Cutting Costs

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.

Cutting Costs
  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 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.