We began compiling a list of practical cost-cutting tips, but quickly realised that any cost-saving measures should be considered prudently, with an objective, forward-thinking frame of mind… With that in mind, here’s our top tips for framing the right mindset for cost-cutting.
Next month we’ll publish our list of practical cost-cutting tips.
In the meantime, if you’d like to share your own practical cost-cutting tips please email us .
Think prudently… Sound judgement and an eye to 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, for example) 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. By definition, waste adds nothing, so taking it away is a win-win. Being conscious of this fact when cost-cutting might help you distinguish between valuable and detrimental cost-saving measures.
Cost-cutting equals 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 maximise profits and financial resources for future development. Short term spending curbs may be a necessity now, but think about how you can make 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 be more successful. It’s a subtle but valuable distinction. For example, employees might feel more motivated to cut costs if they believe such actions contribute to a company’s long-term competitive advantage and 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 external 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, thus losing more revenue in the process. 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. You may still find areas where you can cut costs, but sometimes, the best way to save money is to spend it.
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 whole 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 you 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 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.