When people want to increase profitability for their
business, the first thing they often turn to is cutting costs. Unfortunately,
indiscriminate cost-cutting is dangerous for any business. Consider these tips before getting out the slashing pen.
Do you really know what you are cutting?One of the most dangerous things about cutting costs is that you can easily get into a frenzy of slashing costs. I've seen business people - pen in hand - gleefully slashing away all over the place, cutting costs that will hurt them down the road, but that seem to make such sense in the initial frenzy of improving the bottom line. The first thing to consider in any cost-cutting venture is knowing exactly what each item you are spending does for your business. I'm not talking about general things like knowing that your magazine subscriptions get you things to read. I'm talking about results. Results are more important that simple profitGoing back to the magazine subscription cost, let's consider what you might really be gaining from that cost. Let's take a fashion designer, for example. He or she subscribes to four industry magazines for designers and two fashion design magazines for consumers. At first, you might consider cutting out the consumer magazines. Who needs those, right? However, those magazines are chock full of information about what consumers are interested in, the magazine has ads from competitors that help the designer gauge their competition, and the designer occasionally picks up good tips for current design projects from these magazines. Taking those elements into the overall context of the consumer subscriptions, is is really worth saving the $30 or so a year for two such subscriptions? Are you crippling your long-term profitability?Every time I mention this area, I have to frown at people's short-sightedness. I'm talking about advertising and marketing budgets here. One of the first things people seem to go after with their pen is their advertising. They cut back on yellow page ads, eliminate or reduce their print advertising, and in some cases just stop advertising at all. Think about this with me for a minute. If you don't advertise, you don't get customers. The main argument I hear when I discuss this with zealous business owners is that they say they have plenty of business right now and they don't need to spend a lot of money on advertising to keep busy. Really? What happens when those current customers have paid up and gone their merry way? Where does the new business come from? Very few businesses can survive solely on word of mouth advertising. Advertising and marketing are the life-blood of a business. You don't advertise - you don't get that rush of continuous new customers. It's that simple. Yes, you can reduce some advertising. If you're advertising weekly, you might cut back to twice a month, but whatever you do, don't eliminate successful advertising just to save money. It'll come back to haunt you later. Are there secondary benefits to keeping a cost center?Sometimes cutting a cost still makes a lot of sense, but there can be secondary reasons for keeping it around anyway. Take computers, for example. You might have a budget item for upgrades to your computer hardware or software. In tight times, this is a common place for people to slash their budgets. You can make do with that old computer for a little longer, can't you? And who needs new versions of the software when the old version does the job... Now consider the secondary benefits of that decision. If you are in a highly competitive field where you depend on that software to do the job you are being paid for, newer software can reap some benefits. It helps you be more efficient, getting projects done more quickly. In discussions with clients, you may find them reassured that you are using the latest and best technology for their projects. Some clients think less of a company that uses old hardware and software. After all, if you can't afford to keep your equipment up to date, are you really the best choice for a vendor?
There are a lot of reasons to examine your costs closely before
cutting them wholesale. These are just a few of the best tips to
consider. If you aren’t sure if you should cut it, ask yourself
one more question – if you do cut something out, how hard is it
to add the cost back in? If it is easy – like buying new software
after all – then go ahead and cut it for now. You can always add
it back in later if you need to. However, if it is hard to get something
moving again – like a yellow pages ad that has to wait a full year
– give that a LOT of thought first.