Top tips: framing the right mind-set for cost cutting

We started with a list of practical cost cutting tips, but quickly realised that cost saving measures should be considered prudently with a forward-thinking frame of mind. With that in mind, here’s some tips to think about before cost cutting.

Think prudently

Sound judgement and an eye on the future are crucial to effective cost-cutting. Every action has a reaction, so carefully consider what impact cost-saving measures may have later on. Careful, prudent thinking means every penny is spent – or saved – cautiously and confidently.

Waste not want not

Waste is an evil you can do without. It’s often hard to find and sometimes harder to stamp out. But ultimately: it serves no purpose and it costs you money. Even incredibly wealthy companies (like Google) are obsessed with eliminating waste from their processes and operations. Why? Because it’s the number one most effective way to cut costs without cutting quality. Waste adds no value, so taking it away is a win-win; being conscious of this fact might help you to  distinguish between valuable and detrimental cost cutting measures.

Cost cutting can equal competitive advantage

Cost cutting might be a necessity now, but learn to do it effectively and it’ll become a competitive advantage in the future. Effective cost-cutting, such as the elimination of waste, lets you offer more competitive prices to customers and helps to maximise profits and financial resources. Short term spending curbs may be a necessity now, but think about how you can pursue sustainable savings that allow your business to become more competitive in the long-term.

Create a positive mindset

Permeating a positive mindset amongst your employees makes cost cutting an opportunity and not a threat. You might need to cut costs to survive, but look at it another way: you need to cut costs to prosper. It’s a subtle but important distinction. For example, employees might feel more motivated to cut costs if they believe such actions contribute to a company’s long-term success, rather than just short-term survival.

The cost of not spending

Sometimes, not spending comes at a greater cost than you initially realise. Let’s say you adopt a do-it-yourself approach to marketing to avoid out-sourcing the task to an agency. It may save money upfront, but at what cost? You run the danger of failing to attract new customers because you’re bad at marketing. In addition, you run the risk of taking your mind off your day job, which might further damage your business. By evaluating the ‘real’ cost of not spending, you can more effectively decide if cost-cutting measures are counter-intuitive.

The cost and benefit

Every pound offers a varying degree of benefit depending on how you spend it. £100 spent on a buffet lunch might seem like a waste, unless it bolsters staff morale and productivity during your monthly meeting. But then, that’s £1,200 spent on lunches over the year. That money could be spent on an annual away-day which helps foster a more productive team dynamic. Both offer similar benefits, so both are arguably valid costs. But which offers the most benefit? If you can measure the distinct benefits associated with distinct costs, you can begin to make more balanced, cost-effective spending comparisons, and thus more accurately decide where the precious pounds should and should not go.

Think opportunity cost

Every pound you spend denies you interest payments you would have received if you’d left that pound in the bank. Spending a pound on one thing also denies you the opportunity to spend it on something else that might have delivered more benefits. An appreciation of opportunity cost may help to focus spending decisions in the right places, which will ultimately help you cut costs.

Know your priorities

Every pound you spend either contributes to your priorities or detracts focus away from them. Think back over your key business objectives and justify spending and cost-cutting decisions within that context. If cost cutting is needed, weigh up factors such as cost/benefits, opportunity cost and ‘the cost of not spending’ within the context of your organisational objectives. Doing this helps achieve focus and direction when cost-cutting measures are inevitable.