Labor is the largest cost in a business, and it makes up as much as 70%, says Paycor. Cost savings with labor may include hiring methods, wages, benefits, use of freelancers, and where everyone works.
There are other actions businesses can take to cut costs besides labor too, including reviewing suppliers and vendor agreements, using automation and other technology, and reviewing product and service costs.
Growing and making a profit in 2023 may be challenging for most businesses; therefore, reviewing where costs can be reduced without compromising sales and customer service makes sense. This business blog article looks at how organizations can cut costs in the following ways.
- Labor
- Suppliers and vendors
- Marketing
- Workplaces
Labor
If your business is performing well but needs to shrink costs to ensure it gets through the next recession, then it can not look past its labor investment. It’s not a given that you’ll need to fire staff unless your business is losing a lot of money daily, and it needs a quick fix.
Labor expenses
For example, Elon Musk fired half of Twitter’s employees as soon as he bought the company, and it cut annual labor expenses by $400 million. In working out how your business can reduce its labor expenses use a free online employee cost calculator to work out the annual cost of the employees, excluding taxes and overheads. There are free
Labor overheads
Then you’ll need to work out your labor tax obligations and labor overheads, including:
- Insurance
- Benefits
- Paid leave
- Payroll taxes
- Equipment and technology
- Buildings and supplies
Shrink Labor Cost Ideas
Once you’ve calculated your overheads and tax per employee will know the true average cost of labor. Some of the ways you can shrink your labor cost include the following:
Improving employee productivity
When staff is more productive, they get more tasks done within their usual work hours, so there will be less need for them to work overtime at an additional cost to your business. Some of the ways to improve productivity include:
Lifestyle
Your business can encourage and promote a healthier lifestyle, so its staff participate in physical activity and choose higher-quality food. With a work-life balance, there’s time for regular sleep and more social engagements. A happy, relaxed, and refreshed employee can focus fully on their job and tasks.
Work
With a hybrid working model, your staff will work more efficiently with fewer distractions and less travel time on the days they work from home.
Technology
Invest in online collaboration tools and apps so your staff are connected and can work together in real-time on projects from wherever they happen to be working, i.e., in an office or at home.
Hire Freelancers
Another way to reduce labor costs is to use freelancers for projects. Engage their services only when your business needs them.
Recruitment hiring costs will be lower when employees are replaced with freelancers. Did you know more workers are choosing to freelance over full-time employment? You can thank the Gig economy for the trend.
Suppliers and Vendors
Reassess the value of all your supplier and vendor agreements. Can you get a better deal with them or elsewhere with a competitor?
Competitors will offer incentives to get your business. Loyalty to vendors is admirable, but it’s not good for business.
Assessment
To prepare for a recession, cost-cutting includes getting more bang for the buck, i.e., more value for your money. However, there’s more to assessing suppliers and vendors than just cost.
You will also need to consider what else they do for your business, including:
- Key business partnerships
- High-quality service for your customers
- Consistency and convenience
- Credibility
- Social and environmental responsibility
Create a process that commits your business to a regular assessment of each supplier in the supply chain and vendors, including outsourcing providers.
Scorecards and KPIs
Use scorecards, questions, and key performance indicators. Consider engaging a third-party consultant or auditor to manage some of the review processes for your business. Their task could also include an assessment of competitors so your organization can negotiate better terms or take its business to a new vendor or supplier.
Marketing
It’s always a good time to assess the value of your marketing strategies. Digital marketing is measurable, and marketers love data, so spot checks on how campaigns perform are doable and tweaks applied. However, changing course partway through a marketing campaign is not always advisable, as marketing requires time.
Why marketing in a recession?
Nonmarketers like business managers need to know marketing has benefits that extend beyond the sale and include:
- Brand awareness and reputation
- Consumer engagement and feedback
- Customer loyalty and insights
During recessions, businesses cut back on marketing investment, and sometimes it’s a necessity.
How to invest in marketing in a recession
Start with cutting back high-volume transactional advertising and building market share marketing strategies that keep customers loyal and close is one tactic that works during recessions.
Your business can dedicate time to engage with its communities on social media and website by creating and sharing relevant content from its blog. We’re all in the recession together, and customer engagement is sure to rise when a business reaches out with helpful tips to get through it.
Avoid dropping all your marketing to cut back on expenses in 2023. Peter Field says the past has valuable lessons for the future, and your marketing can continue to engage customers just in a different way.
1. Continue to have a voice
Avoid your business ending up out of sight, out of mind with customers. Your marketing can keep you relevant to your targeted audience.
2. Focus on social responsibility, humanity, and the environment
Show your business’s caring side. Now is the time to show your business cares about society and the environment. Get involved in fundraising and charitable causes and find other ways, like Instagram Collaborations for goodwill causes.
Summing Up
All businesses must keep an eye on their expenses and cut costs during economic recessions. Preparing for slower trading conditions requires critical decisions about labor, suppliers, vendors, investment in technology, and marketing.
Revert to your business plan, and ensure you’ve got adequate working capital and access to funding so your business can seize the opportunities in recessions, including gaining market share.