In a recession, companies need to cut back on their costs to help them compete and remain successful. However, it is important that those cost cuts are made in the right areas. Cutting the wrong costs can cause damage to a company and can lead to that company failing.

Many companies make the mistake of cutting the easiest costs, after all it is quick and easy. However, that approach is exactly the wrong approach. In the short term it will help but not in the long term. If your cuts impact on the quality of your product or service you will lose customers and the company will ultimately fail.

The best approach to cost cutting is to look at each aspect of your business and work out if it really helps you to deliver value to your customers. Those aspects of your business that do not directly help you to deliver your product to your customer are the aspects you should be looking to cut back on first. Even then, you should be careful, for example, asking your staff to do their own cleaning is easy and probably does not negatively affect your customers, but do you really want someone you are paying 12 an hour to spend an hour cleaning when you only pay your cleaners 7 an hour. That cut is very easy but only makes sense in certain circumstances.

To cut the right costs you need to understand your customers and why they use your products, rather than those of a competitor. Your sales team and customer service team will already understand your customer’s needs and preferences, so these people need to be included in the cost cutting exercise. In addition, you can canvas your customers with a simple survey to gain further understanding of which aspects of your service are important to them. Those aspects should not be changed as a result of your cost cutting exercise.

Once you have worked out where you will be making your cost cuts call in your accountant to help you to work out exactly how much each cut will save the business. Lastly, set up a monitoring process that looks at the effect each cut has had on your business once it has been implemented. Make sure that each cut is really delivering the projected savings and not having a negative effect on your business.

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