In a situation where the number of customers and orders fall down, it’s time for any company to think about reducing costs. But it should be done in such a way to not cause serious damage to your business, customers, and employees. It is possible to reduce costs quickly and without risks.
Strategic and non-strategic expenses
There is an excellent classification of costs. They divide all expenses into strategic (which ensure the profit of the company) and non-strategic (ensuring the workflow, but not generating income).
The strategic costs include marketing (attracting new and retaining old customers) and bonuses to sales managers. That is, targeted investments aimed at the growth of sales and company profits.
Non-strategic expenses include office rent, equipment, supplies, administrative staff salaries, etc.
All entrepreneurs are recommended to do the following 2 things:
- to surpass their competitors in terms of strategic expenditures, ensuring these costs in any situation in both good and bad times
- cut down non-strategic expenses ruthlessly, bringing them to an absolute minimum
But many businessmen come to turnover. Let’s look at the 3 most common mistakes that entrepreneurs make in reducing costs.
3 Common Mistakes
1. Salary cuts
To cut staff salaries is the first thing that comes to mind for many would-be entrepreneurs. Why not do this? As a minimum, because, the employee will be angry at the manager, and his motivation will fall very low.
Salary cuts always lead to the fact that during working hours, an employee will not be busy resolving the company’s business issues, but searching for additional income and new work. And as soon as they find something more suitable, they will immediately leave you.
It is better to think about reducing staff, whose functions can be easily and painlessly outsourced than cutting salaries to key employees. They will always remember that you care about them, and will try to do everything possible to support you and your company.
2. Reduced marketing investment
The second most common mistake is the reduction of marketing investment.
In the United States, a study was conducted which shows that those companies that did not cut the marketing budget during the financial crisis, eventually became the leaders of their industries. Those companies that reduced marketing investment lost both their market share and significantly weakened their competitiveness.
It is necessary to optimize your expenses. For this, redistribute the marketing budget to the most profitable channels, and reject inefficient ones.
3. Quality reduction
Quality reduction means that you impose a death sentence on oneself, says the best business accounting firm in NYC. The market has changed, the competition has become tougher, and the client is more educated. Today, the client understands that he is king. And it is he who makes the decision.
Therefore, as soon as the quality of your product ceases to satisfy people, clients will immediately turn around and go to your competitors. Instead of degrading quality, think about different pricing grids and options for the customer.
Want to cut shipping costs? Increase the minimum order amount for free shipping. Does the customer want to pay you less money? Reduce the number of services provided. But never, in any case, do not degrade the quality!
And now look at this checklist again and think about whether you make such mistakes? If so, then it’s time to start fixing them quickly. And then move on to more effective ways to reduce costs.