As cost reduction consultants we are a little obsessed with getting business costs down and improving profitability. We have done this for hundreds of businesses and there’s not been a business yet where we haven’t been able to find some sort of saving.
That’s not to say that we save money in business and recommend efficiencies without thinking about the possible implications. We know from experience that some cost cuts are more equal than others. Whilst we do recommend some ruthlessness in assessing your business costs, we do insist that you think carefully about which potential cost savings to implement and about which to think through a little more.
Here are three examples of where business cost cuts could be made but that may not work for your specific business in practice.
Don’t ignore the wider context of your business
Cost cutting in the wrong places may alienate your core customer base. You really need to consider the cultural context in which your company operates before implementing a programme of change. For example, Air India recently announced it was only going to serve vegetarian meals in economy class. This decision was made as the troubled airline needs to find cost savings, but it could do more harm than good. While India’s Hindu population may welcome the decision to do away with meat offerings, other customers, such as meat-eating Muslims, may not be so happy about it.
See http://www.bbc.co.uk/news/business-40565116 for more information
The decision to drop meat will likely reduce some costs. Whether this decision will harm revenue is another matter altogether. While many people, particularly those in economy class, won’t choose their airline on the basis of what comes on an in-flight meal, the PR around this decision may make some people choose an alternative provider. I’d be interested to see the end result of this cost-cutting decision. In the meantime, please do be aware of cultural context for your own business and consider the influence of any cost cutting programme on the behaviour of your core customer base.
Don’t scrimp on essentials
What some business people see as essentials, others see as an unnecessary expense. These philosophical differences will only come to light when the absence of the essential creates problems.
For example, the ransomware attack of 2017 which brought down the NHS and other organisations of varying sizes exposed the policies and cost cuts which made updating operating platforms and installing anti-virus software a low priority. Once the ransomware attack started, updating virus software and sorting out the mess left by infected networks became a huge priority and a huge expense. It cost many organisations a lot of money to sort out – more than the price of making sure that software was up to date in the first place.
Read this article about why you shouldn’t stick your head in the sand when it comes to IT security: http://www.information-age.com/ransomware-no-excuse-sticking-heads-sand-123467974/
In a similar vein, decent insurance is something that is often overlooked in the name of saving money in business. It’s only when you need to make a claim that the true value of having good insurance coverage matters. While it’s possible to get essential insurance at a lower price by shopping around, not having it at all could end up destroying your business and finances.
Cost cuts can be a false economy, so make sure you budget for essentials.
Don’t destroy relationships
People buy from people. No business exists without any human input whatsoever. In the course of cutting costs, you must take care not to destroy good relations, whether these are with your suppliers, your customers, or your employees.
Cost savings can especially hit your staff hard. Maybe you’re going to ask them to work harder to compensate for fewer employees or take away perks they had enjoyed in the past. Saving money in business with staff can be achieved but you need to manage the process carefully and get employees on board rather than handing down new policy from above. If you’re trying to restore profitability to your business, you need as many useful people on your side as possible.
Similarly, for suppliers, you will need to keep them on your team in order to ensure continued operations. If they decide your cost-cutting negotiations are a step too far for them, you may suddenly find yourself un-supplied! No business can survive if they sell things at a lower price than it costs them to supply them to you. But keep talking to them. As a business, I’m sure you’d rather an established long-term customer comes to you to discuss difficulties maintaining your current pricing strategy rather than switch to a new supplier without warning. It will be the same for your own suppliers, so start conversations but be prepared to compromise. Pushing too far may destroy the goodwill you have with suppliers and put your own business in jeopardy.
Read three questions you should ask before reducing your business costs
If you’d like to save money in business and improve your profitability, please get in touch on 0113 316 7777
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