In my 1st quarter newsletter main article, I made a reference to reactionary cost-cutting and how it can hurt your business more than help it. And in this blog post, I wanted to explore that statement a little further. When I talk about cost-cutting, I tend to lump it into two categories: researched vs. reactionary. To me, researched cost-cutting is where you have evaluated your systems and processes, or your marketing or some other part of your business, and based on that evaluation, you have figured out that certain things that cost you money are either not necessary and can be cut or they don’t have enough of a positive ROI to be worth continuing. It could be that you are tracking your leads and bookings and figure out that a certain marketing vehicle is not working, or you are reviewing your systems and processes and notice that something isn’t necessary or important to your ideal client. These are situations where you have evaluated and figured out that the cost-cutting will save your business money without hurting future income potential.
On the other hand, reactionary cost-cutting is when you cut costs on things you shouldn’t, and because you feel you need to save money now or in the very near future. I have seen way too often where a business owner realizes they are falling short in near-term bookings and reacts almost immediately by going into cost-cutting mode. And don’t get me wrong, it is a natural business response, but it is one that usually is not the best decision. Let’s look at a simple example – Disco Donnie the DJ just had two cancellations and was already lower than normal on bookings for the next few months, so he reacts, and to save money he tells his setup assistant that he is not going to need him for the next few months. The problem is that Disco Donnie has a lot going on in his life and a few of his upcoming booked jobs will be tight on setup time (even if he had help from an assistant). In this example, Disco Donnie will get through the few slower months and will have saved a little bit of money, but it is also possible that he may receive a few not-so-great reviews and will lose some referral business due to not being able to be set up in time and therefore not delivering on everything he promised his clients.
Don’t get me wrong, there are times when you should cut costs, and there are times when you have to cut costs, but the goal is that in the long run, the cost-cutting you do helps your business, not hurts it.