11 Ways To Cut Costs and Improve Efficiency for a Business

One way businesses can maximize profit is by minimizing expenses. Often referred to as "cutting costs," this involves identifying discretionary spending to cut and expenses to adjust or reallocate to spend less. Cutting costs can help businesses, leaders and employees take ownership of an organization's success.

In this article, we discuss what it means to cut costs, why it can be a beneficial practice, how to approach cost cutting and 11 different ways to cut costs in an organization.

What does it mean to cut costs?

Cost-cutting means minimizing expenses throughout the production or service process to maximize profit. Sometimes, administrators and executives make the decision to cut costs, and it's the responsibility of management to figure out how to do so. Other times, enterprising managers and employees can identify ways to cut business costs and either implement solutions or communicate with those who can.

The goal of cutting costs isn't to raise the income of the business but to reduce the overall monthly costs an organization uses to provide its goods or services. Some costs include administrative costs, production costs, material costs and other costs an organization may experience. Cutting costs can happen at both large and small businesses and is a great way to analyze how an organization uses its revenue and meets its financial goals.

Related: How To Manage a Budget

Why is cutting costs beneficial?

Cutting costs is beneficial because it's one element of budgeting that can help maximize an organization's profits. Employers often value employees who can cut costs without sacrificing quality. Additionally, leaders who can cut costs in a reasonable and effective way can help their organizations financially succeed and meet their goals. Finding ways to save money can also expand your team's ingenuity, innovation and collaborative skills.

Related: How To Make a Budget Plan in 6 Steps

How to approach cutting costs

Below are steps you can follow to help you cut costs in a business:

1. Prepare a realistic plan

While cutting costs can create several benefits for an organization, it's important to remember that one change isn't going to fix every challenge at an organization. Using that, you can cut costs more effectively since you're considering the realistic effect the cut costs have and how that can improve some of the challenges the organization experiences.

Related: How To Set Realistic Goals

2. Understand the changes

Cutting costs within an organization can also cause disruptions to production and other aspects of the organization. As you consider where to cut costs, think about how those costs affect not only the short-term changes but also the long-term future of the department where the cut is and the departments that work with that one. Also, consider how the cuts you make may affect customers.

Related: Change Leadership vs. Change Management (Plus Definitions)

3. Adjust your cuts

As you start making cuts, determine where the cost cuts are most effective. For example, if one department is consistently staying under budget while another uses its full budget, consider cutting costs in the department that is underspending.

11 ways to cut costs in a business

Here are some ideas to help you cut costs:

Identify unnecessary spending

Search for spending that's unnecessary for maintaining the well-being of an organization. Remember that bigger spending cuts may reflect more directly on team members, so plan accordingly. If there are unused perks, such as subscription services or excessive catering, you may cut these expenses as a manager without causing unnecessary disruption to your staff. If you're an employee and you identify extraneous spending that you can save, consider making those changes on an individual basis and then sharing them via the appropriate channels.

Minimize and combine expenses

Seek first to minimize expenses wherever possible by searching for low-cost, high-quality vendors and carefully managing purchases. When you've eliminated extra expenses, consider creatively integrating expenses that were previously separate costs.

For example, you can bring multiple business locations together for company-wide events rather than branch-specific functions, or you can make sales calls while making small deliveries. If you're an employee, try to maximize efficiency by performing multiple tasks during the same trip or activity.

Related: What Are Business Expenses? Definition, Types and Examples

Examine staffing

Sometimes, a business's personnel needs can evolve to align with budgetary needs. Consider searching for positions that can go unfilled after an employee retires. For example, you might also be able to fill an empty position at a lower salary level to cut staffing costs, or it may make sense to eliminate or combine roles after an employee has retired or left the organization. 

If you consider layoffs, be sure to think about possible unexpected costs, such as severance packages for those laid off. Businesses can adjust executive staffing to combine positions and eliminate waste as well. If you're in a position to do so, consider discussing administrative reorganization to help cut costs.

Travel efficiently

To cut discretionary costs in transportation, evaluate your fleet efficiencies and make adjustments if necessary. Search for vehicles that are fuel-efficient, if possible, and consider providing training on efficient vehicle management. If you or your colleagues travel for business, consider searching for less expensive ticket prices or trying to negotiate corporate travel and lodging rates. Additionally, if the organization travels frequently, try to create economical itineraries, such as visiting multiple clients in one trip or flying into a cheaper airport and renting a car.

Related: Everything You Need To Know About Travel Per Diem Rates

Reorganize departments

If you're in a leadership position, consider examining the output of different departments to identify overlapping services and unnecessary expenses. If multiple departments perform similar functions, you may wish to combine or consolidate them.

For example, if PR and communications are classified as separate entities but accomplish similar tasks regarding advertising, news correspondence or social media, you might be able to combine roles to maximize efficiency.

Related: How To Reorganize Your Department in 6 Steps (With Tips)

Restructure services

When cutting costs, consider searching for unused or underused services and scaling back those services to meet demand. For example, if a company staffs a tech support line 24 hours a day, but you receive most calls during business hours, you might eliminate the night shift. Consider using digital tools such as inventory management software to help identify services to adjust.

Related: How To Plan an Effective Organization Restructure

Brainstorm with your team

If you're in a leadership position, consider opening a dialogue with your team about budget requirements. You may find that other employees notice ways to cut costs you might not be aware of from your position. If you're an employee, try collaborating with colleagues to discuss ways to cut costs during day-to-day operations.

Leverage technology

Technology can be another powerful way to cut costs in a business setting. If you're comfortable with computer programming, try developing a program that can automate tasks that are normally time-consuming when done by hand. If you're aware of production processes that the company can automate with new technology, consider mentioning those processes and solutions to the appropriate individual in management.

If you're already a tech-heavy business, consider ways to cut service costs. For example, if you maintain business servers or rent server space, consider using cloud- and browser-based products instead.

Related: What Does Leveraging on Technology Mean? (Plus Benefits)

Research vendors

If a vendor relationship or purchasing agreement has remained relatively unchanged for a period of time, you may wish to reassess any standing or recurring orders to ensure that they're as cost-effective as possible. Although there are benefits to long-standing merchant and vendor agreements, sometimes finding an alternative or negotiating a lower price point can help cut costs. This can also help prevent supply chain issues in the future since you develop several contracts you can use.

Maximize tax benefits

When possible, consider the tax implications of budget decisions to minimize expenses and cut costs. If you're in a position to do so, evaluate expenditures for possible tax benefits. If you can, try working with an accountant to make sure you're receiving the most lawful tax benefits possible. Sometimes, the cost of a consultation can be worth the reduced costs and increased profits in the end.

Analyze facilities

Consider ways to adjust your facilities' overhead to cut additional costs. For example, energy-efficient lighting and appliances can impact the cost of utilities. If a building is difficult to heat and cool, weigh the cost of upgrades against the eventual savings. In your analysis, include an overview of how long it takes to realize profits after making building improvements.

This article is for informational purposes only and does not constitute financial advice. Consult with a licensed financial professional for any issues you may be experiencing.