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10 Smart Cost-Cutting Strategies for Small Businesses

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Royale Scuderi | American Express Business Class Freelance Contributor
Summary

These strategies could help you reduce expenses, modernize processes, optimize resources, and more. 

      This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

      Whether in times of rising prices and uncertainty or during economic booms, businesses of all sizes could benefit from implementing cost-cutting strategies. Even small expense reductions may significantly impact a company’s bottom line over time, especially for small businesses operating on tight margins. Smart cost-cutting measures don’t have to sacrifice efficiency; instead, they might free up cash for essential operations or growth. These strategies could range from minimizing supply waste to bundling insurance policies, helping businesses to manage challenging times and make the most out of the good ones. 

      But to implement these strategies effectively, you might want to start by assessing your business practices. Identify strengths, as well as areas where cuts could be made without reducing quality or creating opportunities for competitors to pull ahead. These 10 smart cost-cutting strategies may help you save money, boost long-term profitability, and thrive in your industry. 

      How to Help Reduce Costs in Business 

      To help effectively reduce business costs, consider identifying the specific areas with the greatest savings potential. For example, a restaurant can reduce its labor costs by tracking demand to optimize staff schedules. Meanwhile, a marketing company that travels to clients around the country might keep on top of employee spending with employee credit cards. Here are some additional cost-cutting tips to consider.  

      1. Reduce supply expenses. 

      By taking the time to shop around and find the best deals on supplies –including raw materials and office supplies – businesses could reduce their expenses without sacrificing efficiency, as even small cost reductions add up over time. One method is to look beyond traditional, small-scale vendors by exploring more affordable options, such as purchasing bulk orders from large discount suppliers. If current vendors are too reliable or convenient to leave behind, you may be able to negotiate lower prices that match or beat those of other suppliers. Another strategy is to carefully monitor inventory levels. You may find ways to phase out some lesser-used items or reduce wasteful usage of other supplies, without impacting product quality or employee morale. 

      2. Cut production costs. 

      By optimizing production processes, businesses could streamline their workflows to help increase efficiency while cutting costs. You could start by looking for opportunities to reduce, repurpose, or sell leftover materials, such as cardboard, paper, or metal, instead of recycling or disposing of them. Then, assess workflows to find inefficiencies and bottlenecks that could be mitigated or eliminated. For example, a different factory floor rearrangement may minimize back and forth transportation during assembly to speed up production and increase output without additional costs or labor requirements. 

      Narrowing business focus helps companies concentrate on what they do best. The goal is to reduce or eliminate inefficient tertiary operations that increase overhead costs without high returns.  

      After making any changes, regularly track and measure their impact to catch any unforeseen complications and to inform strategic adjustments as costs change and operations evolve.  

      3. Optimize insurance and operational costs. 

      Cost-cutting strategies for companies might include regularly evaluating ongoing operational costs, including insurance policies, to avoid paying for unnecessary or duplicate services. To find the best insurance rates, consider comparing offers from different providers and switching to a competitor’s lower rate. Or, you might try negotiating with current insurers to match, beat, or supplement policies with fringe benefits, such as more convenient payment schedules. Another option is to look at bundling policies and accounts to possibly get a multi-line discount. This could cut costs while easing the administrative burden of managing and paying multiple accounts.  

      Similarly, businesses may want to regularly assess their other recurring operational costs, including subscriptions, software licenses, and service contracts, as some may no longer justify their monthly costs as the business’s needs evolve. 

      4. Modernize your marketing efforts. 

      By modernizing marketing efforts, businesses may be able to reach and engage with their target audience without exclusively relying on the high-cost marketing strategies of the past, such as paid TV, radio, and print advertisements. Today, with a robust email list, social media presence, and customer referral program, businesses could help drive sales with more personalized and cost-effective marketing that showcases their unique story and style. Engaging, informative content and consistent customer interaction could help enable companies to build a loyal community of supporters. These supporters may be more likely to become repeat customers and recommend the business to friends and family, helping to lead to organic growth without significantly increasing advertising budgets. 

      5. Use efficient time management strategies. 

      Smart time management could minimize distractions, improve employee time tracking, and set clear expectations for tasks. In turn, this could help reduce wasted time, resources, and overhead. You might try scheduling meetings during predetermined time blocks to minimize disruptions to employees' schedules and maximize their productivity. 

      Many modern businesses, especially those with remote or hybrid employees, use digital tools to track employee productivity, organize work queues, and host meetings. These tools may help employees effectively use their time to complete work and meet the business's standards. 

      6. Boost productivity with automated workflow tools. 

      Businesses may save time and money by embracing automation technology. Automated workflow tools could handle the tedious, repetitive tasks that can slow down and burn out employees, such as invoicing, payment processing, data entry, and customer support. By strategically implementing automation throughout their companies, businesses could reduce labor and material costs, while also minimizing errors, increasing output, and improving cash flow. For instance, if a customer service chatbot handles inquiries 24/7, staff might have the time to focus on more complex issues and strategic initiatives during business hour – while addressing customers’ needs sooner. 

      7. Narrow your focus. 

      Narrowing business focus can help companies concentrate on what they do best. The goal is to reduce or eliminate inefficient tertiary operations that increase overhead costs without high returns. For example, a music store may scale back private lesson offerings to focus on selling the instruments they have expertise in. This could reduce specialty labor costs, enhance customer service, and create a more cohesive brand identity. In other words, by prioritizing their most profitable and in-demand areas, businesses could focus on the necessary expertise and capacity to deliver high-quality results consistently, rather than risk reputational harm from subpar offerings and customer experiences. 

      However, a business might still capitalize on opportunities outside of its core focus by subcontracting the work to trusted partners. This could allow the business to maintain a tangential product or service while potentially growing revenue without the full expense of expanding internal operations. 

      8. Make the most of your space. 

      As a business’s staff and operation evolve over time, its physical space and office footprint may need to adapt. But new leases and bigger locations may prove costly. To make the most of existing space, businesses might consider combining different functions or departments. For example, consider consolidating break rooms or meeting rooms into one multi-use area. This not only helps reduce square footage but may also lower maintenance and utility costs associated with multiple rooms. 

      Additionally, regularly evaluating current layouts could help identify wasted space, such as empty closets, underutilized meeting rooms, and vacant desks. Once identified, unused space can be repurposed or even leased to another business or individual, potentially generating additional revenue and offsetting property expenses. 

      9. Maximize your employees’ skills. 

      To help effectively utilize your employees’ skills, you might regularly assess their strengths and ensure they are working in roles that align with their abilities and experiences. Through targeted and interdepartmental training, as well as in-house advancement opportunities, businesses could build a more skilled and flexible labor force without additional staff, minimizing the costs and productivity losses associated with recruiting and onboarding new hires. For instance, an employee with strong analytical skills might be moved from a customer service role to a data analysis position, helping to increase their job satisfaction and productivity. 

      10. Hire an expert in cost-cutting. 

      If you’re struggling with how to reduce costs in business, an outside expert may provide a more objective look at your expenses. These specialists use their extensive industry knowledge to provide useful insights into cost-cutting techniques. They might start by conducting a thorough analysis of a business’s financials and operations to identify cost-saving opportunities, often including the other nine categories outlined in this article. They may also provide ongoing support by creating, implementing, and monitoring comprehensive cost reduction plans that align with the business’s goals and budget. The goal is to support ongoing and sustainable long-term savings that may outweigh the initial cost of bringing in an external specialist. 

      From Cost-Cutting Strategies to Understanding Overhead 

      Implementing cost-cutting strategies could be an essential part of building and maintaining a competitive business. By reducing expenses, you may offset rising costs and free up resources to invest in growth opportunities that drive your business forward. But first, you might want to consider whether you have a deep understanding of your company’s overhead costs. Read more about the different types of overhead costs and how they impact your business here. 

      Photo: Getty Images

      The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.

      Published: June 09, 2023

      Updated: September 25, 2025

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