Let’s face it. 2023 is going to be rough – so you’d better be prepared!
With global giants such as Microsoft, Facebook and Twitter undertaking significant layoffs – the narrative around an impending recession has moved beyond prediction to cold hard reality.
Within a perfect storm of record inflation, global volatility and economic slowdown – things will get worse before they get better.
The need to “do more with less” as quoted by Microsoft CEO Satya Nadella is rising – but how?!
When riding the waves of this uncharted territory, standard cost cutting simply won’t cut it.
Leaders must reinvent the way they go about managing costs and the way they operate their entire business.
And that requires a fundamental shift in thinking.
The time has come for an entirely new approach to cutting costs – one that goes way beyond the bottom line.
CEOs must innovate and reimagine costs in order to drive growth and build resilience in these times of uncertainty.
You’ve got to start from the ground up and address every single facet of the business – leaving no stone unturned!
What you need is a business-wide transformation to move out of survival mode in order to thrive, compete and win in 2023.
But don’t worry. We’ve got you covered with 10 bulletproof ways to cut costs and give you an unfair advantage in 2023!
1. Harness the Power of AI
According to a 2022 report from Accenture, nearly 70% of executives are investing in AI and digital tools to cut costs and optimize operations.
In addition to automating upwards of a third of the activities of your entire workforce – AI will help you reduce operating costs, optimize logistics operations and make better decisions.
Automating your processes means greater efficiency and lower costs – and you’re likely already using a suite of AI solutions.
But, do you know the full range of automated solutions available to help you automate the different areas of your company?
Thanks to the creation of new language processing and machine learning capabilities – AI can take over your contract functions.
Companies like Superlegal are providing AI based contract reviews that guarantee quality, accuracy and consistency across your contracts. As well as cutting legal costs by up to 90% (and getting contracts back to you in a matter of hours!)
To verify the true benefit of AI, Superlegal held an epic showdown between AI and human lawyers (spoiler alert: the AI kicked ass!)
b) Human Resources
The AI learns from the decisions you make to further optimize its assessment capabilities.
Companies like Gecko even offer AI bots to conduct job interviews!
Using AI, your marketing team can deliver highly targeted and personalized ads with the help of behavioral analysis, and pattern recognition – plus help you retarget audiences at the right time to get better results.
AI solutions like Jasper can help with content marketing in a way that matches your brand’s style and voice.
Chatbots like Intercom can analyze your user’s language and respond in the exact same way humans do.
Artificial intelligence can also detect changes in transaction patterns and other potential red flags that can signify fraud – saving you from potentially huge losses.
It’s unavoidable. Your employees spend several hours a day communicating in writing, either by email or instant messaging.
This leaves little time for deep work, is highly inefficient and straight up costs you money!
Apps like Emailtree integrate email responses with data in your operating systems.
2. Build a crystal clear vision
Most cost initiatives fail because they’re too ambitious, lack a clear strategy, and don’t have buy-in from leadership.
Nearly half (43%) of cost-cutting initiatives fail.
If you want to come out fighting in these tough times – then you need a clear strategy, a cost roadmap and above all – a vision.
Data shows that 93% of CFOs are exhibiting cost management behaviors that actually harm their businesses – so identifying and correcting these behaviors is imperative – together with making transparency and accountability part of your company’s operating structure.
Invest time in building and instilling your vision of running a lean, profitable, fast-growing and resilient company and ensure that your team follows suit.
If an expense doesn’t serve this vision – don’t approve it!
Limit the number of people with access to company credit and resources, and train all those of their ownership responsibilities to be laser focussed on your company’s vision.
Conduct a thorough audit and track your business expenses on the daily – every single expense should be evaluated against its utility and return on investment.
Consider using Zero Based Budgeting – a method to help align company spending with strategic goals.
This approach requires you to build your annual budget from zero, in order to verify that every single component of your budget is cost-effective, relevant, and drives savings.
It stands in stark contrast to traditional budgeting methods by wiping the slate clean and asking you to verify each and every cost from zero.
You must justify what to keep and examine every potential area of costs.
And finally, let’s talk about our good friend, cash flow.
I don’t need to tell you how important cash flow is – or that it’s the only true metric to determine the financial longevity of your business.
But I can give you some tips to better manage your cash flow:
- Create a cash flow forecast to catch problems before they arise
- Set a firm credit policy and actually stand by it
- Use an online payment processing service like Stripe to make payment collection as simple and fast as possible
- Stop turning a blind eye to late payments from customers
- Watch out for customers with bad credit
- Recoup all outstanding bills – no matter how small
3. Optimize your Tech Stack
ROI on tech investments has risen to $4.81 per every dollar spent, expecting to rise to $6.31 by 2027.
It’s pretty straightforward: Technology spending delivers value.
Knowing where to redirect investment to capture revenue will separate the winners from the losers in these testing times.
According to Israel’s Managing Partner of consultancy giant McKinsey, “technology is eating the world…now is the time to invest.”
But, increasing spending at a time of widespread inflation and chronic supply chain constraints means you have to make a plan and stick to it if you’re going to navigate these headwinds without sacrificing growth.
In other words: you’d better ensure that increased tech spending is put to the right use and optimize your tech stack.
a) Focus on innovation
First and foremost, you’ve got to focus on innovation and a growth mindset.
Don’t let your need to cut costs paralyze you from testing out the different technologies out there that can directly impact your top or bottom line.
b) Realize value
Align your technology investment decisions with the same risk and opportunity framing as the business itself.
The need to rapidly translate technology decisions into business value has never been more important.
c) Avoid tech bundling
Be aware of trying to cut costs through bundling technology and attempting to cut costs with fewer solutions with multiple capabilities.
What may appear to be a cost saving overall, is starving your businesses of access to the best-in-class technology that will actually move the needle for your growth and cost saving vision.
4. Optimize your headcount & retain top talent
Optimizing your headcount is so much more than just firing and outsourcing.
While preserving cash flow and minimizing cash burn is critical – workforce reduction can be “penny wise and pound foolish” for businesses looking to achieve savings.
Apply a ton of foresight when cutting your workforce – keeping in mind the increasingly high cost of hiring, training and retaining new workers.
Identify the areas where fulltime talent is an absolute must have, and the areas where hiring a freelancer is more cost-effective and productive.
Ask yourself if you truly need a full-time web developer or graphic designer – or whether you just need a few jobs a month.
There’s never been a better time to outsource specialized tasks to top experts from anywhere in the world to get the job done right now!
But don’t forget, a good freelancer may have a high up-front cost – but it’s better to pay someone one time for high-quality work than to pay someone over and over to fix it.
Ok, now let’s talk about the workforce that you will keep.
It’s not an exact science – but you’re going to want to retain talent that’s efficient, ambitious and willing to grow.
Prioritize technical prowess when making these decisions – the additional cost of hiring workers with technical knowhow makes it critical to focus on retaining employees with these crucial skills.
Now let’s talk about incentivizing your lean team.
Identify and invest in your high performers. Track employee productivity and identify who stands out, investing in those employees by providing new opportunities.
Happy employees are more creative and productive. They’re also less likely to quit.
So retaining talent, i.e. keeping your chosen employees happy, will save you significantly on costs.
Here’s how you do it:
- Pay above average salaries
- Nurture a flat organizational structure
- Allow your employees to speak and share ideas freely
- Be transparent and honest with your employees at all times
- Show your employees appreciation and respect always
- Encourage input and feedback
- Never micromanage
- Give your employees the space and opportunities to grow
- Provide flexible working conditions and prioritize work-life balance
Keeping your workers dedicated to your company’s overall vision is imperative if you’re going to successfully carry it out.
But keeping your workers happy and productive is simple!
Listen to their needs, provide those needs and get a dedicated, unstoppable workforce in return!
5. Leverage modern marketing methods
Peter Drucker, known as the father of modern business management, once said:
“Because its purpose is to create a client, the business has two — and only two — functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”
Here’s how to get the ultimate bang for your buck when it comes to your marketing activities:
a) Cut down your channels
87% of marketers agree that an omnichannel marketing approach is important for success.
But does that mean that you should use every marketing channel there is?
Cutting down on marketing channels with the least ROI is one of the most powerful methods of reducing marketing costs without hurting your business.
Isolate the marketing channels with the lowest cost and maximum returns.
b) Apply the law of diminishing returns
Invest in your marketing budget only up to the point of diminishing returns on that investment.
The law of diminishing returns basically says that if you increase your investment in a particular channel without changing other parameters, you’ll reach a point where the returns get progressively smaller with increased input.
This law applies to your marketing budget and can be one of the most effective methods for reducing marketing costs without impacting your business.
c) Optimize your Google Ads
To stretch your marketing budget and save costs – improve the performance of your Google ads by getting rid of distracting vanity metrics.
To be as cost-effective as possible, you need to focus.
Get rid of data columns that you don’t use on a daily basis, and that do not bring you any added value in your day-to-day optimizations.
d) Do content marketing
In today’s world, customers expect high-quality, consistent content from their favorite brands.
Plus, content marketing has the potential to drive 4x better ROI than advertising.
Content marketing is fundamental to your marketing strategy as it answers your audience’s questions and helps you build trust, develop relationships, improve conversions and generate leads.
Once implemented, content marketing more than pays for itself as customers from SEO and social media sources respond to your thought leadership and content reliability.
e) Nurture your leads
Lead nurturing is one of the most effective methods of reducing marketing costs without severely hurting your business.
In most cases, only a relatively small percentage of your inbound leads will be ready to make an immediate purchase, leaving upwards of 90% of your inbound leads on the table.
Nurturing leads results in a 50% increase in meaningful leads at a 33% lower cost, and companies have witnessed a whopping 20% increase in sales with this strategy.
6. Scale in response to demand
Purchasing office space you can’t fill, expanding production capacity before you have enough customers, and scaling customer acquisition before you have the right product market fit, are all common reasons startups fail.
The larger you scale, the larger your problems become.
So scale in response to demand and keep your expectations and your budget in check!
Before you do anything – you need to establish product-market fit.
However, companies often find product-market fit and then immediately hire 10 salespeople to grow the company.
DO NOT DO THIS!
It skips several important growth phases and can permanently stunt company performance.
Instead, you need to scale your business responsibly and sustainably:
a) Identify milestones
Link your capital with each phase of your company’s growth and identify when you’ll run out of cash.
Then, work backward to define milestones you need to hit and a timeline for when you need to hit them.
When speaking to investors or board members, focus less on your valuation and more on how risk changes your valuation over time.
b) Focus on customer success
Work on collecting data-backed proof that your customers realize the benefits of using your product – and want to use it more!
Customer success is the ultimate proof of greater market potential – do not skip this stage!
c) Identify your ideal customer
Identifying your ideal customer will take time. But this step will move your business toward sustainable growth and devoted customers.
- Pick one target market and select a repeatable, profitable, and scalable way to sell to them.
- Find a single use case and avoid introducing too many variables that will make it more difficult to optimize for your target buyer.
- Message your product with concise, attention-grabbing messaging that’s differentiated from your competitors.
d) Optimize your sales funnel for the buyer
Study your buyer’s behavior and build a buyer persona.
Consider what your ideal customer cares about, how they buy, and what processes they use. Once you know the answer to these questions, solve for your sales cycle and shorten it.
e) Don’t hire salespeople too early
The number one mistake most founders make?
Hiring sales staff before the company’s ready.
Avoid thinking that more salespeople will lead to more business.
Instead, prove you can sell the product before hiring any salespeople.
7. Adopt a customer-first approach
Depending on what industry you operate in, studies suggest it’s anywhere between 5 to 25 times more expensive to acquire a new customer than retain an existing one.
So take care of them – or risk leaving a lot of money on the table.
In other words: customer focus must not be overlooked during cost cutting.
You’ve got to develop a deep understanding of how the customer defines quality – and avoid doing anything to the detriment of your most significant customer base.
It all comes down to your ability to proactively anticipate and address current and future, unspoken customer needs.
a) Leverage data
Data can be powerful when harnessed effectively.
Regularly collecting and analyzing data from all of your customer touch points will help you:
-understand and fix process failures
-measure the impact of changes
-focus on the areas that have the highest impact to your business
Customers are time-starved, so surveys will soon be a thing of the past.
Instead, successful companies gain valuable customer insights through their purchasing patterns, customer service transactions and social media trends.
When analyzing data and speaking to your customer service representatives – many different areas for improvement in the customer experience may come to light.
But you can’t change everything at once.
Analyze all of the opportunities and prioritize, prioritize, prioritize – with a focus on customer impact and cost.
c) Re-engineer processes through the customer lens
At the end of the day, all your customers want is a seamless experience with excellent service.
Walk in your customer’s shoes and evaluate every step along the way:
-Do you have the products they need?
-Was the information they needed readily available to them?
-Were issues quickly and effectively rectified?
-Was the customer treated in a way that reinforced their importance to your business?
8. Streamline your products & services
Businesses can tend to rely on the, “if it ain’t broke, don’t fix it” mindset.
But when it comes to thriving in a global economic slowdown, reviewing all the products and services your business provides is critical.
Streamline your offering by closing the least profitable/struggling products and focus on those with the greatest potential to generate steady, long term revenue.
Revisit your products and ask yourself “do our customers want this? Is there a better or cheaper way to deliver the same or better level of service? What are our competitors doing?”
Before adding new functionality to an existing product, expanding your service line or building out a new product – you must consider the cost and evaluate the ROI.
Most organizations underestimate the cost of projects – stalling development, tying up critical resources and putting the company at unnecessary risk.
Assess the performance of your products:
a) Make data driven decisions
Too often we allow underperforming products or services to limp along for far too long.
When, in reality, we would be doing everyone a favor if we would just harness the data to shift strategy and re-energize new initiatives.
Don’t be afraid to learn from past mistakes. Fail forward and fail fast to ensure that you can engage in significant growth.
b) Study the customer journey
Study your customers’ journey and understand where you are losing their interest.
The user experience is vital in the process of understanding why or when a product is underperforming.
c) Use the 80/20 rule
A classic mistake made by business owners is throwing energy and money at poorly performing products and services.
Use the Pareto principle (also known as the 80/20 rule) to see where you generate 80% of your income with 20% of your effort – and focus your energies there.
It sounds simple – but it works every time.
A final way to optimize your offering is to experiment with your pricing.
But whatever you do – do your research:
- Your costs and what you need to make a profit
- Competitor pricing
- Pricing in your target market
You could experiment with reducing prices or offering discounts.
Do your research and try to find that pricing sweet spot.
9. Promote productivity – lose inefficiencies
We all know the saying “time is money.”
It’s overused – but it’s the truth.
You need your team to work productively and efficiently – without wasting time – because time wasted, is money down the drain.
a) Address bottlenecks
Look for bottlenecks in your workflow so your employees spend less time untangling procedures that stand in the way of going full steam ahead on their projects and tasks.
This requires some time investment, but will be a huge money saver later.
b) Align your lean team
Align your smaller team to refocus their attention on efficiency and productivity.
Productivity over hours worked – every single time.
Hybrid working is a huge cost saver – but make sure your streamlined, remote team is energized, motivated and incentivized to build, grow and win in these uncertain times.
Create the space to nurture the kind of creative problem solving that drives future productivity and growth.
c) Time management
Encourage time management by setting expectations for how long an activity or task should take – and ensure meetings run on a predetermined block of time.
Stick to the meeting’s agenda and wrap up at the appointed time!
Avoid unnecessary meetings with clear communication. If you can answer questions with an email – don’t hold a meeting.
10. Go all in
As CEO, your growth mindset is the beating heart of your company.
Whether it’s business challenges, market dynamics, employee issues or customer specific problems – you must keep upgrading your knowledge and skill set, and be tenacious.
Look ahead and focus on building the muscle to transform your business in a way that builds endurance and the capacity to continue growing long into the future.
According to SBI’s Annual CEO Growth Survey, CEOs are taking on an increasingly cautious growth posture with more hedging in growth options and less strategic clarity than previous years.
Interviews confirmed this trend, with the word “agility” used to try and mask strategic uncertainty.
While maintaining a hedged growth approach may feel like the right approach, it’s often indicative of CEOs operating on the backfoot – with slow decision-making and obscure focus during periods of economic uncertainty.
But this is the wrong attitude.
The survey found that those who fully committed to a plan far outpaced the growth of those who elected to “wait and see” or adopt a more agile growth position.
So use caution in being too agile and don’t make the mistake of choking off much needed innovation!
You must be willing to change course when necessary, whilst equally have the foresight and tenacity to stick by your guns through rocky terrain.
In other words – don’t be the Captain from Titanic who abandoned his instincts and came face to face with an iceberg!
It’s a fine balancing act that requires precision, skill and determination.
And above all – if you have a gut instinct about something – trust it, commit and follow it through to the very end!
So there you have it – 10 surefire strategies to turn your business into a cost-effective machine built to win in 2023.
You’ll need to be bold, creative and tenacious if you’re going to come out fighting in these unprecedented times.
As you can see – there are so many ways to view the art of cutting costs – business-wide, bottom-up, customer-obsessed, growth-minded and vision-based.
Ultimately, your ability to survive and thrive in this unstable economic climate comes down to: your map (your budgeting strategy and growth vision), your team (you’ll need buy-in from all your managers if that strategy is going to be implemented) and your leadership (as captain of the ship, can you take your crew safely to shore despite the the storms that lay ahead!?)
Remember, effective cost-cutting is a dynamic, continuous, and reflective process that’s never ‘done’.
So continually revisit your strategy and all components in it, using our handy tips of course!