5 cost control strategies for success in 2023

It’s an age-old question: how can a business implement cost control strategies without compromising revenue-generating customer experiences?

Cost control is an essential responsibility of the CFO. While the related efforts aim to achieve long-term sustainability for a business, they also present challenges to business teams. 

When department leaders are asked to reduce their spending while maintaining (or increasing) their effectiveness, CFOs are bound to face some resistance. 

But ensuring long-term viability is not only the CFO’s responsibility: it’s also an obligation that must be fulfilled across the organization, from the strategy setters and budget controllers to frontline workers and customer service teams. 

The best cost control strategies will leverage company culture as a tool for adoption. Make it effortless for all employees to spend purposefully and in alignment with the company’s best interests. CFOs can do this by implementing guardrails and incentivizing the desired behavior. 

Employees who feel valued are more likely to do right by their organization. If you treat employees as stakeholders in the business, your bottom line becomes theirs. 

Enacting firm cost controls doesn’t necessarily have to translate to panic among your department and budget managers. Let’s unpack how to strike the right balance between cost control and spending freedom, top-down versus bottom-up accountability, and how it all comes together in a scalable system for growing businesses. 

What is cost control? A modern definition for CFOs

Simply put, cost control is the practice of analyzing business expenses for necessity and impact. Then, it’s the process of implementing your findings. 

The outcomes of a cost control analysis could result in a unilateral decision to pull back on spending. It could also make a case for maintaining present spending levels or reallocating funds to greater need and impact areas. 

Hear me out on this one. 

If conducted fairly and objectively, the findings from a cost control exercise may present a justification for increased expenditures in some areas of the business. 

It’s all about context. 

I point this out to address some of the outdated perspectives on cost control — and present alternatives embraced by today’s boldest CFOs. 

Ultimately, what you choose to do with your findings will depend on your reasons for conducting the cost control exercise in the first place. 

Consider a business that is quickly running out of cash. The c-suite isn’t expecting a cash injection from VC partners anytime soon, and next quarter’s revenue is projected to be flat. Unless you’re sitting on a multimillion-dollar idea requiring a major upfront investment, there would be next to zero reasons to justify an increase in spending. 

Now, consider a growing business attempting, but struggling, to break into a new vertical. In response to early warning signs that 5%-10% of the company’s recurring revenue sources are under threat, the CFO has asked all departments to cut budgets by 5%-10%. When making this choice, you would have to think about the overall financial forecast, the long-term business goals, the opportunity costs, and the risks to your business’s solvency. 

While CFOs are held accountable for the outcomes of cost control – which are largely portrayed in black-and-white terms — the best CFOs are comfortable navigating gray areas such as these with grace and precision.

Why is cost control important?

Today’s CFO is grappling with what cost control means to their business in the current economic climate. 

Amid the market turbulence that has persisted since the onset of the COVID-19 pandemic, shareholders have applied increased pressure on CEOs and CFOs to demonstrate airtight fiscal discipline. 

The result? Drastic cost-cutting measures have translated to the layoffs of nearly 155,000 tech workers across 1,026 companies in 2022. At the time of publication, 37,526 workers had already received pink slips in 2023. 

You can’t help but wonder what the long-term impact will be. As inflation slows its pace, it won’t be long before these qualified, presently unemployed candidates are scooped up by the businesses that managed to maintain a proactive stance against a volatile market. 

These organizations will be well-positioned to capture top talent and market share while their legacy competitors focus on rebuilding their culture and systems post-layoffs. 

What makes cost control so important? It will eventually impact the bottom line — how soon depends on how drastically you act — the sum of which can result in a net positive or a net negative.

Redline budgets too aggressively, and your customer experience may suffer for it, which could lead to a decline in revenue. 

But if you fail to place sufficient guardrails, particularly in times of overspending, it can threaten your capacity to remain in business: a threat that feels more present today than in years past. 

Factors influencing cost control 

There’s more than one way to look at the various factors influencing cost control. I suggest categorizing them into two buckets: proactive and reactive measures, each counting on different conditions that make them relevant. 

Proactive strategies

No CFO wants to find themselves on their heels. A proactive stance is a stronger position to be in, not only for what it embraces (careful, informed resource planning) but also for what it eschews (preventable, unnecessary spending).

Operating proactively also allows teams and employees to be more closely involved with decision-making about how their workplace functions. Allowing the space for your staff to self-determine and advocate for necessary resources creates a culture of bottom-up accountability and empowerment. 

Proactive cost control strategies consider the complete landscape, making predictions for required spending well into the future. The resulting spending plans are then based on actual and predicted funds availability, staff input for spending needs, and broader market conditions. 

Examples of proactive cost control strategies include:

• Creating a hiring plan and hiring budget 
• Building company policies for travel-related costs. 
• Consolidate purchases to increase buying power.
• Leveraging automation tools to enhance financial performance. 
• Making strategic real estate investments.
• Committing to a remote workforce.

Reactive strategies

No matter how well you plan, preventing all potential events that may necessitate quick pivots to your strategic plan is impossible. 

Reactive cost strategies reflect conditions that are not within your control but must be addressed. Unfavorable market conditions, a dwindling new business pipeline, high customer churn rates, or M&A activity could play a role. 

Under these circumstances, employees and even budget leaders have little say in the cost-saving measures that are enacted. 

Don’t discount the ripple effects of disempowering whole teams at once, particularly the high-performers. Restricting their freedom to operate may directly translate to reducing their capacity (and willingness) to deliver their best work. 

Examples of reactive cost control strategies may look like: 

• Temporarily reducing or freezing department budgets.
• Implementing a hiring freeze. 
• Withholding executive bonuses. 
• Laying off a percentage of your workforce.

5 cost control strategies for success in 2023

Don’t start 2023 on your heels. 

Consider these 5 cost control strategies to protect your cash reserves and avoid the need for more drastic, last-resort measures later in the year. 

#1 Create and stick to a hiring plan and budget

A hiring budget could be the most impactful cost control strategy for many businesses this year. 

While you already have a hiring budget and plan, deepening the collaboration between department chiefs, the CPO, and the CFO to produce it can yield important results. 

By having all the right advocates in the room, you can ensure the hiring budget considers key aspects of the business, including how the hires will impact:

• Overall customer experience and retention
• New business generation 
• Product and service development

Early-stage startups may only want to commit to planning the next 1-2 quarters’ worth of hiring, but it’s worth articulating the predicted headcount needs as early as possible. Larger SMBs should aim to have a hiring plan in place for the next 4+ quarters. 

#2 Build and enforce a travel spending policy

As business travel resumes for some organizations, now is an important moment to reset long-held norms and implement new travel-related spending policies, controls, and budgets.   

Travel is a big-ticket budget item. While you want to ensure employees are safe and comfortable on the road, some tools make it easy to scale changes to travel budget rules companywide. 

The GSA per-diem rate table may serve as a baseline for calculating accurate travel budgets by location and setting reasonable limitations. 

Today’s business expense management and travel management software leverages automation to enforce rules, streamline booking, and, most importantly, make it effortless for employees to make the right choices without administrative delays. 

#3 Increase buying power for more favorable contracts  

For businesses with large procurement budgets, consider whether it’s possible to retool the budget allocation process to enjoy greater overall cost savings. 

For example, instead of releasing funds quarterly, CFOs may consider releasing funds for 6+ months at a time. By empowering the procurement department to spend more freely, the company will enjoy greater buying power, increase the predictability of materials sourcing, and gain greater leverage to negotiate favorable terms. 

This approach also ties back to a trust culture, which studies have proven enhances manager-employee relationships and increases individual performance. 

#4 Go 100% remote

Want to save an average of $11,000 per year per employee? Consider transitioning to a 100% remote workforce. 

These savings are calculated not only from savings on office rent and utilities. They also consider productivity gains, reduced employee turnover, and lower absenteeism rates. 

The case for a remote workforce is increasingly strong as more baby boomers begin to enter retirement age. 30% of the American workforce wants to be fully remote, while 60% wants to be partially remote. If you look at the breakdown, the percentage increases as the average age decreases. 

#5 Create a company culture that prioritizes the employee experience

No matter how many guidelines and controls you put into place, your employees with expense card access will make frequent decisions about how and where to spend company funds. The CFO can’t be intimately involved with each choice. 

This is where a trust and empowerment culture pays back dividends. 

It’s reasonable to place guardrails around spending. Expense management software can help you enforce rules related to approved credit limits, spend categories, and budget availability. Corporate travel platforms can align business flight, lodging, and ground transportation bookings with company policies and per diem limits. 

It’s about hitting the right balance between control and freedom. The best gauge of this for the CFO would be employee satisfaction surveys conducted by the People team. 

For example, are teams reporting concerns related to spending mobility? Are employees struggling to complete finance-related tasks efficiently? 

If your company isn’t already surveying questions like these, advocate for including them in the next pulse or comprehensive employee survey. 

Solving these issues can be as simple as onboarding better finance automation tools that can keep pace with your tech-savvy workforce. 

Or, the problems may stem from a deeper cultural issue. 

Just remember: hiring and firing is an expensive approach to personnel management. The better resourced your top performers are, the more likely you’ll hold onto them for longer. 

And when you have the best people working for you, those last-resort cost controls ought to play a diminished role in your strategic plan this year.