As markets continue to sag, organizations need to start thinking proactively about cutting costs.
Like many companies, mine went through a cost-cutting exercise at the beginning of Covid-19. In those early days, no one had any clue how the pandemic would affect businesses. So, my company took a close look at what we were spending and instituted org-wide cost-efficiency standards.
It turned out to be a prudent thing to do. In a generally bearish economic climate, we're in much better shape than we'd be otherwise.
Two years after that first Covid-induced shock to the markets, we're seeing round two. But this time, it's different.
Many experts are predicting a full-fledged recession. Others say it's already here. Whatever the case, businesses should treat this moment as an opportunity to adopt proactive, healthy cost-efficiency measures. And no, that doesn't just mean layoffs (which researchers suggest should only be used in emergency situations).
If you're looking to cut your costs, use these three methods:
1. Take steps toward a cost-conscious culture. The first step in spending as efficiently as possible is understanding what you're spending and why you're spending it. Every member of your leadership team should have a consolidated list of their expenses, both itemized and totaled in any easy-to-navigate tool--even an Excel sheet.
It sounds simple. But the same way that tracking your personal budget might give you surprising results, that bottom-line number is often higher than people think it is. With visibility into what each team costs and what the key cost drivers are (personnel, software, employee benefits, etc.), your leaders can begin to make informed cost-management decisions.
Beyond the leadership, spread cost-consciousness throughout your organization. I always encourage our employees to think of the company's money as if it were their own. Would they still buy that $10,000 tool if the money were coming out of their pocket?
2. Don't automatically backfill head count. When a team member leaves, your instinct might be to get someone else in the role as soon as possible. But before you do, ask: Does this role need to exist? Does its set of responsibilities need to change? Could it be handled by a contractor, rather than a full-time employee? Could we promote from within to fill the role? Do we actually need to get someone else right away?
We've been doing this at ThirdLove for the past couple of years. The answers to those questions vary on a case-by-case basis, but the process always makes us more intentional about defining roles.
3. Set vendor contract rules. One of our key pandemic protocols was setting a limit for vendor contracts. If a contract costs more than a certain amount, our CFO always reviews it. We also never sign auto-renew contracts, which makes us carefully evaluate the usefulness of the tools we use and make informed decisions about our stack.
In the early days of Covid-19, many software vendors were open to renegotiation because they didn't want to hemorrhage customers in a tight economic climate. Vendors know that downturns make companies reevaluate their tools, so I would recommend at least asking your vendors if they're open to renegotiating. It's best if you can take them a detailed snapshot of your situation and frame the discount as part of an ongoing relationship.
All these cost-cutting measures will have reverberating benefits. Economic climates change about as predictably as the weather, and this downturn will eventually make way for something a little brighter. But cost-consciousness ensures that, however the weather turns, you're giving yourself the best chance of success.