Cutting costs is one of those things that sounds like it should be easy. In fact, it’s a bit of an art.
Sure, cancelling a software subscription you don’t use is as easy as clicking a button. But making cost-cutting choices strategically can be a challenge: How can you ensure that you don’t accidentally hurt your user experience or drive off employees?
Every business’s expenses and needs are unique. But to make smarter decisions about when and which costs you cut, there are a few things you should know:
- You Make the Decisions.
First and foremost, you’re the boss. You can get advice from whomever you want about which costs are worthwhile, but ultimately it’s your call.
Realize that every cost-cutting decision comes with trade offs. If you pull money out of the marketing budget to make payroll, you’re going to have frustrated marketers at your door — despite the fact that you moved money around to keep them employed.
- You Can Negotiate Anything.
It’s not just your rent: Every expense is negotiable. Simply calling up your cable provider and explaining that you’re looking at competitors can help you save on utilities. An office supplier eager to sell last year’s inventory may be happy to cut you a deal.
What if you’re not much of a negotiator? Join a group purchasing organization. Because GPOs buy in bulk and employ procurement experts, they’re often able to secure deals that would be tough for individual members to negotiate. Everything from office furniture to cleaning supplies to printer paper can be bought at a discount through a GPO.
- You Don’t Have to Insure Everything.
Business insurance is wonderful to have in an emergency. However, there are so many different kinds of insurance, and you just don’t need them all.
General liability insurance is a good idea for every company to have. But if your company’s office sits on top of the highest hill in town, then you probably don’t need flood insurance. Malpractice insurance may not be needed if you sell products rather than services.
Do a risk assessment. Focus first on the most valuable assets at the highest risk. A cable installation company should probably make insuring its trucks a top priority, for instance. Not only do accidents happen, but employees can’t do their jobs if they can’t travel to job sites.
- Poor Communication Costs Money.
Most mistakes companies make boil down to poor communication. Therefore, one of the best ways to cut costs — including delayed costs, like increased customer churn — is to improve how your team members communicate with one another.
It doesn’t take many mistakes to build a bad reputation. And even if lacking communication doesn’t result in errors, your team can’t work as quickly when they aren’t sure what their marching orders are.
Communication issues aren’t one-size-fits-all. If you’re a remote team, getting an instant messenger like Slack could make a night-and-day difference. If a particular employee isn’t listening, investing some time in training might make sense.
- Just About Everything Can Be Outsourced.
You don’t have to do everything in-house. Outsourcing tasks outside of your specialty can save you a lot of money, especially for smaller roles that need to be filled. Contracted workers cost about a third less than the equivalent full-time employee.
Outsourcing saves more than salary expenses, too. By contracting out a role, you save on office space, reduce your utility expenses, and even require fewer parking spots. Across a team, the “soft” savings of outsourcing can add up to hundreds of dollars per month.
- Cheaper Marketing May Be More Effective.
When you start your business, you’ll want to get the word out to everyone you can. There are endless ways to advertise your business, but be careful: The most expensive options aren’t always the most effective.
More than 9 in 10 consumers trust recommendations from their friends and family more than ads. Rather than blowing your ad budget on billboards or radio spots, focus on spreading the word.
Getting the word-of-mouth ball rolling doesn’t have to be expensive. Get active on social media. Ask your brand’s fans to post reviews. Build up your email list, and send out engaging newsletters.
- Finance Pros Are Worth the Price.
Entrepreneurs are notorious for their DIY attitude. But there’s a reason people pay for financial experts’ help: It saves money.
A good example is taxes. While personal taxes aren’t tough to do yourself, your business’s tax situation may be complex. Unless you enlist a professional tax preparer, you may overpay by missing out on deductions. Underpaying can also have serious repercussions.
Having a good relationship with a banker and investment advisor can also pay dividends. While professionals must be paid, their expertise will wind up saving you money in the end.
- Giving Sometimes Saves Money.
In most cases, saving money is a matter of spending less. But if you get creative, you can find ways to look out for people that also save your company money.
The CEO of Talk Travel stumbled on one example: After crunching the numbers, he realized that his company was spending big bucks on paper cups. By providing each employee with their own coffee mug, he gave his team a gift, saved money, and did the right thing for the environment.
Look for similar sources of waste. If you can make a single purchase to save money well into the future, well, why wouldn’t you?
- Opportunity Costs Add Up.
Every employee on your team represents someone else you can’t hire. Each low-value client takes up bandwidth that could be spent on a better, more profitable one.
Firing an employee or cutting a client is never an easy decision. But if your business is to thrive, it has to jettison dead weight. Otherwise, you’ll never know what you could have been.
Realize that there are always more fish in the sea. If a colleague or account is creating headaches for the entire team, take the leap sooner rather than later.
Your business is your baby. Like all babies, taking care of it is expensive. Manage your costs, and you’ll have a more mature, profitable company in no time.