According to Paycor, labour is the most expensive component of a business, accounting for up to 70% of total costs. Labor cost savings can include hiring methods, wages, benefits, the use of freelancers, and where everyone works.
Aside from labour, businesses can reduce costs by reviewing suppliers and vendor agreements, using automation and other technology, and reviewing product and service costs.
Most businesses may find it difficult to grow and make a profit in 2023; therefore, reviewing where costs can be cut without compromising sales and customer service makes sense. This business blog post examines how organisations can reduce costs in the following ways.
- Labor
- Suppliers and vendors
- Marketing
- Workplaces
Labor
If your company is doing well but needs to cut costs to make it through the next recession, it cannot ignore its labour investment. It is not a given that you will need to fire employees unless your company is losing a lot of money on a daily basis and requires a quick fix.
Labor expenses
Elon Musk, for example, fired half of Twitter’s employees as soon as he bought the company, saving $400 million in annual labour costs. When determining how to reduce your company’s labour expenses, use a free online employee cost calculator to calculate the annual cost of the employees, excluding taxes and overheads. There are no costs.
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
You will know the true average cost of labour once you have calculated your overheads and taxes per employee. The following are some methods for lowering your labour costs:
Improving employee productivity
When employees are more productive, they complete more tasks within their normal work hours, reducing the need for them to work overtime at an additional cost to your company. Some methods for increasing productivity include:
Lifestyle
Your company can encourage and promote a healthier lifestyle by encouraging its employees to engage in physical activity and eat healthier foods. A work-life balance allows for more social engagements and regular sleep. A happy, relaxed, and refreshed employee can devote their full attention to their job and tasks.
Work
With a hybrid work model, your employees will be able to work more efficiently, with fewer distractions and less travel time on days when they work from home.
Technology
Invest in online collaboration tools and apps so that your team is connected and can collaborate on projects in real time from wherever they are, whether at the office or at home.
Hire Freelancers
Using freelancers for projects is another way to cut labour costs. Engage their services only when your company requires them.
When employees are replaced by freelancers, recruitment costs will be reduced. Did you know that more workers are opting for freelance work over full-time jobs? The trend can be attributed to the gig economy.
Suppliers and Vendors
Examine the worth of all your supplier and vendor contracts. Can you get a better deal from them or from a competitor?
Competitors will offer you incentives in order to win your business. Loyalty to vendors is admirable, but it is detrimental to business.
Assessment
Cost-cutting to prepare for a recession includes getting more bang for your buck, or more value for your money. However, evaluating suppliers and vendors entails more than just price.
You should also consider what else they do for your company, such as:
- Key business partnerships
- High-quality service for your customers
- Consistency and convenience
- Credibility
- Social and environmental responsibility
Create a process that commits your company to evaluating each supplier in the supply chain and vendors, including outsourcing providers, on a regular basis.
Scorecards and KPIs
Scorecards, questions, and key performance indicators should all be used. Consider hiring a third-party consultant or auditor to manage some of your company’s review processes. Their task could also include evaluating competitors so that your company can negotiate better terms or shift its business to a new vendor or supplier.
Marketing
It’s always a good idea to evaluate the effectiveness of your marketing strategies. Because digital marketing is measurable and marketers love data, spot checks on campaign performance are possible and can be implemented. However, because marketing takes time, changing course halfway through a campaign is not always advisable.
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
One tactic that works during recessions is to reduce high-volume transactional advertising and build market share marketing strategies that keep customers loyal and close.
Your company can devote time to engaging with its communities on social media and its website by creating and sharing relevant blog content. We’re all in this together, and when a company reaches out with helpful hints to help them get through it, customer engagement is bound to rise.
Avoid discontinuing all marketing in 2023 to save money. According to Peter Field, the past can teach us valuable lessons for the future, and your marketing can continue to engage customers in new ways.
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
Demonstrate your company’s caring side. Now is the time to demonstrate that your company cares about society and the environment. Participate in fundraising and charitable causes, and look for other opportunities, such as Instagram Collaborations for goodwill causes.
Summing Up
During economic downturns, all businesses must keep an eye on their expenses and cut costs. Preparing for slower trading conditions necessitates critical decisions regarding labour, suppliers, vendors, technology investment, and marketing.
Return to your business plan and ensure you have adequate working capital and access to funding so your company can capitalise on opportunities during recessions, such as gaining market share.
