How to Cut Costs (Without Letting Go of Your Employees)

Cutting costs doesn't have to mean laying off employees. As our latest article shows, it's possible to cut costs drastically while still retaining your people.

These are challenging, unprecedented times.

And like most in such times, your number one priority is the same:

Survive.

As an agency, your people are your biggest assets. They’re also your biggest expense. If survival is at stake, letting go of some people is a rather obvious choice.

But it doesn’t have to be that way. You can cut costs without firing anyone. In fact, I’d even venture that if you have the right processes and practices, you might need to hire more people to meet your growing workload.

How do you go about it?

I’ll share some answers below.

Assess Your Real Expenses

Of course, you know your annual revenue and expenses like the back of your hand.

But do you really know how these expenses break down? And by that, I mean down to the very granular level?

While most agencies keep track of their core numbers, they’re often sparse on the details. They might know that they spent $50,000 on employee training last year, but they likely won’t be able to tell you how much they spent on each training program.

In 2020, it’s time to change that.

Start your cost-cutting exercise by getting a true picture of your expenses. Drill down to the very finest details. Get an accurate picture of exactly how much you spend on everything, grouped under different expense heads.

Ideally, you should do a thorough audit of your spending. But I understand that’s too time consuming - not the best use of productive time right now. In that case, feel free to ignore smaller expenses (“smaller” being a relative term of course).

Since we’re also focused on cutting costs without firing employees, also feel free to ignore fixed employee-related costs (such as salaries).

Instead, try to get a feel for how the expenses stack up. It’s more important to get broad data than exact figures. Your goal is to identify major non-personnel expenses and then find a way to remove or replace them with something cheaper.

A basic spreadsheet like this should be enough to help you get started:

How granular you want to get will depend on how aggressively you want to cut expenses. If you’re comfortably placed, sure, keep the break room stocked with gourmet coffee. But if you see a black cloud in your financial future, feel free to include all minor expenses as well (and switch to cheaper coffee).

Of course, if you use a system like Workamajig, you will already have ready access to most of your financial data. Since Workamajig clubs accounting and project management capabilities, you know exactly how much you’re spending per employee and per project.

Workamajig bring your project management and accounting tools under the same dashboard, making it easy to create invoices and get insight about your finances.

Justify Each Expense

Some expenses are obvious - salaries have to be paid and computers have to be bought.

But a lot of expenses aren’t completely necessary. You can cut costs substantially by switching to a cheaper variant or cutting the expense altogether.

Step two, thus, is to go through all the expenses you discovered above. For each expense, identify:

• Why you need it
• Cheaper alternatives, if any

You’ll often find that expenses you might have considered as “necessary” are anything but. You can reliably switch to a cheaper email marketing provider or move the annual company retreat to a more affordable location without a drastic drop in performance or morale.

For the sake of easy organization, collect all this information in the same spreadsheet.

Categorize and Cut Costs

Analyzing each expense is the first step in figuring out what’s dispensable, what’s not.

After the above exercise, the next step is to categorize each expense as per the MoSCo framework.

As per this framework:

• Essential costs are categorized as Must Have
• Important but not necessary expenses are categorized as Should Have
• Useful but not important expenses come under Could Have category

For instance, in an agency, you might have the following:

• Computers are a must have
• Physical office space is a should have - especially at times like these
• An annual training program is a could have

Go through each of the expenses you analyzed earlier and categorize them. Expenses that fall in the final category - Could Have - should be the first on the chopping block.

Analyze every expense in the ‘Should Have’ category. Ask yourself: How important is this expense to your business in the short, medium and long term? Can you do without it for a while? How much will it impact employee performance, morale, and ability to serve clients?

Anything that doesn’t fit your short and medium-term goals should be cut. Your target should be to have only Must Have expenses, with a smattering of important Should Have expenses.

A few pointers to keep in mind here:

1. Cut down on office expenses

Renting office space is one of the biggest fixed costs for most agencies. Besides the rental cost, there are also a number of ancillary expenses related to running an office - electricity, heating, even printing paper and cleaning supplies.

Cutting down on office expenses should be your number one priority. Thankfully, this is an easy cut in the current climate. Most of your people would have already been used to working remotely through the lockdown. Plus, remote workers tend to be happier than their in-office counterparts.

If you can’t go fully remote, consider downsizing to a smaller office. Also, explore more flexible options such as coworking spaces. For a small number of employees - such as in a satellite office - a coworking space can be substantially cheaper than a traditional office.

For under 12 employees, coworking spaces are more cost-effective than traditional offices (Image source)

2. Be aware of the impact on morale and productivity

You know the cost of, say, a weekend training program, but do you truly know its value?

This is one of the toughest challenges when cutting expenses that impact your employees’ morale, productivity, or skill development. A $1,000 training program might sound like a lot, but if it enables you to charge $125/hour instead of $100, it is well worth the investment.

Similarly, expenses that improve employee morale and productivity - a good coffee machine, better software tools, new computers, etc. - should be a low priority on your chopping list. The medium-term impact of cutting them can be disastrous in a people-focused industry like ours.

3. Consider your reputation

The agency world is small. Word travels around. If you skimp on the perks and switch to low quality tools, people will come to know.

And that will have a big impact on your ability to attract top talent in the future.

At a time when your agency’s growth depends on offering in-demand high tech and creative services, you must safeguard your employer brand at all costs.

Take employees into confidence about your cuts. Ask them what they absolutely need to be at their best, and what they can do without. They understand that these are tough times and will be okay with most cuts.

The more transparent you are with your cost-cutting, the more your employer brand will come out of it unscathed.

Consolidate and Streamline

Cutting unnecessary expenses is a good start to safeguarding your agency (and its employees).

But it can only take you so far.

To be truly effective, you have to consolidate and streamline how you work.

Consolidate Tools and Processes

Consolidation is the process of bringing together different parts of the business - IT, software, data, knowledge, etc. - under one roof. This has several benefits, such as:

• Faster decision making since all data is readily available
• Better skill development since all institutional knowledge is accessible in a single space
• Reduced spending on tools and the personnel necessary for managing them

Think of a situation where you have five satellite offices, each with their own best practices and learned knowledge. With disparate systems, you can’t readily tap into this institutional knowledge. A designer in Office A might have figured out how to save hours on a task, but if this information isn’t easily shared, designers in Office B and C won’t be able to learn from it.

The result is wasted time, stagnant learning, and foggy decision making.

How expansive this consolidation exercise is will depend on how your agency is currently structured. Digital-first agencies have a leg up in this regard since they usually already use cloud-based distributed systems. If you have older legacy systems, you have your work cut out for you.

A few pointers to keep in mind:

• Consider indirect costs: An all-in-one tool that does 90% of the work of a dozen disparate tools is usually cheaper. More importantly, it also has lower indirect costs in the form of lower maintenance and managerial overhead. Keep this in mind when you go through your consolidation exercise.
• Choose cloud-based systems: Even if you don’t go fully remote, you have to be ready for a future where not all your employees can be (or want to be) in the office at the same time. On-premise systems are a disaster in this scenario. Cloud-based tools, on the other hand, are easy to use from anywhere, anytime.

Some of your biggest wins in terms of efficiency and performance will come from bringing all data and institutional knowledge under the same roof. All-in-one systems where all operational data - projects, financial, sales, etc. - is consolidated will make decision-making much easier.

All-in-one software gives you a great deal of insight about your agency’s operations at a glance

Streamline and Simplify

Picture this scenario:

A client just emailed you to request an urgent change on a recent deliverable. You ask the project lead to jump on it immediately, who, in turn, delegates a new designer to deal with it pronto.

Here’s where the trouble starts. The original file was shared over email. Two later revisions were shared over Skype. Communication about a key change was handled over Slack.

Where does the new designer start the revision process? What documents does she work with?

It might sound comically exaggerated but this is something many agencies have to deal with every day. They have dozens of different tools and communication channels with little to no integration between them.

Without a “single source of truth”, countless hours get wasted in simply discovering the right information.

Streamlining your operations can save you all these wasted hours. And in an industry like hours, time literally means money.

While consolidation by itself will give you big streamlining wins, you have to go beyond that. Start thinking in terms of hours, not dollar costs. Question every time you call a meeting or dawdle on decision making. Ask yourself: Is this really the most efficient use of the agency’s time?

Remember: every hour spent in an unnecessary meeting is an hour you can’t bill clients for. Inefficient processes and practices have a marked impact on your bottom line.

Here are some pointers to keep in mind when you’re streamlining your processes:

• Create project “playbooks” for handling specific project-types. These should include templates, fixed to-do lists, best practices, etc. for handling different types of projects. For instance, for SEO projects, you might have a checklist of tasks and templates to kickstart the audit process.
• Question existing practices: You might be used to certain practices that don’t really lead to any meaningful insight. Going into the meeting room to hash out an issue might not be the best use of your time. Identify such practices and ask yourself if you get any real utility from them. If not, consider discarding them.
• Automate as much as possible: Sending reminders manually, creating blank documents/templates for a new project - all this effort can be easily automated. Identify everything you do as a routine. You’ll find that a lot of it can be automated easily.

Building more efficient processes has the added benefit of making you leaner as a business. If the right information is available to decision makers at all times, you save a great deal of time in back-and-forth.

Moreover, this creates a stronger incentive for faster decision making - you can’t hide behind an endless stream of emails anymore. This leaner approach can drastically change your business and leave you much better prepared for the tough times ahead.

Look to the Future

cost-cutting can be hard. It’s tough letting go of established processes and practices.

But when done right, cost-cutting isn’t an exercise in reduction. Rather, it’s an exercise in optimization - shedding off excess baggage before the launch. Always approach it with an eye on the future. You’re not just cutting costs to save money; you’re doing it to divert resources for future growth.

Do it right and you can cut your expenses drastically - without losing productivity or letting go of your employees.

If you really want to cut costs, consider switching to an all-in-one agency management system. You’ll have consolidated data, streamlined processes, and always-on, cloud-based access.

Just tap the link below to get a free demo and see how Workamajig can change your agency: