Business Cost Cutting Ideas Without Compromising Operations or Growth

No matter the industry, in the current market instability every business is trying to save money and brainstorming cost cutting ideas. 

Some businesses are letting go of their employees, while others are pivoting to an all new business model.

We’ve been there, so we know how tough it can get for a business to cut costs. But let’s face the harsh reality; if times are tough, cost-cutting can’t be ignored.

In this article, we have put together a process on how to cut costs for any business. We also came up with three business cost-cutting ideas that might save you a fortune without compromising operations or growth.

The Process Behind Cost Cutting Without Compromising Growth or Operations

Step 1: Identify the Biggest Business Expenses and Try Lowering Them

The three biggest expenses any startup incurs are team salary, warehousing costs, and customer acquisition costs.

Let’s get into the details and know why they’re so important.

#1. Team Salary

When you want to grow your business, managing the company’s marketing, sales, operations, and finances single-handedly is tough. You need a team for it, and that is the first big expense of any business. 

When building a team, the first person you might hire might be a c-suite who will help you build the product and bring it to market. And it will cost you thousands of dollars to do it.

After hiring a senior executive, you need managers, marketers, developers, etc. to start building and scaling your business.

The cost of hiring a new employees isn’t just the salary you pay, it’s:

  • The cost you incur to run the hiring process
  • The money you spend in training new employees
  • The salary and benefits you give your employees

Did you know that the average cost of just training an employee is approximately $1000?

#2. Hardware and Warehouse Costs

If your business has to do with hardware or cloud computing, you might have to invest heavily in AWS infrastructure. On the other hand, if you’re planning to sell a physical product that needs a lot of physical space, most of your money would go into warehousing.

#3. Customer Acquisition Cost [CAC]

Customer acquisition cost is a startup’s biggest expense. Without a customer, you won’t get sales; therefore, companies bleed cash to get customers.

About 40% of the funds raised by a business goes into Google and Facebook ads (primarily Google).

Although the CAC depends on the type of industry you’re in, for most industries, it costs $100 to acquire a customer. 


Step 2: Dig Deeper to Know Where Is Your Business Overspending

For this step, you might require outside help if you know nothing about business finance.

Analyzing business finance is the basic practice to know where you are overspending.

If you don’t have a full-time CFO onboard, you can hire a fractional CFO to analyze your business’s finances in depth and try to cut costs further.

A CFO might start by looking at the profit and loss statements and break them down to identify where the company is spending its most capital.

Apart from this, they might also look for cash expenditure trends over time. They will then discuss the top four or five major expenses with you, and you can then think of ideas to cut costs for each category.

Let’s take an example to understand it better.

Suppose you’re a CEO of a tech company that needs a lot of AWS infrastructure and spends a significant amount of your funding buying it. Negotiating with AWS to lower the cost could be a good starting point to try cutting costs.

Another category of expenses a business should try to cut costs in is the legal and professional fees.

Generally, legal fees come into play when you want to protect some trade secret or get a patent for your product. And let’s face it; lawyers aren’t cheap. So try cutting the number of hours and making the process much more efficient.

Step 3: Decide What You Want: Hyper-Growth or Slow-Paced Long-Term Growth

Cutting costs for a business that wants to grow at a rapid pace (hyper-growth) is tougher as compared to a business that plans for a slow-paced long-term growth strategy.

You might aim for hyper-growth to reach a specific goal and get more funding in your next round, but beware, it’s not easy to grow fast if you want to cut costs significantly.

One way of cutting costs for a company growing very quickly is to look at the experiment and speculative marketing being carried out. Look at the ROI, double down on what’s working, and stop the experiments that give you almost no return.

But if you’re a slower-growing company, you can be a bit more liberal in the cost reduction process.

Step 4: Talk About Cost Cutting with Your Team

Discussing cost cutting with your team can be both a boon and bane. One advantage of discussing cost cutting with your team is that with full transparency, everyone in your team knows where your company stands and is prepared for anything to come.

So if you let go of a team member any day, they’d be mentally prepared for it and it won’t hurt so much because they knew about the financial situation. Somewhere in the back of their mind, they knew it was the right thing to do.

On the other hand, discussing cost cutting with your team can hurt the team’s morale and can be demotivating at times. 

But if you ask us, it’s best to discuss layoffs with your team well in advance so they can prepare for it. 

In recent years, hundreds of multinational companies have abruptly fired employees over an email or a Zoom call. This not only hurts employees’ morale but also negatively affects the brand’s reputation.

Step 5: Discover New Automations and Cut Labor Costs

Discovering new automation and making your team lean can be a huge money-saver in the long run.

If you already have a COO on your team, they are the best candidate to discover new automation; if not, you can hire a fractional COO for a couple of months and tell them to do the same.

Apart from the automation, a COO should also look at the current procedures and processes in different departments like sales, development, product, etc., spot inefficiencies, and devise a solution for such problems.

Oftentimes in a company, there are some redundancies that you must get rid of. By redundancies, we mean multiple people doing the same job, even if not required.

This is common in a business’s development department. Adding multiple software developers to your team only makes the team inefficient and reduces the work quality. And so, reducing the headcount and restructuring your business can prove to be more productive.

The table below shows some great startups that have a small team as compared to their revenue year-over-year:

3 Business Cost Cutting Ideas You Should Implement In 2022

There are uncountable ways you can try and cut costs for a business, but here are the three cost-cutting ideas that a company should start with, so that your business’s growth and operational efficiency remains intact.

  1. Renegotiating Biggest Expenses: Renegotiating with your vendors or with AWS doesn’t take much effort, all you have to do is ask. If you have a good working relationship with people, they might be willing to renegotiate when your business needs it the most.
  2. Making Your Team Lean: Having multiple employees do the same work might decrease productivity. To make the most out of your employees, ask your human resources team to try downsizing the team and letting go of employees who won’t be required in the near future.
  3. Doubling Down on Strategies that Work: Don’t run experiments that give you results below your expectations; instead, double down on experiments that work. 

Wrapping Up

Cutting costs isn’t easy, and we know it. 

But no matter how you do it, it has to be done. The five steps mentioned in the article can be a lifesaver for you if you implement them correctly.

Bottom Line: So implement the cost saving process yourself or hire a fractional executive to reduce expenses, but make sure you do whatever it takes to keep your business afloat, especially in 2022 and beyond.