Cost Management
Costs and Expenses Reduction

5 fatal errors in reducing costs

However good your business or product is, no company is immune from crises or periods in which demand is not exactly what you’d hoped for. In this way, the moment that managers fear, namely the moment that they have to reduce costs, is something that’s almost inevitable in a dynamic world. In this article, we’re going to address five fatal errors in the cost reduction process to help you avoid making mistakes at this critical juncture.

1. Laying off staff to reduce costs

If your personnel costs are suffocating your finances at a time of crisis, you should know that laying off staff could be disastrous for your company in the short-term. This option creates discontent among those who stay as well as mistrust, because they’re aware that they could be next. In addition, the money that you spend letting someone go can actually worsen your financial situation, leading to a negative domino effect given the reduction in your productive capacity. If your intention is to emerge from this crisis, you need to have people that are ready to work.

2. Decreasing your advertising spending

As sales decrease, the first impulse is to reduce your advertising. Don’t give in to this impulse, because marketing is the principal means of bringing new clients to your business, and you’ll need them. Don’t think like your competitors, advertise more than your main products in seeking new clients, always keeping your brand in the media to show that your business has been affected only a little or not at all by the storm clouds of the financial crisis.

3. Reducing insignificant costs

The quality of the coffee served to your employees and clients, the quality of the napkins, plastic cups and even the toilet paper are things that can be reviewed. However, it’s not advisable to waste precious time in managing spending that is not important for your business. Besides makes your employees and clients dissatisfied, it won’t offer you great savings, and you’ll be spending your time making an effort that could be better spent elsewhere.

4. Don’t revise operational processes

Cost reductions can be achieved by not spending on certain things, but they can also be achieved by revising all of your company’s processes. If this is something you’ve been planning for awhile, now is the time to do it. Call in managers and supervisors to discuss what can be revised or restructured. Production, administrative and client service processes can all be revised, resulting in higher quality and lower spending for your company.

5. Sacrifice the quality of your products and services

If your idea is to try to maintain your current level of sales and give your brand greater visibility for your current and potential clients, quality has to be maintained. Sometimes small cost reductions can lead to great decreases in the quality of the final product or service. That being so, make a deep analysis of your production costs and possible cost savings, but if there’s something that can’t be reduced when the market’s in decline, it’s the quality of the products or services that you offer. Reducing costs is something that managers should always be considering, and in periods of crisis it becomes that much more necessary. What should be analyzed, however, is the viability of many cost reduction procedures, because they can hurt a firm’s finances more than they help.


Do you know anyone who has difficulties and is also thinking about reducing costs? Share this article on the social networks and let others know that this path exists!