What Should You Include in Your Small Business’s Cost Reduction Strategy?
As we enter another recession, it’s important to start brainstorming cost-cutting measures for business.
If your business is under ten years old, this is the first time you’ve had to deal with an economic downturn. So, we want to help you as you venture into uncharted territory.
As a small business ourselves, Frontier Marketing has diligently implemented a cost reduction strategy to brace for the recession.
Making cuts will be hard, but if you start trimming in certain areas, it should help make it easier in the long run.
Here some things you should and should not do to reduce costs!
Do Cut Down on Discretionary Expenses
When making your initial cuts, focus on those small perks or add-ons that your business can operate without. This is generally considered “fat” and is one of the first things that can go when reducing costs.
Remember, you want to make sure your small business can operate. So, it makes sense to cut these costs, since they won’t prohibit you from operating.
As you cut costs for business, here are some areas of discretionary expenses that you should consider cutting:
Generally, people think of magazines and newspapers for their office for subscriptions.
But this can also mean online management tools and suites, such a G Suite and Office 360. So, you may want to consider cutting those as well.
Again, make sure whatever you cut is not essential for running your business.
Do you have employees that travel for trainings and seminars? It might be a good idea to look into which of those can be done online.
We wouldn’t recommend stopping trainings altogether since those are valuable to your business’s growth. However, if there’s an online option, you can use that to cut down on travel expenses.
Keeping morale high is important. But spending money on parties and entertainment might not be in the cards right now, unfortunately. So, you may have to sacrifice those expenses for the time being.
Still, there are other ways to boost team morale. These can include setting time aside to check in on your employees, making your business results transparent, and free online games.
Whatever you do, make sure you’re putting your team first but also saving money.
New add-ons to the office might also improve morale, but they can be costly. Saving new furniture or equipment that still works can save you money in the long-run.
You can also look at what supplies you go through. How much paper do you use every month? Is there a way to get everybody on a digital platform? Those small cuts will start to add up as well.
Don’t Stock Up on Lower-Selling Inventory
In any business, it’s natural to have products that don’t sell as well as others. The key to reducing costs, however, is to limit those to only what you need.
You may have been building up inventory in the past to make sure you’re fully stocked. And that’s great! But now is the time to look at what you can cut back on. So, find the products that don’t sell as well and turn that inventory into cash.
Ultimately, holding back on reordering and restocking products that don’t sell well will save you money.
Do Negotiate with Suppliers and Vendors
Recessions and economic downturns impact all sorts of businesses. It’s highly likely that your suppliers and vendors have been impacted as well and are looking to keep their customers.
And since they want to keep you as a customer, they’ll be more likely to have offers or discounts available. You should also shop around to see what other reduced prices you can get from other suppliers.
Don’t Pay for Equipment You Don’t Need
Like your inventory and office costs, look at what equipment you might have that you don’t need. Trucks, construction equipment, company cars are all overlooked when cutting costs. But they shouldn’t be.
Are you using every piece of equipment you have a lease on? If not, see if you can get out of those leases. You may have gotten these pieces of equipment when the economy was going up. But now this luxury can cost you too much money.
Do Avoid Layoffs
Layoffs are difficult for any company. If the time does come for that, it will be a hard decision.
If possible, try not to immediately layoff your employees.
When the economy turns up again, it may be harder to bring them back, especially if they are out job-hunting.
What can you do instead of layoffs? Here are some alternatives:
Instead of laying off employees, reduce hours across the board. Maybe instead of working full 8-hour days, you shorten it to 6-hour days. That keeps your employees working while you’re still making cuts.
Look at maybe only going to a four-day workweek as well. That extra day can be considered unpaid time off. A shorter workweek can also improve productivity in workers, which can be an added benefit.
This one might be a little trickier, but if you can do it within your legal rights, it can help the business and your employees in the long run.
And when it comes to reducing benefits, start at the top. That means looking at what benefits of your own you can cut. This will be a difficult time for your team. But if they know your benefits are being cut down as well, it will go over easier.
Put a Freeze on Hiring
If your small business is in the process of hiring new employees, put a hold on it for the time being. A new employee means added expenses. So, if you can get away with not having a new hire, do it.
Above all, you want to promote stability and transparency during this time. Meeting with your team and discussing cost-cutting ideas can also help. They might have some great suggestions of their own.
Don’t Use the Office
During the ongoing COVID-19 pandemic, chances are your team has had to start doing remote work. If this is the case for you, then you’ve probably noticed that it’s saved you some money by eliminating certain overlooked discretionary expenses.
Indeed, virtually collaborating with your team can save you money in many ways. It can also increase productivity as some of your team members may be more effective in working from home.
If you have a smaller in-person team, you can move locations to a smaller, more affordable office. In this way, you can continue saving money, even after you don’t have to work remotely anymore.
Do Find Multiple Revenue Streams
As we get further into the recession, looking at how to cut costs in business might mean expanding.
Seems counterproductive, right?
Actually, if you find yourself with only one or two ways of bringing in income during a recession, it might be harder to pivot to accommodate the spending behavior of your customers.
Being flexible in how your handle business will be very important going forward. It will be an uncertain time, but if you can face it with more options, it will be easier.
Here are a few ways you can start to make that pivot:
Start Selling Online
Are you currently taking and fulfilling orders from a physical location? Is there a way for you to offer the same products and services online? If there is, that will give you more access to more customers who want your product.
Analyze Your Customers’ Needs
Customer behaviors change during an economic downturn. So, conducting surveys and analysis of what your customers want during this time can prove beneficial.
Are they looking for a different variety of your products? Or do they want an expansion of a service? Looking at how the economy has affected your customers can give you an idea of how to pivot.
Collaborate with Other Businesses
Finding other businesses with similar needs can be beneficial as well. You can team up with another company for order fulfillment, advertising, and sales. It can help both businesses out and be a cost-cutting measure for each business to survive.
Don’t Cut Marketing or Advertising
Historically speaking, dumping your marketing or advertising budget during a recession or crisis is usually a bad idea.
Among other things, marketing shows stability within the business during an economic downturn.
You also don’t want your customers to forget about your brand. After all, you’ve spent years building up your brand awareness. If you suddenly disappear, it may take a while to build that following back up.
Your competitors might make the panic move to cut marketing as one of their cost-saving ideas. But if you keep your marketing and advertising steady, you can potentially bring in some of the customers your competitors might lose.
Finally, make sure you are communicating well during this time. Keep the lines of communication open and frequent with your suppliers and vendors, employees, and customers.
Being open and honest during this time will be incredibly important. Talking about your needs and how to keep your business going can generate ideas. Your team may have cost reduction ideas of their own. Suppliers may also have discounts they can give you.
Staying open with everybody is a necessity. This is going to be a harder time for businesses, but it can be easier with full transparency.
Do You Need More Help with Your Cost Reduction Strategy?
We love seeing small businesses succeed. Frontier Marketing, as a small business, has been looking at ways to cut costs and be prepared for the recession. And we want to help you make sure your small business thrives during this time as well.