10 Areas to Cut Spending and Increase Profitability

Cutting business spending is one of the most challenging decisions that companies face. While it’s true that you can cut spending without negatively impacting your operations, employees, and customers, loyalty and engagement take the biggest hit. If you’re a business leader tasked with reducing your organization’s budget, read on for strategic ways to cut spending and increase profitability. 


Factors to Consider When Cutting Business Expenses

Keep the following expert tips in mind to increase profitability as you determine the right strategy for cutting costs: 

1. Match Your Costs to Your Business Value Proposition 

Your budget should reflect your business priorities because every amount you spend should strengthen your operations. This way, cutting costs becomes an investment in your overall business strategy. 

2. Review where money is being spent

You may already have an expense tracking system in your business, but find out if the expenses link to your capabilities. Most systems don’t make this correlation for you. For example, it will show that you’re spending hundreds of dollars on software licenses, not which applications have overlapping or unnecessary features. 

3. Consider A Zero-Based Approach 

A zero-based budget justifies every expense rather than implementing a percentage budget increase for any given period. While it’s more time-consuming, a zero-based approach can reveal cost-saving opportunities for every department and inform your resource allocation for the next financial period. 

4. Focus on Financial Sustainability and Transparency 

The ideal way to increase profitability is to give adequate resources to essential business functions while tightly managing other expenses. Inform your team about your budget cut rationale and encourage feedback. Otherwise, cost-cutting may lead to resentment and resistance among your team. 

5. Take A Proactive Approach 

Don’t wait for a crisis to cut spending; continuously monitor your business expenses to optimize operations. This way, you can adapt quickly during economic uncertainties and ease pressure on your budget. 


Ten Practical Ways for Businesses to Cut Spending

With these tips in mind, here are ten ways to cut spending in your business. 

1. Information Systems and Software

The main IT-related expenses come from unconsolidated systems, underutilized features, and upgrade costs. Consider the Pareto principle: you may need only 20% of software features to do 80% of your business operations. This rule of thumb can help you choose suitable systems and software and eliminate unnecessary subscription and maintenance costs. 

2. Salaried Employees

Businesses lose money on the payroll when they have the wrong people in the incorrect positions doing less than their fair share of work. In addition, automatic wage increases bloat salaries quickly. Assess your human resources and stay updated with industry wage laws and trends to cut spending on salaries. Also, consider hiring freelancers for short-term work like graphic design or web development. It’s better to pay a premium for high-quality freelancers rather than pay to fix shoddy work in the future. 

3. Rent

You can cut spending on rent in two ways: make the most of the space you already have or eliminate a physical location altogether. If you have inefficient furniture, excess supplies, or overflowing storage, reorganize your premises to create more room. Depending on the nature of your business, you may not even need a physical location. Increase profitability by hiring a remote team or renting a shared workspace instead. 

4. Cell Phones and Mobile Devices

Telco companies offer a range of mobile plans for businesses to keep up with the competition. It’s easy to switch or upgrade to a more affordable plan rather than pay for excess lines or expensive devices. Study your current monthly bills to check which features or services your business uses the most and verify that all accounts and lines are needed, then negotiate your contracts to cut spending. 

5. Office Supplies

Businesses often underestimate the cost of office supplies because they’re small-dollar items. However, these costs can accumulate over time and waste your money. Cut spending on office supplies by tracking usage across departments, shopping for bargains, and purchasing your supplies in bulk. 

cut spending and increase profitability 1 office supplies

6. Network Circuit Expense

Networking resources are essential for businesses transitioning to cloud computing, balancing workloads, and distributing traffic to the web, firewalls, and applications. Network vendors offer tiered pricing that can increase profitability while lowering operational costs. Consider the number of network users and online traffic you receive per month to negotiate your network circuit contract. 

7. Servers and Computer Equipment

Instead of storing old or unused IT equipment, consider selling, recycling, or donating them as you upgrade to new assets. You can still cut spending on new equipment by choosing virtual instead of dedicated servers, and cheaper, lightweight cloud computing laptops like Chromebooks. If you need additional IT hardware, consider leasing instead of buying or purchasing refurbished equipment for a fraction of the retail price.

8. Inventory

The most common inventory expenses are order costs, carrying costs, and shortage costs. You’re losing money if you pay for more items than you can sell and hold in good condition. Conversely, stock outs can impact customer loyalty and decrease revenue. Robust inventory management can increase profitability by knowing when to order new stock, negotiating minimum order quantities (MOQs), and avoiding overstocking. 

9. Sales and Travel

Sales teams should be driven more by commission, rather than high salaries.  Have a look at the size of your sales team also and consider if you have the right amount of people necessary. Minimize travel costs for everyone in the company. It’s not necessary to fly first class and stay in 5-star hotels, so take this into consideration when looking into travel expenses.  

10. Printing 

You can cut spending on printing paper, copiers and printers in two main ways. First, avoid color printing as much as possible because it potentially more than doubles your printing cost. Next, consider going paperless by using digital invoicing and billing systems, designing online onboarding forms, and generating PDF reports. Paperless businesses save on paper, ink, mailing, and postage, operate more efficiently and encourage environmental sustainability. 


Cut Spending and Increase Profitability In 2023

Whether a sole business owner or a CFO reporting to a CEO, finding ways to reduce expenses requires a critical view of your business goals and operations. In addition to the cost-saving areas discussed above, you should also consider the following:

  • Combining activities and events to fall on the same time frame, for example hiring one facility to hold all your team building, training, and celebrations in the same week
  • Address underperformers by redefining job roles or increasing targets
  • Redistributing and automating workloads to eliminate unnecessary tasks 
  • Outsourcing business functions like payroll, recruitment, or IT
  • Reducing time spent in meetings to focus on customer acquisition activities 

You can save even more by working with an expert like Sphere Partners. We offer enterprise-ready solutions that dramatically increase profitability by reducing disconnected systems, and instead providing business management solutions all in one place. Reach out to our team today for advice & support on how to make these changes in your organization to help cut spending and increase profitability.

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