Doing more with less is important in business, and even more important when times are tough. Managers, however, need to carefully evaluate every cost cutting decision to ensure that the costs being cut will not have too great of an adverse effect in the organization’s ability to do business, in the morale of its employees, and in leaving its customers and clients feeling cheated. If careful consideration is not made companies will end up spending less and getting less, or spending less but increasing its costs in other areas in order to operate its business.

3 Cost Cutting Traps

1) Focusing cost reduction on areas with highly variable costs. Advertising, training and recruitment are often hit simply because they are easy to switch on and off.

2) Seeking to give all areas of the business an equal share of the pain. For example, all departments may be required to find 20 per cent cost savings regardless of their relative importance.

3) Enabling a political power struggle. Departmental leaders many times use their influence with the CEO to campaign to protect their area, whatever the cost elsewhere.

3 Correct Cost Cutting Principles

1) Identify and protect your key profit generators. A profit generator is a business activity that has a disproportionately large impact on the profit and value of the organization. These business activities should have a focus of ensuring that they maximize their revenue potential for the long run and not just minimizing their costs. Not in check, this creates the cooking the “goose that lays the golden egg” syndrome. You, in your cost cutting efforts, cut back on the necessary resources your main income generator requires.

2) Understand where you are competitively disadvantaged on cost. Don’t just review your own costs to drive profits, you should also critically review and understand your competitors’ costs. If your competitor can cut costs in certain areas, can you do the same? If so, do it. If not, you will need to come up with an alternative area where you can cut costs to offset what your competitor is doing.

3) Determine where you make and lose money. A good starting point for increasing profit is to stop losing money. In most businesses there are areas of high profitability and areas of low returns or losses. Poor-performing businesses cannot be switched off overnight, but focusing your resources and effort where you deliver the greatest returns is likely to raise profits. Each of these areas, however, need to be carefully evaluated as to what the costs, in the end, bring to the company. Some costs can be cut with relatively little effect on the company. Other costs can minimize business potential, decrease morale, or even increase costs in other areas of the business.

Cost cutting initiatives in business are not easy or simple decisions. Managers who face the requirement to cut costs should carefully weight their options, seek for input from those directly related to the areas where costs will be cut. Most often, by involving others and explaining the reality of the situation, managers can seek for insight on areas where costs can be cut. Those employees who work in those specific areas day-to-day often have a wealth of insight into the business and can, many times, offer solutions to make the decision process more informed and better for the business.

Business are spending more and more each year to bring in new clients. In management and business courses, one of the classic ideas in business is that it costs much more to bring in a new customer than to keep a customer.

With advertising, online ads, marketing campaigns, etc. It’s each to overlook one of the greatest assets business have in their marketing efforts: the existing customer base.

Your existing customer base represents a wealth of contacts and unbiased reputable referral system. If you can provide such a level of quality and excellence in the service you offer that your customers can’t help but talk about what you offers, you then have one of the greatest free advertising campaigns going for you.

Businesses often fail in capturing this unique prospect becuase they don’t really excel in their service to a point that they wow their customers into saying anything. It’s useless to solicit anything from your client base until you’re blowing people away, then encourage them to talk. Look for review sites online are a third party that you can refer current clients to comment on your offerings, then encourage new potential clients to see what others are sayig about you.

You can talk about yourself and tout what you do better than the other guy all day, but in the end, the potential customer generally wants to know how you’ve treated others because that’s how you’re likely to treat every new customer.

• Don’t feel restricted by policies. If a customer wants a refund after 40 days (10 days past our 30 day refund deadline), just give it to them.
• Requiring a receipt for a return is ludicrous. You have complex systems for tracking inventory, stocking, pricing, serials, etc. yet for me to return something I need to prove that it came from you by showing you a receipt? Please.
• When a customer is frustrated over chat or just isn’t getting it, sometimes it helps to give them a call.
• If a customer is upset, forget the policies. Give them a full refund. Give them extra SANs on their UC cert. Give them a extra time on their cert.
• If a customer is angry that the product doesn’t work like they thought it would (even if it is a known incompatibility), replace it, better yet give them a new product that works free.
• If a customer goes out of their way to write an email and thank us, send them a package with something free.
• Respond quickly to emails and chats. Give customers on the phone the attention that is needed to quickly resolve the problem.

Winning customers centers on the idea that your customers are not just the customers from the moment they walk in the door to your business or visit your Web site, etc. They are the customer 24 hours a day, 365 days a year. They are always the customer. Companies have started to treat people as one time customers, and not as life-long customers. People are loyal to themselves first and if you don’t take care of them, they will go elsewhere.

Remember:

• People don’t know good service until they get it. When they receive good service they go “Wow,” and make the choice to switch to the new service provider.
• The customer is NOT always right, but they are ALWAYS the customer.
• Don’t take the easy way out and say NO, find a way to say YES.
• Don’t hide behind a policy, do what’s right.
• 99.6% of the customer were good compared to those that were bad, why create policies to hurt those good customers?
• Nordstroms once took back and refunded a pair of tires. Nordstroms doesn’t even sell tires. They won that customer.
• Just because we make a special situation for one person, doesn’t mean that everyone else will want that too! Make that customer happy.