For $150, a llama hire for a photoshoot, $250 to hire a bagpiper at a customer picnic and $5,000 to replace an executive’s tires are just a few of the many questionable items people have tried to pay for. Not all expenses reported in expense reports are outrageous. Some of the most significant company expenses are cost-cutting measures. While many expense-reduction strategies may be well-intentioned and will save money, you might end up paying more.
Cost-cutting vs cutting corners
It’s not just about extravagant client-nurturing projects, marketing gimmicks and excessive travel expenses. It can also happen. As a result, second-rate cost-reduction strategies.
Although it may seem counterintuitive, many entrepreneurs end up spending their money to save money and keep the company afloat.
Are you making the same mistakes?
Look at the way you manage your business. Is your company cutting costs or just cutting corners? You might be tempted to save money but end up with significant losses.
These cost-reduction strategies may lead to you spending more.
1. Laying off people and slashing wages
About 50% of monthly company expenses are paid by payroll. Small businesses without regular customers can be hit hard by this. Many companies will reduce their salaries or lay off employees when it becomes too costly to pay them.
This strategy can lower overhead, but it can negatively affect employee morale and the long-term financial health of your company.
First, it discourages talent by reducing wages or offering insufficient compensation. Remember that an organization can only be as productive and efficient as its people. You must offer competitive rates if you want to attract reliable and skilled workers.
Consider second, whether you are thinking about temporarily cutting staff, the potential higher costs of rehiring or spending money on training new employees.
Instead of cutting salaries, consider changing your payment structure. For example, you could offer incentives and sales bonuses to high-performing employees. It will motivate everyone to do their best work. In addition, it attracts highly skilled and experienced individuals, which in turn propels your company forward.
2. Creating complex cost-reduction strategies
What is the purpose of this policy for my company? These rules can help us achieve what goals. What are the savings we can make by following these rules?
Before and after you implement policies, it is essential to examine them. It is a general rule that the more simple an approach, the easier it will be to implement.
Do not impose rules on an individual incident. For example, suppose an employee tried to charge personal expenses on a company credit while travelling for work. The company will not only discipline the employee but also establish new rules for business travel and spending.
It’s better to handle the situation once and in private than to have everyone suffer. However, it can be difficult to follow too many rules. Worse, strict company policies can lead to disengagement of workers, costly execution, and negative company culture.
3. Don’t invest in staff development
Some companies employ a third-party expert to help a team achieve its goals.
It seems like a worthwhile investment at first glance. It is cheaper to hire and train one specialist than to pay for several. So it’s risky to come up with your solution. But it’s wrong.
Harvard Business Review found that companies take more significant risks by seeking out third-party experts rather than developing their existing teams. According to the study, experts’ performance drops when they switch companies. Stars who are successful in one company often move on to other organizations. Additionally, employees can lose their morale if they hire an outsider to solve internal problems.
It’s not hard to see. Your staff may feel neglected and demotivated if you choose to hire people outside of your company. Instead of feeling inspired and ready to take on the challenge, your staff may look for opportunities outside your company.
4. Technology is too expensive and inefficient
Tradition can provide comfort and security. It may be why entrepreneurs are so quick to dismiss newer technology.
It can be costly and complicated to switch to high-tech apps. Is it possible for small businesses to afford this?
Studies show that businesses are more likely to ignore technology than use it. Automating tasks can help companies do more with less. For example, automating specific processes, such as bookkeeping and customer communications, means that you don’t have to hire additional people or pay more for overtime.
For example, let’s say you want to switch from a landline phone number to VoIP (Voice over Internet Protocol). It is one of the many ways technology can be used to improve your business processes. While a landline may be more familiar and more affordable initially, a VoIP service can allow a business to do much more. VoIP offers advanced features such as instant messaging and integrations with apps.
Additionally, VoIP does not require any physical phones units, so you don’t have to purchase additional installation costs if your business grows. It’s one reason it can help you save money over the long term. Switching to VoIP does not have to be complicated. Many VoIP providers offer special deals for small and medium businesses.
Before you invest in new tech, however, ensure that the following:
- It supports the core functions of your company.
- This is easy to integrate into your workflow
- It adds value and enhances the customer experience
- Your team has already studied the tool and is familiar with its use.
You must abandon outdated practices if you want to drive new business development. Technology can be a resource-saving tool that will help you. These are some other ways technology can be used to lower operational costs.
5. Skip brand or product promotions
Startups may not have the budget for TV and online ads that are catchy. These promotions often require expensive ad agencies and high airtime fees. It would be more cost-effective to invest in product development instead of letting your products speak for themselves.
The short answer is: Not always.
Entrepreneurs are often reluctant to spend large amounts on promotional campaigns. While product quality should always be the priority, many other factors can influence whether your company attracts or keeps customers.
Businesses have more options to market their products today than ever before. For example, you can attract buyers using free social media apps or nurture client relationships via LinkedIn to retain customers.
You don’t need to hire third-party marketing agencies if you have a small business. Although this was the best option in the past, it can quickly drain your funds.
Many business owners find that outsourcing their marketing tasks to a virtual assistant can be a great solution. For example, a virtual marketing assistant can manage SEO and content marketing to improve your search engine ranking. In addition, these creative professionals can design and monitor social media ads to increase your chance of reaching your target audience. To ensure your online presence, they can also set up and maintain your site. If it is financially feasible for your company, you might also consider adding a paid ad specialist to the team.
Do not fall for the temptation of cost-cutting measures. If done correctly, a cost reduction action plan can keep your company in business. However, a cost-cutting strategy shouldn’t impact customer and employee satisfaction or compromise the integrity of your brand in the future.
Disclaimer. The opinions and views expressed in this article are the authors Shalom Lamm.