All business owners want to save money, and minimizing expenses it an effective way of doing it. Reducing costs is a great way to pad your bottom line, especially during the lean times, when there aren’t as many sales coming in.
But some businesses take it to extremes, and start cutting back on too many or the wrong things. These cutbacks actually hamper the business and affect employee and company performance. It’s a one-dimensional view that will end up ruining the company.
This is the Last Day of my 30 day writing challenge and and I am so relieved and happy to have completed it. I will be writing another post on this at a later date.
Low Quality Products
It’s standard practice for businesses to cut back on production costs in order to increase profit margins for their products. Cheaper materials, higher volume, and different manufacturing methods all contribute to a more profitable product.
But does it make it a better product?
Some customers will not notice the difference in quality, or care. But go too far, and you may begin affecting the product’s durability, performance, and aesthetics to the point that the customer won’t want to buy it anymore. It’s an easy line to cross. Always be careful with changes to your product, even if you consider them minor.
Call it whatever you want—retrenchment, RIF, downsizing, right-sizing, reorganization—it all means the same thing. You’re firing people to save on paying salaries. Now don’t get me wrong. Sometimes it can be good to trim a little fat from over-large departments. But when the business encounters trouble and your knee-jerk reaction is to start firing people, then you’re just setting yourself up for more problems later on.
Cutting jobs, benefits, and salaries may help your numbers in the short-term, but there is an unwritten cost that has to be paid. Morale might take a serious hit and cause people to underperform or resign entirely. Staffing cutbacks would pile the workload on fewer and fewer shoulders, decreasing effectiveness and adding to the remaining employees’ stress levels, which would—you guessed it—lower morale.
There are times when staff cuts would be the right decision to make, but these always have to be a last resort, or done only after much careful consideration. You’re not just affecting your company—you’re affecting the livelihood of your employees.
In your quest to cut down on expenses, you might get bogged down in excessively minor details and lose sight of the big picture. Yes, you might save a hundred dollars a month by switching to a cheaper brand of copier paper, but is that an effective use of your time? How much effort did you expend nickel-and-diming your way through your inventory, when you could’ve spent that time finding new clients?
Bad Customer Service
All of these cutbacks and retrenchments are eventually going to trickle down to the customers, and not in a “beneficial savings” kind of way. Orders will take longer to fulfill. Products will be of lesser quality. Customer support will take longer. The key to your success, your customers, will no longer be interested in dealing with you. In trying to be frugal, you’ve actually alienated the very people you were counting on to bail you out of this mess.
Businesses often forget that it’s not the cutbacks that matter in the long run; it’s the customers. If the customers are happy, they’ll be willing to pour money into your business so that you don’t have to worry about cutbacks.
Do you know a business that’s at risk of being too frugal? Share your experiences in the comments below!