenses.
Be smart about equipment.
You can always buy the newest and best of everything, but you also might not need it.
When you can buy second hand or refurbished stuff - do it, it's cheaper and you often get some remaining warranty.
If you want to buy a crane a used one is usually a much better choice. It'll cost a lot less (depending on the type of crane), but more importantly - it should have a service history, with all the maintenance and repairs. This way you can easily determine the condition of the machine and make educated decision on whether or not it's a good purchase.
You can also rent equipment if you only use it once in a while.
You can rent out your own stuff when you don't need it.
An advice from me:
Don't waste money on stuff you don't really need.
I'll talk more about this later in this post.
Use free or open source software.
There's a free alternative to pretty much any computer program you might be using. You can save a lot of money if you start using these.
There's another added benefit:
You can make donations to the products you like the most whenever the right moment comes. This way you'll be making the world a better place and you also might get a mention on the product's sponsors page.
Open source and free software has changed a lot since the days it was almost unusable (or non existent).
You have free operating systems (Linux), that work quite well and are becoming more and more user-friendly. There are free office suites, creativity apps, management apps, accounting software, etc.
It's a good practice to check for a free alternative whenever you consider buying a license, it might save you a lot! In some cases it might be even better than the paid alternative.
I can give an example with myself:
This website is hosted for free on github, using free caching from cloudflare. I'm using the free blogging platform jekyll to generate it and I'm writing this post for free in my google docs, running on my free Arch Linux operating system. I'm editing images in GIMP, Krita or Inkscape which are all free.
Alright, next one is connected to this:
Before I give you the tips I must say this:
Nowadays it's important for every business to have a website. Don't skimp on the cost of a good website. It doesn't matter if you'll be investing in digital marketing or not. If somebody tries to look you up you must show up in the results, otherwise you risk losing a client.
As for how to save from a business website, here are a few pointers:
- In most of the cases you don't really need a custom made CMS. You can use wordpress, joomla, drupal or even jekyll if you're OK with a more technical solution (as I mentioned in the previous section - that's the one I'm using).
- Be very careful where you get your domain name from. There are some domain registrars, who have hidden fees, really bad terms and conditions, bad support, etc. Do your research before buying, to save some money. In my research on the topic done in 2019 I gathered positive and negative feedback of people from different forums and I came to the conclusion that Google, CloudFlare, NameSilo and PorkBun are OK. Currently I'm using CloudFlare.
- Be really careful about hosting too. Again you should check different reviews (avoid the paid PR reviews, check reddit, forums, etc.). Price is important but also is performance and extras.
- If you want to save some cash from the design of your website you can always buy one from the different website template marketplaces like TemplateMonster. It's much cheaper this way, but you might end up with pretty much the same website as somebody else.
OK, time to move to the next one and this is:
Try to avoid recurring payments.
Renting has one big benefit:
It's easy and convenient.
Once or twice a month you need a bus to drive your workers somewhere or maybe a super powerful computer to render the video clip you made. It could also be power tools if you use wider range of them and you don't want to invest.
Renting is viable solution to such problems. But these costs quickly add up and sometimes it makes more sense to just buy the thing you need.
Just do a quick calculation of your renting costs for let's say 2 years versus the cost of just buying the thing. If renting is equal or higher - you know what to do.
Even if it's not - the margin should be quite big for buying not to be the better option.
I'll give you another interesting example:
More and more companies are providing their software as a service, not as a product. It's quite popular.
What this actually means is:
You have to make recurring payments monthly or yearly in order to have the most recent version.
There's also this new trend emerging in which you have to pay also per user.
The reasoning behind this payment model is that you are always getting the latest and greatest version of the software and that each user needs more resources provisioned on the provider's servers.
The only problem is:
The benefits of always being on the bleeding edge of technology are at best debatable for most.
As for the per user cost - it's often caused by the fact that the provider is trying to serve a lot of clients at the same time.
Now a quick calculation:
Let's say you're paying for a small app (Slack is about $7 per month, per user). If you have 100 employees, that ammounts to $700 per month, for just one tool.
So for the first year it's $8400. Then if you add the second it's $16 800. And so on.
That can cover the costs of developing a simpler enterprise chat application, that will still do the job for you. Provided you don't need every single feature of Slack.
You see how this can easily amount to piles of money going out of your company.
There are other problems as well:
- You get functionality you don't need, but you're paying for it
- You don't get the functionality you actually need, although you're paying for it
- Support usually isn't that great, performance may be pretty bad, etc.
What you can do about it?
Talk to a development agency and ask them to create something that will suit your needs. The initial costs will be higher, but having no recurring licence payments will quickly catch up. Afterwards you only pay when you need additional stuff developed.
Your software, your hardware, your tools, your appliances, your offices, everything.
By upgrading old equipment you're gaining better performance.
More often than not a performance boost results in time and money savings.
Of course this should be taken with a grain of salt, because not every upgrade is worth it.
We are a software company, so as expected we work on computers to create, well... software.
Probably most people think that because computers are our main tool, we are always working on cutting edge tech. And they are wrong.
We haven't upgraded our CPUs for the last 4 years, because the performance gain for the things we do would be less than 5%. But we do use high-end SSDs despite their high cost, because the gain is significant.
Even if you own a restaurant - a new high-end coffee maker will be better than an old one - it'll work faster, it'll make better coffee and it'll break down less often.
If you're into car repairs better tools means better and faster repairs.
If you're a carpenter having new and powerful drill and table saw is going to make things easier for you, which again means reducing overall costs.
Same applies for pretty much every business, so don't be afraid to invest.
Just be smart about it:
Don't hesitate to buy the things that will make you money, but avoid unnecessary purchases.
Let me make one thing clear:
Nobody likes to be watched over like it's 1984.
But unobtrusive monitoring of your employees' activity has its benefits.
Benefit #1: You will find the slackers. People that come way too late to work or that take way too long lunch breaks regularly. What you do with them depends on a lot of things and is out of the scope of this post.
Benefit #2: You will understand what the strengths and the weaknesses of your employees are. You'll find who are the employees that give you the most value. More importantly - over time you'll be able to use your employees' skills more efficiently, because you'll know what they are good at.
A management application can help a lot with that. You can check when employees come to the office, when they go to and return from breaks and when they leave the office. You can also check the time it takes somebody to complete a task and privately rate if they did a good job or not.
Managing and task distribution becomes way easier, when you have the right data. Effective management is one of the best ways to reduce costs in business.
Reward value given to the company.
Encourage your employees to give value to the company. Rewarding for time spent in the workplace is kind of old school and it's not the most efficient tactic.
We've all seen (either on TV or in the real life) this one employee that constantly plays games while "working". Over time this can add up to a lot of money wasted.
So it's a good idea to encourage employees to give value to the company. You can do that by organising trainings, giving a bonus for a job well done, have flexible working hours, etc.
Of course you should always monitor and evaluate performance, so that you'll have statistics and history of what happened.
All in all implementing this strategy should reduce operational costs, but more importantly - it should also increase employee output.
Reduce working hours.
This one is a bit counter intuitive and controversial.
Just bare with me:
Recent studies report that reduced working hours actually pay off and that the average worker is clocking in no more than 3-4 hours. This applies especially to creative activities or ones that involve a lot of thinking. So if your type of business allows it, you could reduce working hours a bit.
This way you will gain from the increased productivity and save from office costs. Also don't forget the happiness factor. Everybody at the office will love you for the improved work-life balance. Happy employees are much more likely to bring greater value to your company than unhappy ones.
Reduce supply expenditure.
This can save a lot of money for some businesses like food joints, carpenters, car repair shops, construction businesses, etc.
You can monitor closely the usage of materials and try to optimize it.
Identifying leaks is important - there could be somebody "borrowing" stuff from you, an employee working very inefficiently with some material or something else that's creating excess usage of supplies, that remains hidden.
After finding these issues you should fix them and make sure they are less likely to happen again in the future.
What's more important:
You should always check the most recent price lists of suppliers, because there could be significant differences with the price you're getting from your current supplier.
If you find out that you're being charged more you can either switch or let your current supplier know about it and ask for a discount.
Automating this process can make your life a lot easier, because receiving a notification whenever a lower price appears is much more efficient and time saving than having to go through a bunch of price lists every week.
Go digital as much as you can.
Printing is expensive, archiving stuff on paper even more so.
Since computers are a big part of our lives you can save a buck if you decide to drop printing and paper altogether.
Another benefit of digitalisation is that it's much more convenient - sending an email is a lot faster than printing something and sending it over conventional mail.
Also if you're going the digital route, archived documents can be indexed and then easily searched for the tiniest bit of information when you need it. This is way cheaper than paying for physical document storage and much more efficient if you're trying to find some offer from ten years ago.
If phone calls are a significant part of your business again you can benefit from digital services. Landlines usually cost more than VoIP and have worse quality.
A lot of management can be digitalised as well. This does not lead directly to cost cutting, but it would improve efficiency a lot and will reduce wasted time, errors and other different misunderstandings.
For example integrating a good team management system can be incredibly beneficial. What you get is a central repository with all projects, all the tasks of all employees (and your own if you want to), etc.
Everybody sees only the things they need to.
This way you won't have employees forgetting what they had to do.
A good user interface helps a lot because it lets everybody use the software, but more importantly it provides ease of use:
- searching and grouping of tasks
- color coding
- adding different types of media
- many more
You also get automatic "deadlines", reminders and alerts for your tasks. Also task queuing can be automated. It's determined either by creation order or by task "weight".
Of course if you're building a custom team or a whole business management suite you can add whatever functionality you want.
In the long run this will substantially reduce wasted money and time (so it's a good cost cutter).
Of course you don't have to stop here, using technology can help in a lot of aspects of your business. You've probably noticed that most of the problems mentioned in this article have a working solution using computers and software.
Cut production costs.
In the process of creating a material product a lot of businesses have leftovers, cut-outs, scraps and any other kind of stuff that goes to waste in the end.
There are a couple of cost saving measures you can take to reduce waste and losses:
- Recycling is sometimes an option, although it's kind of a last resort one.
- You can use some simple design tool, CAD software or some custom application to optimize the way you use materials. Let's say you're in the carpentry business and you're using chipboard. An app can create optimized cutting diagram that will save you material and therefore money.
- You can sell leftovers. There are a ton of initiatives out there for restaurants, cafes and all other types of food joints trying to reduce food waste. Some of them sell the food at lower prices at the end of the day, others just give it away.
- In some cases good inventory and production management can help. You can use an application that will help you determine the optimal quantities you should buy of each product and the optimal quantities you should produce. This way much less products will go bad, remain unsold, etc. reducing your overall expenditure significantly.
Lower vehicle expenses.
Vehicles are a rather big expense generator.
Fortunately there are ways to optimize depending on the situation.
You can buy older cars in order to cut on the initial price. Usually a car, that's just a few years old, can cost 20-30% less.
You can also buy vehicles which require much less operational costs in terms of fuel, maintenance and repairs. Diesel, hybrid and electrical vehicles can save a lot of money. It's advisable to check when they'll pay back the initial investment and whether or not that's in sync with your plans.
When operating with a lot of cars proper vehicle management is crucial.
The reason for this is:
You have to maximize the utilisation of your vehicles, thus getting the most out of them. You don't want your cars sitting in a parking somewhere, that you pay for, if they can be making you money.
A fleet management software can help a lot with this, alerting you whenever you need to change the oil or renew insurance, making proper usage schedules, etc.
Save on the electric bill.
You won't believe how much energy is wasted every day, despite the fact that smart devices and IoT have already entered our lives.
Leaving the lights on in the office overnight wastes enough energy to make 1000 cups of tea.
Not to mention air conditioning, computers, etc. So integrating a smart system, that will turn off every device when it's not needed is a good way to save a lot of money.
If you want to go one step further you can create more complex rules as to what is turned on or off and when.
Some things you can do right away are:
- Use led lights, they save a lot
- Use laptops instead of desktops, unless you really need the extra horsepower.
- If you're shopping for machines try to buy the ones with the highest efficiency rating, especially when it comes to heating or cooling.
- Use high quality insulation for your office buildings
Don't keep excess inventory on hand.
It might seem like a good idea to be "well stocked" but it actually leads to a lot of excess expenditure.
This is why:
- You'll have to pay for storage. Depending on what you're storing and where you're storing it, this can be pretty expensive. Even if it's not, it's absolutely pointless to pay for something to just sit somewhere.
- In some cases a new law or regulation might make a part of your stock unusable. If you're producing food, a new law might make all your food dyes or packaging unusable. If you're dealing with air conditioners you might be left with lots of unusable coolant, that you even have to pay to dispose of. Even if things like these are out of your scope you might decide you want to change the design of your labels. How is that going to happen if you're sitting on a few hundred thousand ready ones?
Here's what you can do instead:
Invest in a good inventory management tool or module and do some inventory planning. You'll be able to create complicated schedules, to have statistics when you'll need more stock and when less and in general to predict what stock levels you'll need with great accuracy. It'll save you some cash and a lot of headaches.
This rule applies only to inventory or stock, e.g. assets you put in your production. If you have an asset you keep in order to sell for a higher price (investment asset), that's OK. Just make sure that the sale margin is bigger than what you paid to keep the asset.
Financial cost saving
If you own a company, chances are - you are using financial services. Be it a bank account, money transfers, insurances, etc. All these services add up when you grow and can become expensive.
If your company is a big client of the finance sector you should always be trying to get a better deal.
Check the prices that other financial service providers are offering.
Pay special attention to companies that would want and would try to win you over. Usually they'll give the best possible terms.
If you are offered a better deal, contact your current provider and ask them to match those terms or even ask for better ones. If they don't do it, consider changing providers. This is a simple way to lower financial costs, that can be especially helpful for smaller businesses, where every dollar matters.
Use fintech services
The finance sector is changing rapidly due to the mainstream adoption of technology.
There are a lot of new finance services emerging that could give you a lot more bang for your buck.
One good example are wire transfers, especially if currency conversion is involved.
Traditional banks usually give you absurd conversion rates and pretty bad transfer fees. Instead you can use one of the many money transfer services (like TransferWise) with pretty much no fees and with reasonable conversion rates. I can tell you from personal experience, that this is actually saving me a lot of expenses. But more importantly it's a much more convenient and time-saving alternative.
If you're using management software you can integrate payments in it. There are a lot of different payment providers (like Stripe or PayPal) making it possible to easily make payments from pretty much any application.
Check if you really need all the services you are currently using.
You might have a couple of overlapping insurances, a bank account you rarely use or something else. Whatever the case try and monitor for such things and remove them as soon as you can. Your business management tool should be able to help you with things like this.
Avoid late payments.
Not as easy as it sounds, right?
You could be waiting to be paid yourself or you could be receiving a ton of invoices on a monthly basis and you're simply forgetting about some of them.
A little bit of management software can help a lot here. You can have alerts for invoices that are about to be due, you can also plan ahead to avoid not having enough cash on hand at the moment and having to pay more later.
Just like the finance sector, marketing is being revolutionized thanks to search engines, social networks, web forums and many other platforms that aggregate and show content in one way or another.
If your business relies on advertisements to get new clients maybe you should shift your focus a bit to gain more for what you're paying. If done right digital marketing can have huge benefits, so maybe that TV or radio commercial that you're running and that's costing you an arm and a leg simply isn't worth it.
Digital marketing has the benefits of reaching very specifically targeted audiences, which are much more likely to buy. Also there's the benefit of being able to manage every aspect of your campaigns from your computer, which would save a lot of time.
Another important part of marketing is giving your company's name the brand status. This isn't easy to achieve, but digital marketing can help a lot. If you manage to do it, you'll gain big cuts in your advertisement expenses.
Some of the easier steps to start walking towards the brand status are to post on specialized forums in order to show your expertise, maybe run a blog or post regularly in a magazine to gain more popularity, answer on platforms like quora, etc.
In general digital marketing gives you much more bang for your buck. Thus helping in the reduction of the expenses for advertisements.
Bad cost cutting
Here it is, as promised in the beginning of this post - bad ways to reduce costs.
The number one rule of expenditure reduction is:
You should never compromise the quality and value you provide to your customers and to your employees.
Usually you can get away with a small drop in your services. Nobody is going to notice, right? Sadly in most cases that leads to more and more cuts being made and without even realising it you are on the track of rapidly losing your clients.
The situation with your employees is similar.
Well because of this simple equation:
Unhappy employees = unhappy customers.
Cutting salaries or benefits, providing cheap tools or worse - not providing them at all and in general - reducing the quality of the working environment in any way are all perfect examples of bad ways to cut costs. They lead to bad quality and low value of the services or products you provide. Ultimately they'll make your clients search for an alternative.
As a main takeaway from this section I'll give you a list of measures, that I consider really bad and in some cases desperate cost cutting techniques, that I think, shouldn't be used:
- Lay offs, because employees are expensive. This was probably caused by hiring too much workforce in the first place or some other bad decision. Try not to do this, because it reduces morale, it damages your image and it's bad practice in general. However if you absolutely have to, then have meetings with the remaining employees and explain what is happening. Boosting morale in such situation is mandatory.
- Don't cut on employee perks. Especially if they are highly valued. You'll simply piss off your workers and sooner or later you'll suffer the consequences.
- Don't save from what you give to your clients. From smaller meals, through cheap knock-off parts, to bad untested software it's all going to make you lose clients.
- Don't start from Marketing. In a crisis one should try to get more business, which translates to more marketing effort, not to less.
Of course there are more, but these aren't specific and apply to the majority of situations.
If you made it this far, I want to thank you for being so patient. I hope you found this article useful and the tips helped you.
I'll be glad to answer any questions you might have or add things you think are relevant. Of course I'll try to keep this guide updated with new and relevant information.
Overall these are just some ideas on how to cut costs for your business.
Depending on your core activity there are probably much more things you could do.
The main takeaway is this:
Don't sacrifice quality and value to reduce your expenses. These are desperate measures and they don't work long term. Try to act in advance, before things start to go bad.