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4 Cost Saving Tips When Dealing With A Drop In Revenue

May 1, 2020

COVID-19 has forced many companies to make tough decisions regarding the longevity of their business itself.

Whether running with a heavy payroll expense or an overabundance of software subscriptions that are in mid-contract form, agency owners are looking for cost-saving ways to help navigate the stormy waters in which we live today.

Cutting costs is something that is often never spoken about when times are good and yet is always at the front of the priority list when revenue drops.

Many owners will request a copy of the income statement and scan for the highest ticket items to cut right off the bat.

The truth is that during a crisis the solution will not come from just one place but be the sum of many moving parts.

When Do I Know Its Time To Cut Costs?

Before you start slashing hours and prices, you need to first figure out if this is necessary step for your business. Though it may seem obvious, not many people know when they should start budgeting.

Businesses and agency owners should start considering cost cutting techniques when they begin to see a decrease in revenue.

Even if you were to maintain the same costs of doing business, the reduction in revenue means less profit for your agency and over time, the pricey over head will begin to eat away at your savings.

The best thing you can do for your agency right now is to start to take inventory of your business and see if there are any costs you can begin cutting early in order to save more down the road.

Use these tips below to help you navigate the critical job of cutting costs and keeping your business afloat.

Steps To Cost Cutting

1. Know your business

Hopefully, this is something that has been happening during normal business operations. Regardless, decision-makers must understand all facets of the cost structure supporting operations.

The worst step a decision-maker can make is to cut a cost that can be a revenue source simply because it’s more expensive than the next item.

Knowing your business inside and out will allow you to make the correct decisions when trimming the excess from your company.

2. Project the next six months

After understanding the cost structure you must then take a look at what is the bare minimum you will need for the next six months of “on the books” revenue.

This will look very different from company to company. Some companies are not contract-based and rely on day to day sales. In this instance, a projection must be made to estimate the next 6 month period.

For those companies that rely on contracts, simply take “on the books” value for the next six months of operations.

Outside of six months, the clarity of the data begins to diminish and accuracy is key during times of uncertainty.

When calculating the minimums you must only look at what payroll, software subscriptions, inventory, etc. is needed to deliver on your six-month projection. This is not the place to skimp or cut corners! After all, this is revenue on the books.

The last thing you need is to perform sub-par work and have to worry about credits to the consumer to make good. Perform at your best and people will remember you when things begin to turn for the better!

3. Compile the excess

Once you have what is needed to perform the 6 months of booked revenue it’s time to organize the excess! Like in a home, businesses have luxury items that we can honestly say are not 100% needed to continue operations.

When looking at your expenses, you should divide them into 4 categories: Must Have, Nice To Have, Luxury, and Payroll.

Must Have

The must-haves are not required for a 6 months projected revenue but instead are things you need to maintain a business such as utilities, rent, etc.

Nice To Have

The Nice To Have are items that are exactly that, nice to have. You can do business without them but it would make life a little more difficult.


Luxury items are those items that are more perks then anything. These items don’t tend to add up to much (depending on the business) but will help save money right away.


Finally, there is payroll. Excluding those salaries that are needed for the 6-month projections, organizing your team into two different buckets will help you make those tough decisions.

In every company, there are those employees who are directly tied to revenue. These people are your direct salaries (Cost of Goods sold salaries).

They can range from your analysts to the salesman but either way the job they perform is what brings in revenue.

Then you have indirect salaries. This team handles the business operations and ranges from your accounting team to customer support teams (in some cases, the customer support team can be tied to revenue). This is why Step 1 is so important!

4. Cut Time

Here you are. At the moment where tough decisions are to be made and you need to eliminate wasted costs. When you look at the Four buckets in excess there are some obvious conclusions.

  • You can easily cut the luxury items. These items will be there when things progress to normality but tough times call for trimming the fat.

  • Analyze your “nice to have” bucket. Automations are not a place to cut right now. The goal is to produce more output with less expense. If automations are in place, they may be worth keeping for the client to get their expected deliverables. This is the perfect time to begin vetting those more affordable options that have emerged since you build the process. One subscription might be a bigger name but during the recent bull market run, many companies emerged that should now be vetted! The goal is to cut costs not eliminate the actual process of the business.

  • I want to spend a few moments talking about payroll because this is an area that decision-makers jump to first since most of the time it is the highest $$$$.

For every drop in revenue, you can always find a reason why. That reason could be as simple as sales are not coming in, or it could be a global pandemic like we are currently in.

Either way before cutting payroll you must look at the options! In times of crisis like these, the federal government tends to offer programs to help ease the hit payroll as on a company.

For instance, the Federal Government will offer payroll tax credits, grants, or in the case of COVID-19, develop an 800 + page CARES ACT.

This allows companies to move their employees to part-time and have the employee collect unemployment to help balance the reduction of income.

Other options include the workshare program. Not all states are enrolled in the program. Check here to see if your state is a participant.

Under normal times, the program will not make them whole (in regards to salary) but will allow companies to keep employees on staff and maintain benefits for easy recall to full-time status.

Many of these programs come with stipulations regarding layoffs but before letting go of an employee that you have invested time and funds in, look into your federal programs first. Be prepared that any employee you let go you may not be able to get back.

The Process

This process should be done on a regular basis and more often when times get tough.

Running this cost savings process on a rolling monthly basis will allow you to monitor your costs and keep the company running lean during those tough times.

By keeping data up to date you will be able to adjust on the fly when decisions need to be made and when business ramps up the proper decision can be made based on the most up to date data.

We must always remember what the end goal is: Grow the revenue back to normal levels. Whenever going through this process you must always remember that goal.

Stripping the company too bare will prohibit that growth. Sacrifices made today can propel your company to higher goals later on.

Even when times are not as tough, running this process is still an important factor to ensure profits are not being wasted.

It is recommended that you go through this cost savings process at least twice a year to help you run an efficient business that allows you to put otherwise wasted dollars toward growing your company!

When making these tough decisions the reality of the situation is that there is no one size fits all solution.

During times of crisis, there is no correct way of doing things especially when information is changing by what seems the day.

In order to help mitigate the stress, use the cost-saving tips mentioned above to gain better clarity. If you want to know how to increase your agency’s ROI, we’ve got you covered too!

Be flexible, be adaptable, stay strong, and always remember, this too shall pass!









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