11 Ways to Drastically Cut Business Costs

What does cost cutting mean in business?

Cost cutting in business typically refers to reducing the overhead costs necessary for daily operations as you provide goods or services to your customers. Cutting costs can entail the following measures: 

• Laying off or firing staff members (typically a last resort)
• Reducing employee hours
• Eliminating some employee benefits
• Outsourcing tasks
• Transitioning some or all employees to a remote work plan or hybrid schedule to lower office costs
• Reducing waste 
• Negotiating better prices with suppliers 

Businesses can also cut costs by making smarter financial moves, such as avoiding late-payment penalties and getting a better interest rate on business loans and business credit cards. 

Reducing expenses is a great way to increase cash flow and improve your business’s profitability. It allows you to keep more of the sales revenue you generate, which can be used to grow the business.

How can you cut business costs and reduce expenses?

Many businesses struggle to cut costs without decreasing output, lowering product quality or overwhelming individual employees with work. Reducing costs without cutting staff poses even greater challenges for many struggling small businesses. 

In some cases, the benefits of reducing expenses may outweigh the downsides, especially if those measures help keep your business afloat. However, there are many cost-cutting actions you can try before you decide to let employees go.

1. Look for new vendors with more favorable prices and terms.

If you’ve been working with the same supply chain for years, you may be missing out on excellent bargains. While researching new vendors and wholesalers takes time, the cost savings can be enormous if you’re not currently paying the best prices for products and services. Additionally, if your market or niche has grown while you’ve been in business, you may find many more vendor options than when you initially opened your doors. 

If you’re a longtime customer, you can approach current vendors about renegotiating your contract. If they don’t want to lose an account, they may be willing to offer discounts or add-ons that save you significant money.

2. Join a coworking space to reduce overhead costs.

Relocating to a smaller office space may save you money on rent, although you’ll be on the hook for office relocation expenses. But if you run a small business or your company has locations in multiple cities, paying for an entire office space may not be economical. 

Coworking spaces are excellent options for salespeople, managers who travel regularly and businesses with small teams. Coworking spaces are also an option if many employees work from home. You pay only for a desk and amenities, thus slashing your administrative costs. WeWork (which emerged from bankruptcy in May 2024), Regus and Knotel are examples of coworking spaces. 

3. Eliminate unnecessary perks.

Small business owners often feel like they must compete with large companies by offering benefits and extra amenities. While offering creative perks is a nice way to treat your staff, most employees prefer comprehensive employee benefits and generous paid time off (PTO) policies. 

For example, if you’re spending $2,000 every December on a holiday party for your staff, consider skipping the festivities and giving everyone a small bonus instead. If you have a relatively small team, you’ll spend less, and your workers will enjoy more time with their friends and family. 

If executive staff members receive exclusive perks, such as concierge service or gym membership, consider reducing expenses by cutting those perks and offering those individuals the same benefits as other employees. Eliminating exclusive perks will save money and create a sense of equality between workers and managers at different levels of the company.

4. Streamline your marketing efforts.

If you haven’t analyzed your marketing mix recently, you may find that you can reduce your expenses significantly. Calculate how much you spend on various forms of marketing, including the following:

• Advertisements
• Public relations
• Social media marketing
• Search engine optimization (SEO) strategies
• Sponsored content
• Trade show appearances
• Direct mail 

Look for areas where you invest significant money or staff hours but don’t see results. Once you identify wasteful marketing efforts, brainstorm ways to replace them with less-expensive options. For example, can you take out ads in popular trade magazines instead of traveling to trade shows? Additionally, investing in an online course to learn about social media marketing, email marketing and mobile marketing may be more cost-effective than your current marketing strategies. 

Although you should streamline and update your marketing mix regularly, it’s particularly helpful to make changes when you’re trying to cut costs and use your budget as effectively as possible. Effective marketing reduces wasted money while allowing you to reallocate savings to campaigns that will produce more revenue.

5. Outsource business tasks.

If you’re operating on a shoestring budget, you could choose an outsourcing partner to help boost your business’s growth. For example, you could hire a freelance designer to create a logo or a TikTok creator to promote your products for very reasonable prices. 

You could also outsource small or time-consuming tasks to freelancers, such as virtual assistants or copywriters. Outsourcing lets you focus time and energy on your business’s core activities without the expense of hiring a full-time employee.

Additionally, many technology resources can eliminate the need to pay an employee or contractor. Consider the following options: 

• Build an online store through Shopify instead of hiring a programmer.
• Research keywords through a social listening resource like AnswerThePublic instead of hiring an SEO expert.
• Use Canva to design marketing materials, social media posts or logos instead of hiring a designer. 

You can often get close to professional quality at a significantly lower price if you’re willing to invest a little time and money in learning a new skill. You can also see if your employees, friends and family have any skills or expertise they can lend to your business.

6. Review and reassess your travel expenses.

Work travel can be costly. Analyze your company’s business travel expenses — including airfare, hotels, ground transportation, entertainment and food — and compare the total to how much revenue this travel generates. 

Can you achieve the same sales and results with less travel? Could virtual meetings replace some trips? If some travel is needed, mitigate expenses by booking well in advance, negotiating corporate rates at hotels, and limiting entertainment and per diem food expenses.

7. Eliminate excess inventory.

Although you never want to run out of inventory to sell, you don’t want to pay for excess stock, either. Finding an optimal amount of inventory is essential. Analyze the sales history of each product to determine the right quantity to have on hand. The best point-of-sale (POS) systems include robust inventory management tools that can set up automatic reorders and generate insightful POS reports to help you get a handle on your stock. 

It’s also a good idea to pay attention to seasonal fluctuations and other trends that affect consumer demand. If you do end up with too much stock, you can cash in on excess inventory by holding sales and promotional giveaways. 

8. Bundle purchases or join a buying group.

If you have different departments or locations that buy items independently, consider combining purchases into a single bulk order. This way, you’ll avoid doubling up on some items and may qualify for a volume discount.

Another way to get better prices from suppliers is to form a buying group with other businesses in your area or industry. In this scenario, businesses place orders with the organization and take advantage of lower supplier prices for bulk orders. Once the order arrives, the buying group distributes the items to each member company.

9. Streamline financial outlays.

Businesses frequently overlook their financial outlays when considering cost-cutting measures. However, streamlining business costs can make a significant difference. Here are some areas to focus on:

• Insurance: Note your small business insurance costs. Review your policies and call your insurance company to determine if your coverage levels are optimal. Inquire about discounts. For example, can you bundle commercial auto insurance and general liability insurance to save money? If your current insurer doesn’t provide any cost-saving options, ask your business insurance broker about obtaining quotes from other companies.
• Business loans: Are you currently servicing business loans? If so, you may be able to negotiate a lower interest rate if your credit standing or profitability has improved. If that’s not possible, determine if refinancing your loans at a lower interest rate makes sense. Another option is to keep your current loan but pay more toward the principal monthly to reduce the overall interest paid over the life of the loan.
• Credit cards: Good credit card practices can help you save money. Whenever possible, pay your entire balance each month to avoid interest charges. If this isn’t possible, investigate low-interest credit cards and transfer the balances on your high-interest cards. Cash-back cards are another way to help you lower your balance.

10. Improve productivity.

When you and your employees waste time, you lose money by producing less output. To improve productivity, eliminate bureaucracy and busywork, such as long employee meetings and excessive reporting. Use top project management and collaboration tools to ensure every team member knows their role and responsibilities and stays on track. Ensure all internal processes are as efficient as possible, and provide seamless, integrated technology solutions to facilitate workplace operations.

11. Boost employee retention.

When employees quit, your business loses money. You must pay to recruit and train replacements and withstand a period of lower productivity while the new team member gets up to speed. You may even need to pay a new hire more, depending on the job market. 

Working to retain your excellent employees is a vital cost-saving measure. You avoid the costs of replacing them while ensuring your competitors don’t benefit from their knowledge and expertise. Employee retention strategies include providing competitive pay and benefits, improving wellness offerings, and communicating frequently with team members to ensure they’re happy.

What benefits can businesses see from cost cutting?

If your company is struggling financially, cost reductions may be necessary to stay in business. However, even if your company is financially stable, cost cutting provides multiple benefits, including the following: 

• Cash flow: Cutting business expenses reduces the likelihood that you’ll run into cash flow problems in the future.
• Investments: Cutting business expenses leaves more money to invest in expanding or improving your products or services.
• Outsourcing: Cutting business expenses provides cash for outsourcing small tasks or hiring additional staff.
• Revenue generation: Cutting business expenses gives you money to invest in revenue generation via marketing and sales activities.
• Profit margin: Cutting business expenses directly increases your profit margin.
• Lower prices: Cutting business expenses may allow you to offer lower prices, differentiating your company from competitors.

Whenever you reduce operational costs, you have more money to invest in your business, creating more opportunities for future growth.

Cost cutting is an ongoing consideration

Cost cutting should be more than a periodic exercise to improve your bottom line. It’s a pivotal practice to stand out in a marketplace of countless innovations, apps and websites disrupting how people do business. 

Thinking outside the box will help you lower your overhead and compete in a crowded market. It will also reduce the likelihood that you’ll run into trouble with cash flow in the future. At least once per quarter, take time to evaluate your budget and look for ways to reduce expenses for your business. 

Jennifer Dublino contributed to this article.