Smarter Cost Cutting

Most business cost cutting is dumb.

It involves tired old strategies like across-the-board budget cuts, laying off a fixed percentage of staff from each department, a hiring freeze, and cancelling all capital investment.

And if all you want to do it hit some arbitrary number for this quarter, go right ahead. Pick one or all of those strategies. They all work in the timeframe of a single quarter.

But what about next quarter?

When last quarter’s short-term cost cuts come home to roost, those decisions might not seem to great. Often it means your costs go up, not down, next quarter.

It might be that the business discovers that some of the 10% of people they laid off were in fact vital to the operation of the business, so now it’s only running half as well without them.

Or their new product launch fails because the hiring freeze meant they couldn’t have a new product manager who knew what they were doing, so they got the intern to look after it instead.

Or the capital investment they “saved” has resulted in the failure of a major piece of machinery which now needs to be fixed urgently at top rates for staff, parts, and subcontractors.

With every dumb cost cutting move that comes back to haunt you, it means you need to find even more savings to compensate next quarter to cover what you lost last time round and still deliver more cost savings on top this quarter.

Often, this is the start of a spiral into oblivion.

Try Smarter Cost Cutting instead

Forget dumb cost cutting. Try Smarter Cost Cutting instead.

With Smarter Cost Cutting we get under the skin of the 7 different types of cost in your business.

To create the lowest-cost, maximum efficiency business, each of those 7 cost-types have to be managed differently. The secret to low-cost, highly efficient operations is calling a halt to traditional dumb cost cutting strategies like across the board budget cuts, and applying the right strategy to each cost-type.

But, some people say, if you don’t have an across the board target, how do you know what the true cost saving potential is?

You could try asking each department manager how much they think they could save. But, in most businesses, they’ll reply “very little – everyone is already working at maximum stretch”.

And that’s usually true. Up to a point.

It’s very likely, especially if this isn’t the first time you’ve tried to cut costs in your business, that everyone is at maximum stretch.

However that’s only in the context of the way your business operates now. If it operated differently, using the Smarter Cost Cutting framework for example, the costs would different too.

Smarter Cost Cutting gives you a system to identify what spends in your business fall into each of the 7 cost-types, and shows you the best cost cutting strategies for each of them to ensure you deliver genuine, sustainable bottom line results.

You’re no longer “robbing Peter to pay Paul” at the end of each quarter to hit your numbers. You’ve made sustainable, lasting change that will deliver value for many quarters to come.

So what are the 7 types of cost?

Every penny your business spends is one of these 7 cost-types:

1. Cost of sales – things you buy to sell on, whether directly, like a retail store, or after a manufacturing or assembly process
   
2. Non-cost of sales purchases – electricity bills and rent, for example
   
3. Process costs – beware: very few things most businesses call “a process” actually are a process by this definition, so the risk of applying the wrong cost-cutting technique is extremely high here
   
4. Framework costs – most activities businesses call processes are really frameworks, which require a different cost-cutting approach
   
5. Outcome costs – for some activities more than others, you spend money to achieve a particular outcome, but there’s usually more than one way to achieve that outcome. So how do you know you’ve chosen the lowest cost way?
   
6. Financing costs – these are both obvious spends like interest on bank loans, and also less obvious spends driven by GAAP or IFRS accounting rules like depreciation and amortisation
   
7. Opportunity costs – often one of the biggest costs in an organisation, but also the least considered cost type in day-to-day operations. This is the money you leave on the table by leaving your business to run the way it is now, instead of looking at that again from first principles.

The point of lowest-cost operation for your business is when you apply the most appropriate cost cutting technique to each different cost type.

Want to know more?

A web page isn’t the best place to get across how these different cost-types knit together because much of it depends on what your business does and how you serve your customers.

If you’re a business owner or senior executive with a six or seven figure cost-cutting target, you can get a free, 1:1 Smarter Cost Cutting Jumpstart Audit with me.

Smarter Cost Cutting is a framework I developed in almost 30 years as a CFO and CEO for high-performing businesses. It shows you where there’s headroom to make big cost savings which won’t come back to haunt you next quarter.

I’ve used this approach as a C-Suite executive to:

• grow business revenues up to 3x in 3 years
• save 56% in unit manufacturing costs
• make the workforce 2.58x more productive, opening up extra “free capacity” in the business to make more sales with no increase in costs.

In your free 30-minute Smarter Cost Cutting Jumpstart Audit, we split your business cost base into each of the 7 cost types together. You’ll get a completely new way to think about your cost structure, and you’ll come away with at least 5 fast-action steps you can apply inside your business straight away.

This is a limited time offer exclusively for business owners and senior executives with six or seven figure cost saving targets, so don’t delay as there are only a few places available.

Start cutting costs the smarter way. Get in touch today.