Avoid these 5 mistakes when reducing company costs

Reading Time: 5 minutes

Businesses, big or small, often run into rough patches. These tough times can come from anywhere – a dip in the economy, new competitors shaking up the market, or even significant changes within the company itself. When financial challenges arise, the first thing many leaders think about is cutting costs. It makes sense on paper: spend less, save more. However, it is not always so straightforward. Reducing expenses without a solid plan can lead to more problems than solutions. This blog dives into the five common mistakes leaders make when trying to cut costs. By steering clear of these pitfalls, leaders can make more intelligent choices that not only keep their business afloat during hard times but also provide success in the long run.

Setting unrealistic targets

Too many leaders make significant cuts to reach unrealistic goals when searching for places to reduce company costs. It is tempting to make up for lost revenue by setting aggressive targets. However, this often creates more disaster than success. If you strip departments of the funds they need, you might impact their operations and productivity, making it difficult for them to perform.

Instead of focusing on cost cuts, you must focus on optimisation. Set realistic goals, even if they are not the best-case scenario. Focus on achievable goals that will still allow your business to thrive.
So, how do you mark what is realistic and build your plan around that?

Analyse the current state of your operations. Take note of your spending and look for opportunities to cut costs without compromising operations. You might have to negotiate in some areas if there is already very little to remove.

Consider how reducing your costs might impact your customers. You must be careful that any cost cuts do not adversely affect the products and services delivered to your customers. Find ways to optimise costs so you save while maintaining your service levels.

Look at past responses to cost reductions and avoid making cuts in areas that suffered greatly. Be mindful of responses from your team. If many people responded negatively to a particular cut, you need to optimise rather than cut costs there.

Considering these factors, you can create realistic cost-reduction goals and avoid setting unrealistic targets.

Avoid these 5 mistakes when reducing company costs

Making harmful cuts to the business

When you set unrealistic targets, you could cause more harm than good to the business.

Budget cuts to talent can harm your business. People want to work for companies where they have the opportunity to earn a raise. At the very least, they want to work with the assurance that they have a stable income and hours. If you need to cut costs, you must be careful about cutting your investments in talent. You could end up increasing churn or causing a mindset where people do not feel confident in the business. Moreover, taking away too much budget from your talent sourcing initiatives may make it more difficult for the organisation to account for churn.

Cyber security is another area where reducing funds can put your business at great risk. A ransomware attack or data breach is enough to damage your reputation, let alone the cost of recovering your data and losing customers. You could see adverse and costly consequences if you cut IT costs without accounting for your cyber security initiatives.

Avoid these 5 mistakes when reducing company costs

Stifling much-needed innovation

Too often, leaders make the mistake of cutting costs to meet short-term needs rather than planning to meet long-term goals.

You need to protect investments in innovation. You may have to rethink budget allocations across different departments and functions. When you stifle innovation, you stifle the business’ ability to grow and gain an advantage over your competitors.

Innovation is essential for organisational growth. Therefore, you must encourage innovation within the organisation by balancing cost cuts with providing resources and support to those working on new projects. Doing so ensures your organisation continues to grow and thrive.

Avoid these 5 mistakes when reducing company costs

Creating too much complexity

Complexity is the number of different elements that interact with each other. The more elements there are, the more complex your organisation. Many factors can contribute to complexity, such as the number of employees, the number of departments, and the company’s size. Your organisation’s structure and processes can also introduce complexity.

Complexity is often what causes your costs to rise in the first place. When you make things too complex, you slow down operations.

Many times, when leaders try to save money, they make things more complicated instead of simpler, leading to more problems and increasing costs in the long run. Therefore, keeping things as simple as possible when trimming your budget is important.

Complexity might save you some direct costs in the long run, but it can also generate indirect costs, such as too much time spent on decision-making, gaining approvals or simply moving a project onto the next step.

Avoid these 5 mistakes when reducing company costs

Failing to prioritise digital transformation

Business leaders who make cuts to their budgets without considering digital transformation may find themselves at a disadvantage in the years to come.

Digital transformation leverages technology to create new or improved business processes, products, and services. It integrates digital technology into all areas of an organisation to radically improve performance. Digital transformation is essential to business today. Without it, you will struggle to enhance customer and employee experiences, efficiency, and your bottom line.

When making budget cuts, you should look for areas where you can save money without compromising on digital transformation.

Avoid these 5 mistakes when reducing company costs


The key to effective cost management lies in avoiding these five common traps: setting unrealistic targets, making harmful cuts, stifling innovation, adding unnecessary complexity, and overlooking digital transformation. It’s about wise spending, not just less spending. By sidestepping these pitfalls, your company can navigate challenging times more smoothly and emerge stronger. Strategic cost-cutting is a thoughtful process that safeguards your business’s future success and growth.

Resonate can guide you in optimising company costs

At Resonate, we understand the intricacies of cost optimisation and its challenges. Whether reassessing your current cost-cutting strategies or embarking on new transformation projects, our team can guide your business through every step. With a comprehensive suite of strategic consulting services, including business, corporate, and go-to-market strategies, we can help you make informed decisions that drive success. If you want to refine your approach to cost management or navigate complex strategic transformations, we invite you to connect with us. Our extensive experience in supporting leaders through change and transformation projects makes us a trusted partner in your journey towards sustainable growth. Visit our Strategy Services page for more information.

Related Blogs

Three essential traits of a Transformative Leader
Six talent strategies to help your organisation thrive
Enhancing the success of your business strategies through a strategic advisory board

RK is the CEO & Co-Founder of Resonate.

RK is Resonate’s chief strategist, thought leader, and IT industry veteran. Our clients depend on RK to advise on their business strategy, channel strategy, and sales strategy. 

Let's Connect