60 Seconds on Business
Business survival depends on getting your costs in line

By Dr. Drake Beil
President, Solutions Inc.

When times are tight, how can you cut your costs effectively?

Because labor is usually the biggest-line item, most managers cut people first. Cutting 5 percent (or any percent) of your people across the board is a terrible way to manage because treating different departments equally is clearly unequal.

Some of your products or services probably deserve more of your resources to be successful, especially in these critical times. Focus your people, your marketing and your advertising dollars on your highest-margin and highest-volume items because you can't afford to take chances with your core money-makers.

You must deal with the least-profitable products immediately, because they're killing your business. Can you sell off the remaining inventory and generate extra cash? Can you raise prices 10 percent? If neither works, think about killing them off.

Here are two more ways to trim expenses:

• Cut salaries 20 to 30 percent, but put everyone on a bonus plan that rewards upside performance and profits even better. Give everyone a stake in the performance of the company and watch the buy-in increase along with their efforts.

• Put together a brainstorming session with a cross-section of employees and come up with new cost reductions or savings plans. Then, give the employees a piece of the savings. Make sure you can measure what you save, and give them 10 to 20 percent of the action.

Reach Dr. Drake Beil at drake@60secondsonbusiness.