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Mistakes To Avoid When Cutting Costs In A Business

5 Mins read

Cutting costs as a business is often necessary, however it’s absolutely vital that the costs are cut in the right places, otherwise your business may end up in a worse position than before, rather than it being a positive for the business. We’re here with things that you need to consider when cutting costs, to make sure you’re still protecting your business. 


Making Blanket Reductions All At Once

When you’re making cuts, often it’s tempting to make consistent cuts across departments in order to simplify the project. However, this is one of the worst things you could do, as you may be cutting costs in an area that is actually working well for your business. So, you should put together a report including data from each department, then make an informed decision based on each part of your business about whether cuts are necessary and exactly where they should occur. This is not something that should be done quickly or in a rush, take your time and make sure the cuts are happening in the right areas. 

Focusing Too Much On Automation

Whilst automation can be useful for a business and it can definitely cut costs, it can also be detrimental to customer service in some cases, so pushing automation into all areas of your business to cut costs isn’t always the answer. The main area where automation can be problematic is in customer service, as it can be extremely frustrating for your customers to not be able to get into contact with a human customer services assistant. 

 

Part of the process might be automated, such as an FAQ section where they can get more customised answers to their questions, but then being able to get in touch with a customer service representative quickly is important. In this case, less work for your business often results in the customer having to do more, which could put them off purchasing again if their issue can’t be resolved quickly. As we all know, it’s cheaper to retain a current customer than it is to bring a new one on board, so investing a bit more in your customer service to increase the chance of a customer shopping again is something worth doing. This largely focuses on customer service, however it’s vital that automation isn’t chosen as the primary response when cost cutting as it can impact all areas of a business negatively. 

 



Compromising On The Quality Of Your Service/Product

One of the most important things you need to consider when cutting costs in your business is to never compromise the quality of your service or product. Often the most obvious choice when it comes to cutting costs is to buy cheaper materials or reduce the quality of a service being offered. However, this is likely to negatively impact your business overall, reducing repeat custom, likely leading to people recommending your business less and overall whilst you may be cutting costs temporarily, you will be negatively impacting the longevity of your business. An example would be if you have a company selling natural skin care products, you may be able to cut costs by changing the formula slightly, however if you have a loyal customer base who regularly purchase, you could lose money in the long run. There may be ways to cut costs in your supply chain, however the key is to ensure this cost cutting doesn’t impact the quality in any way. 

Not Investing In Your Senior Team

Something else that businesses do when wanting to cut costs is to not invest in their senior team, and when these people aren’t paid as well as they should be, they will likely end up leaving and this will impact the business. Having experienced senior members of your team is absolutely key, as they can help to drive the business forward and allow it to evolve and grow over time. Whilst it will require an investment in terms of their wages, when you are confident in their abilities, it will often be worth it. One thing to do is to offer senior employees a share in the business, so if the business does well, they do well, which will encourage them to push themselves and the business to do well. This is a good option when you can’t afford to increase wages, as everyone wins and you’re not losing money if the business doesn’t do well. 

Having Unrealistic Targets

Times are constantly changing and so unfortunately, your previous financial goals may no longer be viable. With the economy shifting all the time, times are getting harder for businesses, so significant year on year growth is not always possible. As a result, you should set targets based on the current economy rather than comparing to previous years, potentially working with financial advisors to get this right. Utilising these targets when you’re setting your cost cutting targets is also important, as adapting is vital to make sure you aren’t cutting where you shouldn’t be based on data from previous years that is no longer comparable. 

Not Utilising The Knowledge Of Your Team

One of the biggest mistakes businesses make when cost cutting is not utilising the knowledge of their team. Making cuts based on top level knowledge and decisions is usually what happens, however if you ensure that you’re asking members of your team from all levels of the business, you might find simple cuts within the day to day running of the business that only people working in certain roles could identify. For example, if you own a chain of restaurants, perhaps you’ve always bought meat from the same supplier for all restaurants, yet one of the chefs has a contact with the same quality of meat at a more competitive rate. Without regular reviews these things go unnoticed, especially in large companies, so asking around is key. Another example would be if you’ve always gone to an insurance company directly for your credit insurance, perhaps someone in the team knows a credit insurance broker who could provide a better service at a better price. Perhaps the standard procedure is to rent power tools, however if a particular tool like an electric chainsaw is regularly used, then investing in one to own could be much more cost effective over the course of a year. The moral here is to ensure you’re asking for recommendations from within your business, and we’d recommend offering incentives to encourage people to provide their opinions, which will also show that each member of your team is valued and appreciated. 

Significantly Reducing Marketing Spend

One area that is often the go-to when cutting costs in a business is marketing spend, however the knock on effect this can have is massive, so it should be done with great caution. Often with marketing you spend more to make more, so although you may think cutting a cost is going to save, it could be detrimental to your business. Not only can it have a quick negative effect, but when you’re not actively exposing your brand to new customers through marketing, you’re restricting the longevity of your business. Also, if one channel isn’t performing well, for example Google Ads, you may think cutting costs significantly is the way to go, but again this can affect other areas of the business, so getting advice from your agency on the best areas to cut if necessary is absolutely vital. 

 

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