Keeping business expenses under control is a key component of profitable companies.
Cutting unnecessary expenses automatically unlocks valuable money that can be reinvested in other, more profitable parts of the company.
This article contains 11 strategies companies can use to prevent unnecessary spending, and which will lead a company to a much stronger financial position in the future.
Finder cheaper suppliers and service providers
A common problem for many businesses is complacency in their supplier relationships.
Once a supplier or service provider is chosen, contracts are often renewed out of inertia year after year without a thorough re-evaluation of the market.
This approach can lead to significant overspending, since prices that were competitive three years ago might be above current market prices for the same product or service.
To keep these purchasing costs under control, a company should be in a constant process of evaluating, selecting, and managing suppliers to ensure the business is consistently receiving the best possible value for money.
Of course, this purchasing strategy shouldn’t just focus on price. There are other important factors such as total cost of ownership (TCO), supplier reliability, quality, and the supplier’s ability to support the business’s long-term goals.
The core principle is to never assume the current deal is the best deal. It requires a proactive approach where a business owner or manager constantly tests the market, gathering multiple quotes, and being prepared to negotiate or switch suppliers to optimize costs and value.
Cut inefficient marketing spend
When a business’s finances are under pressure, marketing is often one of the first budgets to face scrutiny.
However, a reduction in marketing spend must be surgical, not indiscriminate. The goal is to eliminate spend on non-profitable marketing channels, while protecting the ones that generate a clear return on investment (ROI).
For most businesses, only one to three marketing channels are truly profitable and drive the majority of results.
The challenge is to identify which marketing channels work in attracting new customers, and which do not.
Companies who do mostly Internet marketing typically use analysis tools such as Google Analytics, or the built-in data reports in Meta Ads or Google Ads to figure out how successful their marketing efforts are.
However, Internet marketing requires proper marketing attribution to work, so make sure you have properly implemented it.
More traditional advertising strategies such as social media influencers, TV/Radio ads or word of mouth require careful tracking and asking customers where they learned about your business.
This whole process can take many weeks or months, but it is still a necessary step to understand how your customers find out about you, and what marketing spend to reduce, and which to increase.
Adopt a Device-as-a-Service model
Device-as-a-Service (DaaS) is a device ownership model where businesses procure, manage, and finance their devices (such as laptops or phones) through a subscription- instead of purchasing them.
In short, DaaS is a monthly subscription that provides an individual device (such as a laptop or smartphone) alongside device management (acquiring the device, setting it up, repairs, warranty claims etc.) plus a software layer to monitor and manage the device.
DaaS offers three core benefits:
First, it prevents large initial capital expenses when buying devices, and transforms them into smaller, monthly expenses that can be cancelled any time.
Secondly, a DaaS subscription is classified as an operational expenditure, meaning it can be deducted immediately, which can lower tax expenses in the short term.
Thirdly, a DaaS provider takes on many responsibilities of a company’s IT department, meaning device repairs, warranty claims etc.
This can mean cost savings by avoiding the need of an IT department, or productivity increases since the IT department can focus on more profitable tasks.
We at INKI are one of the biggest Daas providers in Europe and have extensive experience with this.
This DaaS model has greatly helped of our marketing agency client to be more agile and cost effective.
Improve employee retention
Improving employee retention is a powerful financial strategy with a direct and substantial impact on a company’s profitability.
The cost of employee turnover is frequently underestimated because the most significant expenses are indirect and difficult to quantify.
The direct costs are clear: expenses for recruitment advertising, agency fees, interviewing and onboarding a new hire. However, these are often dwarfed by the indirect costs.
Research from Gallup and other sources consistently shows that the total cost to replace an employee and bring the new employee to full productivity can range between 40% of the annual salary for a “frontline” role, or upwards of 200% of annual salary for leaders and specialized technical professionals.
These higher costs are driven by several factors.
Lost productivity as it can take a new employee months or even a year to reach the productivity level of their predecessor.
“Knowledge drain” as departing employees take valuable institutional and client-specific knowledge with them.
Improving employee retention can be done through a variety of means, such as salary increases, more paid time off, career advancement opportunities and better work-life balance.
Outsource key business processes
Business Process Outsourcing (BPO) is the practice of outsourcing a specific business function or process to a third-party service provider.
This can range from back-office functions like accounting, payroll, and human resources to front-office services such as customer support and sales.
For small and medium-sized businesses, BPO offers access to specialized expertise and advanced technology without the big initial capital investment and costs associated with building and maintaining these capabilities within the company.
The primary driver for BPO is often cost reduction. By outsourcing, a company can convert the fixed costs of salaries and infrastructure into a variable cost, paying only for the services it needs.
Reduce employee count and concentrate roles
A last resort option to reduce costs is for companies to lay off workers and reduce their expenses with salaries.
This is, however, a risky strategy. When done poorly a company might accidentally fire critical employees that provide the most value, or they might lose employees that have deep knowledge of company processes.
If your company does decide to go down this path, here are some criteria on how to identify which workers should be laid off:
Step 1: Judge based on future work opportunities, not past performance.
Instead of asking “who should we fire?” a manager or business owner should ask “what work is absolutely essential in the future?”.
Doing so will practically force a business to clearly articulate its business strategy, and properly define whose work is important to a business, and whose is not.
Step 2: Evaluate employees on rigorous criteria
For employees that have the same roles and responsibilities, the company should apply a strict performance-based evaluation process to identify who to keep in the company.
Step 3: Consolidate work roles and reallocate tasks
A common mistake business makes after a workforce reduction is to simply reassign all of a vacant position’s duties to a single remaining employee.
This approach inevitably leads to overload and burnout. Instead, the workload of eliminated roles should be broken down into individual tasks and specialized categories.
These tasks can then be strategically reassigned to multiple team members based on their existing strengths, expertise, and current capacity.
Buying in bulk and partnering for group purchasing
For many businesses, particularly SMBs, two powerful strategies for reducing the cost of goods and supplies are bulk purchasing and participation in Group Purchasing Organizations (GPOs).
Both strategies rely on the same, simple business principle: higher purchasing volume improves negotiating power and secures lower costs on a per-unit basis.
Bulk purchasing is the simple practice of buying goods in larger quantities to take advantage of volume discounts offered by suppliers.
Besides the lower per-unit cost, bulk ordering also leads to lower shipping costs and easier administration costs since a business doesn’t have to redo the order so often.
Businesses that don’t have sufficient capital for bulk orders, or don’t have space for large inventories can instead rely on Group Purchasing Organizations.
A GPO is an entity that concentrates on the purchasing demand of multiple individual businesses to negotiate contracts with suppliers on behalf of the entire group.
By pooling their collective buying power, small businesses that are members of a GPO can benefit from the same kind of volume-based pricing and favorable contract terms that are typically reserved for large corporations.
This allows them to achieve significant cost savings, often averaging 18-22%, without having to purchase and store large quantities of inventory themselves.
GPOs are particularly effective in industries like healthcare but also exist for a wide range of other sectors, covering indirect spend categories like office supplies, shipping, and technology.
Reduce financing costs (loans, interests etc.)
Financing costs, such as interest on loans and lines of credit or insurance premiums are a significant category of business expenses.
Unlike many operational costs that can be adjusted quickly, financing costs are typically influenced by long-term agreements and by factors like the company’s creditworthiness or overall market conditions.
However, these costs are not fixed and immutable and can be brought down.
The core principle of reducing financing costs is to constantly seek ways to improve the terms of existing financial obligations.
There are multiple approaches to do this:
- actively working to improve the business’s creditworthiness to qualify for better rates.
- monitoring the market for opportunities to refinance high-interest debt.
- negotiating more favorable terms with lenders.
- implementing robust risk management practices to lower insurance premiums.
By treating financing as a variable cost that can be actively managed, a business can significantly reduce its cost of capital, improve cash flow, and strengthen its balance sheet.
Optimize maintenance and repairs
Maintenance and repair costs represent a significant operational expense, but their impact extends far beyond the direct cost of parts and labor.
Unplanned equipment downtime is a major source of hidden costs, leading to lost productivity, missed production deadlines, and unbudgeted overtime charges.
The proper way to handle maintenance is to shift the organization’s approach from a reactive “breakdown maintenance” model (fixing equipment only after it fails) to a proactive, “preventive maintenance” model.
A well-structured preventive maintenance program involves performing planned, routine maintenance tasks and inspections to keep assets in peak working condition and identify potential issues before they lead to catastrophic failure.
An effective PM program can dramatically reduce unscheduled downtime and increase the lifespan of equipment.
A crucial component of this strategy is the effective management of spare parts inventory. Poor management of spare parts can lead to a shortage when they are needed most, extending downtime. Other times it can lead to inefficient storage of unnecessary parts, tying up capital.
Eliminate unprofitable services or products
A common trajectory for growing businesses is to keep adding new products and services to their catalogue. They do this in an effort to target every possible customer preference and capture new market segments.
However, companies with large product or service portfolios often find themselves affected by the 80/20 rule (or Pareto principle), where 20% of their products or services produce 80% of their revenue and profit.
The remaining 80% of their portfolio consists of underperforming products that produce little revenue or profit but create significant hidden costs and complexity throughout the business.
Product portfolio rationalization is a process of evaluating every product or service in a portfolio to decide whether it should be kept, modified, or discontinued.
The goal is to eliminate underperforming or non-strategic offerings to simplify operations and focus resources on the most profitable products.
By reducing product complexity and focusing only on essential, high-performing products, companies can improve supply chain efficiency, reduce warehousing costs, enhance customer satisfaction, and finally increase revenue and profitability.
Reduce software license costs
Most modern-day software licenses have shifted to a monthly subscription model. This can be cost advantageous in the short term, but can be quite costly in the long term.
A solution is to find equivalent software tools that can be purchased with just a one-time payment purchase.
The one-time payment model provides immediate and permanent ownership of the software license, eliminating the risk of future price hikes and monthly or yearly recurring payments.
While this approach typically requires a larger initial capital investment, it can result in a lower total cost of ownership (TCO) over the software’s lifecycle.
This model is particularly well-suited for mature, stable software products where the need for constant, cutting-edge feature updates is less critical than long-term cost predictability and control.
Another software cost control method is to tightly control how many software licenses your business actually needs.
This means acquiring software (either through purchase or subscription), only for the employees that truly need that particular software program.
This will help reduce costs for licenses that are paid for but are underutilized or not used at all.
