March 20, 2017
101

Three ways to guide cost-reduction considerations

All company cost reductions are not created equal. Waiting until there is a problem in your business might be too late to make cost-cutting maneuvers that can have long-term benefits. Successful companies know that cost decisions are directly linked to strategy – which is directly linked to growth. Here are three ways to guide cost-reduction considerations.

It's not enough to have a cost-cutting plan; it needs to be sustainable.

Create more transparency around what is a good cost and what is a bad cost. Good costs should be aligned with your strategic plan – they differentiate your corporation. Bad costs are dispensable and should be more tightly managed, says Paul Leinwand and Vinay Couto at Harvard Business Review. Cutting unnecessary costs should be the priority of all team members, and "a shared mindset, rather than a bunch of rules … Even when no one is watching, employees treat every spending decision as if the money comes from their own pocket," they write.

Speak with your suppliers.

"Most suppliers are amenable to the idea of negotiating prices, because they would rather do so than lose a regular customer," says Nicole Fallon at BusinessNewsDaily.com. Negotiating lower prices with your vendors is a smart consideration to reduce overhead.

Embrace data.

With data collection more accessible to companies of all sizes, there are software tools to track where your money is going. And the results may surprise you. "During our first couple of years, we didn't use data to help us make most decisions," writes John Hall, CEO and co-founder of Influence & Co., at Inc.com. "We had no concrete information contesting or confirming our decisions … Once we got [measurement tools], we discovered that we were using our resources inefficiently." Better to head off misguided practices sooner, rather than later.

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