5 Cost-Cutting Strategies That May Cause You to Spend More
A $150 llama rental for a photoshoot, $250 for a bagpipe player at a customer picnic, $5,000 for an executive’s tires — these are just some of the questionable things people have paid for in the name of business.
Not all items in expense reports are over-the-top. Some company expenses start off as cost-cutting measures. Unfortunately, while many expense-reduction strategies are well-intentioned, some have you paying more than you bargained for.
Cutting costs vs. cutting corners
Unnecessary business spending doesn’t only take the form of trendy marketing gimmicks or excessive travel expenses. It can also be a result of second-rate cost-reduction tactics.
In an attempt to save money and keep their company afloat, many entrepreneurs have ended up misspending their funds.
Are you making the same mistake?
Take a closer look at how you manage your company. Are you cutting costs or merely cutting corners? There may be practices that save you money but result in big losses in the end.
Check out these cost-reduction methods that may eventually have you spending more.
1. Laying people off and scrimping on wages
Payroll accounts for about 50% of a company’s monthly expenses. This can strain small businesses that don’t have a regular stream of customers yet. When paying employees becomes too expensive, many companies either lay people off or reduce salaries.
While this strategy may lower your current overhead, it can have a negative impact on employee morale and your company’s financial health.
Reducing salaries or offering inadequate compensation turns away talented applicants and discourages your current staff. To attract and keep skilled and reliable workers, you must offer competitive rates.
If you’re thinking of temporarily reducing staff, consider the potentially higher cost of rehiring employees or training new people.
Instead of reducing salaries, think about changing your payment structure. For example, offer sales bonuses and incentives for high-performing workers. This encourages everyone to do their best work and attracts highly skilled individuals to your team, propelling your organization forward.
2. Creating complicated cost-reduction policies
Review policies before and after implementing them. As a rule, the simpler the policy, the easier it is to put into practice.
Avoid imposing rules as a result of an isolated incident. When disciplining an employee for personal charges on a company credit card during business travel, deal with the erring employee privately. Too many complicated rules can be burdensome and disengage workers, costing money and weighing down your company culture.
3. Not putting resources into staff development
When a team isn’t meeting goals, some companies hire a third-party expert to fix the problem.
However, companies take a bigger risk by chasing third-party experts instead of developing the team they already have. Experts tend to perform worse when switching companies, and hiring an outsider can decrease existing employees’ morale and group performance.
When you hire outsiders instead of developing your existing team, your staff could feel overlooked and become demotivated. Instead of rising to the challenge, they may start looking for better opportunities outside of your company.
4. Dismissing technology as expensive and unnecessary
Switching to apps and high-tech tools can seem complicated and costly. But not utilizing technology is even more costly for businesses. Automating tasks allows companies to do more with less. For instance, you don’t need to hire more people or pay for extra hours if you automate certain processes.
For example, switching from landline to VoIP (Voice over Internet Protocol) makes your business processes more efficient. VoIP has advanced features like instant messaging and app integrations. Additionally, because using VoIP doesn’t require physical phone units, you won’t need to pay for additional installations if your company expands.
Before investing in new tech, make sure it supports your company’s core function/s, can be easily integrated into your workflow, adds value to the customer experience, and your team knows how to fully utilize it.
5. Skipping brand or product promotions
While product quality is important, there are other factors that determine whether or not your company attracts and keeps customers. Businesses today have more affordable ways to promote their products, such as free social media apps and nurturing client relationships on LinkedIn.
If you own a small business and don’t have a sizable budget for marketing, consider hiring a virtual marketing assistant. Marketing VAs can handle SEO and content marketing, design and monitor social media ads, and set up and maintain your website to ensure a strong online presence.
Final thoughts
Try not to fall for cost-cutting measures that impact employee and customer satisfaction or compromise your brand’s integrity, either in the present or in the long run. A cost-reduction action plan can help keep your company in the black, but it should be done the right way.
Hello!
I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.
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