No one enjoys it, but sometimes, the path to profitability lies in reducing costs by cutting out non-essential expenses.

Here, we share some of the tried-and-true tactics that have been used to reduce costs in many businesses - big and small.

Know your baseline

The most important step is to have a clear view of what your costs truly are, and how these costs align to value-driving activities. At a bare minimum, you should have an overview of total expenses and revenues, which you can use to calculate basic margins. What is your profit margin? What percent of your staff are in supporting roles?

You can compare these margins describing your business to benchmarks from other businesses like yours (or, by using our Benchmarking offering). Where you out-perform the benchmark, your business is excelling. The areas where you under-perform the benchmark should raise red flags - these are the areas where you will find the greatest savings.

Understand profitability dynamics across segments to focus on winning business

Start with the core of your business: what brings in revenue? Which business area do you truly shine over your competitors? What customer segments or products exist? If you have meaningful categories, divide your revenue among them as best as you can.

Once you've laid out the value-generating landscape, assign your expenses to each meaningful category. For overhead expenses that don't clearly fall in a single category, divide them the best you can. Some (like finance staff spend) may be driven by the number of customers or orders per segment. Others (like office space) may be driven by the number of employees per team. Take the best guess you can, and move on.

At the end, you should have a clear mapping of total costs and revenues per segment. You can use this to calculate profitability per business segment. Which segments are most profitable? Which are least profitable?

Use this information to dig deeper and understand why some segments underperform. You may find opportunities to increase efficiency, but you may also uncover unprofitable segments that are not worth your business's time and money. An example of a potentially unprofitable segment is one with customers who default on payments, pay late, and/or are extremely demanding in comparison to other segments.

Analysis can help you focus your effort where it will have the most impact. However, there are also some basic techniques that usually offer cost savings:

Consolidate expenses

In big companies, there are often duplicative purchases of similar software used in stovepipes across the business. In a smaller business, this is much less likely to happen. However, there is still room to consolidate expenses, especially discretionary spend like parties, events, and office "swag."

While these non-essential expenses could be eliminated entirely, some are nice to keep in a smaller form. Just be realistic about what the real goal of the spend is, and honest about whether that goal can be met with a pared down approach. For example, instead of throwing a party for every employee's individual birthday, perhaps celebrate on a monthly or quarterly basis instead.

Optimize processes

Every process should be directly linked to a value-creating part of the business, and the effort should be proportional to the value created. For example, a proposal to a big client is well worth double and triple checking. Agonizing over the phrasing in an internal e-mail? Probably not.

Identify the processes that are essential for creating value, and focus strongly on them. For the non-core processes, consider automation, outsourcing, and re-thinking service levels as a way to control costs. We have a systems tool that can help.

You can also explore more radical changes to your processes, such as pooling demand or re-sequencing steps. For example, if your finance team spends a disproportionate amount of time chasing down late payments on small orders that have already been delivered (resulting in more bad debt, cost of the finance team's time), consider requiring these types of customers to pre-pay before delivery. This would reduce bad debt and your financial team's overhead.

Take a hard look at the entire budget - including miscellaneous spend

Start with the core business value drivers to create an ideal target budget that is untouched by the reality of your current operations. Question and debate the inclusion of every single line item, making sure that there isn't a more creative, better way to get to the same result.

For example, taking a different approach to marketing could be more profitable for your business. Many companies spend a lot on advertisements to entice new customers, when focusing on retaining and cultivating the customers they already have would be cheaper and bring in more revenue. Others overly focus on paid advertising, forgetting about the less expensive - but more effective - forms of bringing in business like networking, customer referrals, or simple social media use.

Don't let your business become trapped by the status quo - challenge your spend and budget constantly.

You don't need to do it alone

There are many experienced cost-cutting consultants - including our own business coaches - who can help you get started, challenge your old ways-of-working, and help your business reach the next level.