When the economy slows, cutting costs becomes critical for survival. But not all cost-cutting methods are effective. CEOs who focus on smart spending rather than indiscriminate cuts can position their companies for long-term success. Here are 10 actionable strategies to reduce expenses while maintaining growth potential:
- Zero-Based Budgeting (ZBB): Justify every expense from scratch instead of relying on past budgets. Companies like Unilever have saved up to 15% using ZBB.
- Simplify Operations: Identify inefficiencies in workflows, reduce redundant processes, and eliminate unused software licenses.
- Cash Flow Management: Use 13-week rolling forecasts, tighten invoicing, and renegotiate payment terms to improve liquidity.
- Renegotiate Contracts: Review supplier agreements for savings opportunities. Offer faster payments or longer terms in exchange for discounts.
- Delay Capital Expenditures: Postpone non-essential projects and focus on investments with immediate returns.
- Reduce Workforce Costs: Avoid layoffs by offering voluntary buyouts, reducing hours, or cross-training employees.
- Trim Marketing Spend Strategically: Focus on high-performing campaigns and retention efforts instead of cutting marketing budgets entirely.
- Leverage Technology: Use automation and collaboration tools to save time and reduce labor costs.
- Audit Subscriptions: Cancel unused services and consolidate tools to avoid redundant charges.
- Find New Revenue Streams: Diversify income by expanding product lines, entering new markets, or introducing subscription models.
These techniques balance immediate savings with maintaining the company’s ability to grow when the economy rebounds. CEOs who act decisively and strategically can safeguard their businesses while preparing for future opportunities.
Is Your Company Prepared for an Upcoming Recession?
1. Use Zero-Based Budgeting
Zero-based budgeting (ZBB) requires you to start fresh each budgeting period, justifying every expense from scratch instead of building on previous budgets.
"Zero-based budgeting (ZBB) is a budgeting technique in which all expenses must be justified for a new period or year starting from zero, versus starting with the previous budget and adjusting it as needed." – Oracle
Unlike traditional budgeting, which often relies on incremental increases (like a 2% rise in spending), ZBB demands a clear justification for every dollar spent. This approach ensures that resources are allocated based on actual needs rather than historical spending.
The results can be transformative. Companies like Unilever and Tim Hortons have reported cost savings of up to 15%, translating to over $260 million annually.
"The outcomes of ZBB are unprecedented. Our research found that major global companies are unlocking as much as $1bn [€837.1m] in cost savings to fund growth strategies and pivot to digital business models." – Kris Timmermans, Senior Managing Director for Supply Chain and Operations Strategy at Accenture Strategy
To implement ZBB effectively, start by adjusting your budget period – shortening it to quarterly or monthly can help during uncertain times. Ask sales managers for revenue forecasts, then set a conservative baseline by halving those projections. Focus on approving only essential expenses with measurable returns.
While ZBB can be demanding and may sometimes favor short-term solutions over long-term investments, there are ways to make it work sustainably. Assign budgeting responsibilities to departments, use specialized software, and break planning into cycles to maintain a strategic focus. Still, sustaining cost savings can be a challenge – only about half of companies manage to maintain them beyond one or two years. As Nilly Essaides, Senior Research Director at The Hackett Group, puts it:
"This is not just cutting and slashing. It’s making sure the dollars are put to work where they should be working."
For routine expenses that remain relatively stable, you can even combine ZBB with incremental budgeting. This hybrid approach ensures that essential operations continue smoothly while still prioritizing strategic resource allocation.
ZBB shifts the focus from reactive cost-cutting to purposeful spending, ensuring that every dollar contributes to measurable outcomes.
2. Simplify Operations and Processes
Inefficient operations can quietly drain profits, making them a critical focus during cost-cutting efforts. In fact, process inefficiencies can eat up 30% of a company’s annual revenue and waste 26% of an employee’s workday. During economic downturns, these hidden costs can become glaring vulnerabilities that demand immediate attention from leadership.
Key problem areas include manual processes, which carry an error rate as high as 40%, and siloed work environments, where employees lose about 19% of their workday navigating communication barriers. On top of that, poor reporting systems can inflate operating expenses by more than 30% due to inaccurate or incomplete data.
Start by mapping out your main workflows to identify bottlenecks, redundancies, and unnecessary steps. For instance, check for excessive handoffs between teams or approval processes that could be streamlined. A great example of this is a hospital group that unified its credentialing system, cutting out redundant data entry and simplifying workflows.
Next, tackle the big inefficiencies. Companies often waste millions annually on unused software licenses – $18 million on average. Meetings are another major expense; a 5,000-person organization typically spends $320 million a year on meetings, with $101 million of that representing wasted resources. Consolidating overlapping software tools and reevaluating meeting practices can lead to significant savings.
Digitizing manual processes is another way to reduce administrative burdens. For example, one hospital network automated its billing data capture, recovering between $75,000 and $100,000 every month.
Collaboration tools can also help address inefficiencies by keeping teams aligned and reducing the impact of siloed work environments. Centralizing customer data is another smart move, as it streamlines operations and improves decision-making. Even something like automating accounting tasks can deliver an ROI of up to 200% within the first year.
Finally, make it a habit to review and refine your processes regularly. Talk to employees about the inefficiencies they encounter in their daily tasks. After rolling out new systems or policies, revisit workflows to ensure they’re functioning as intended. Committing to a review every six months can help prevent inefficiencies from creeping back in. These efforts not only simplify operations but also lay the groundwork for better cash flow management.
3. Focus on Cash Flow Management
Managing cash flow becomes a lifeline during economic downturns. With revenue often taking a hit, keeping a close eye on cash flow can mean the difference between survival and failure. Here’s a sobering fact: 82% of businesses fail because of cash flow problems. This makes it one of the most pressing concerns for CEOs.
In fact, 53% of CFOs prioritize cash flow management over revenue growth during recessions. Why? Companies with a solid cash position can weather tough times, seize opportunities, and come out stronger when the economy rebounds. So, how can you strengthen your cash flow strategy? Let’s dive into some actionable steps.
Start by implementing a 13-week rolling cash flow forecast and updating it weekly or bi-weekly. Unlike annual budgets, which can quickly become outdated, rolling forecasts adapt to changing conditions. They help you spot potential cash shortages early and take corrective action before it’s too late.
"Gone are the days of the fixed annual budget. We now need to re-forecast on a much more frequent basis and be able to bring in your latest set of financial and operational actuals to help supercharge these models and also help support scenario modeling."
– Rishi Grover, Vena Co-founder and Chief Solutions Architect
To improve liquidity, tighten up your invoicing and collections process. Send invoices immediately and automate payment reminders. Offering early payment discounts can also speed up collections. For instance, Green Earth Goods introduced a 2% discount, reducing their collection period from 30 days to just 20.
Segment your receivables by risk level. Focus on collecting large balances and overdue invoices that can be resolved quickly. Get creative – partial payments or installment plans can keep cash flowing while maintaining good customer relationships.
On the payment side, manage your outflows by renegotiating terms with vendors. Be proactive and transparent with suppliers if you need more time to pay, and clearly communicate your timeline for resolution. For example, Green Earth Goods successfully negotiated a 10% reduction in their lease, saving $500 a month, and made additional changes that cut costs by $1,650 a month.
If you’re facing immediate cash needs, consider factoring your receivables. While this involves a discount, converting invoices into cash can bridge gaps during tough periods.
To enhance forecasting accuracy, involve your sales, operations, and business development teams. Their insights into revenue shifts, customer payment issues, or operational disruptions can make your forecasts more actionable.
"With current uncertainty around consumer behavior and input costs related to tariffs, we’re updating forecasts more often to understand our bottom line and liquidity impact. Vena makes it much easier for us to run different scenarios, make changes and easily flow them through the data model at the appropriate level. This makes it easier to make updates around known changes faster."
– Pat Jones, SVP and Corporate Controller at PetIQ
Lastly, run sensitivity analyses to prepare for different scenarios. For example, model what happens if collections slow by 10%, 20%, or even 30%, or if major customers delay payments. This approach ensures you’re ready to make quick decisions and avoid being blindsided by worsening cash flow.
With 73% of CFOs citing cash flow management as a top priority, it’s clear this area deserves focused attention. Thoughtful cash flow strategies not only help you cut costs strategically but also preserve the value and stability of your business during uncertain times.
4. Renegotiate Supplier and Vendor Contracts
After tightening cash flow management, another effective way to protect liquidity is by renegotiating supplier contracts. These agreements often hold untapped potential for savings. Consider this: 49% of respondents identify contract renegotiation as a critical strategy for cutting costs and reducing risk. Yet, only 15% of small-business owners and managers have recently renegotiated their long-term fixed-cost supply contracts. That’s a lot of missed opportunities.
Before jumping into negotiations, preparation is essential. Start by reviewing your current agreements to identify contracts with flexibility – especially those showing price increases despite falling market values. Research your vendors thoroughly to gauge their financial standing and pinpoint areas where they might be open to compromise.
Leverage market data to back up your requests. For example, if raw material costs have dropped or competitor pricing is lower, use these insights to justify your case. Keep in mind, this isn’t about pressuring your suppliers – it’s about finding solutions that work for both sides.
Reach out directly to your vendors to start the conversation. Many suppliers understand the importance of maintaining strong partnerships and are willing to collaborate, especially during challenging times. After all, a thriving client means more business for them in the long run.
Here are a few creative approaches you can take:
- Offer faster payments in exchange for discounts.
- Propose longer contract terms for better rates.
- Negotiate bundled services to reduce overall costs.
Also, take a closer look at unused services in your contracts. For instance, a report from CFO Magazine highlights that 90% of buyers overpay for SaaS products by 20–30% due to poor negotiation practices. Cutting out services you don’t use can lead to immediate savings.
Strong supplier relationships are built on fairness. Show your vendors how supporting your business now can lead to larger orders and mutual growth in the future. However, don’t be afraid to walk away if they’re unwilling to budge. Often, the fear of losing your business will encourage suppliers to come back with more flexible terms.
"Successful negotiation is not about getting to ‘yes’; it’s about mastering ‘no’ and understanding what the path to an agreement is."
- Christopher Voss, Former FBI hostage negotiator turned CEO
If talks hit a roadblock, consider bringing in a third party to mediate and establish clear rules for the negotiation process. Once you’ve reached an agreement, formalize the new terms in a written contract – ideally with legal guidance – rather than relying on informal promises. And always have a backup plan ready in case negotiations fall through.
Suppliers are often more willing than you might think to adjust terms, especially if it means preserving a strong relationship. By approaching these discussions with creativity and collaboration, both sides can emerge stronger and more resilient.
5. Delay or Reassess Capital Expenditures
When the economy becomes uncertain, every decision about capital spending takes on added weight. Whether it’s for equipment, technology, or infrastructure, every dollar needs to prove its worth quickly. The challenge is figuring out what’s absolutely necessary and what can be put on hold.
Start by evaluating your financial health using key metrics like cash flow, debt-to-equity ratios, and working capital. These indicators give you a clear sense of how much financial flexibility you have. During uncertain times, businesses often lean toward more cautious spending, prioritizing stability over risk-taking. This financial snapshot helps you build a focused investment plan.
A practical way to approach capital spending is by categorizing each project based on its purpose. Break projects into these groups: Compliance (legally required), Sustaining (essential for maintaining operations), Growth (expanding capacity), Strategic (long-term positioning), and Other (non-essential). With this framework, it becomes easier to decide which projects can be postponed without affecting your core operations.
Take Target’s strategy during the 2000 recession as an example. The company increased its marketing and capital spending, growing to 1,107 stores and boosting sales by 40%. Their profit margins also rose from 9% to 10%. But this aggressive approach isn’t for everyone. The real challenge is finding the right balance between controlling costs and making strategic investments, rather than slashing expenses indiscriminately or spending without clear returns.
The goal is to focus on investments that address immediate market needs or solve pressing customer problems. Use financial analysis tools like Net Present Value (NPV) and Internal Rate of Return (IRR) to evaluate potential returns. Don’t overlook intangible benefits, such as strengthening your brand or building customer loyalty, as these can align with a broader cost management strategy.
"Rather than referring to ‘cost reductions,’ we approach it as ‘resource and investment allocation’ – ensuring every dollar is spent effectively. Costs have shifted from support functions to growth functions, and resources are doubling down on product enhancements and internal projects to push the business into its next chapter." – Eli Diament, Founder and Director, Azurite Consulting
Another key factor to consider is the payback period – how long it takes for an investment to generate enough cash flow to cover its initial cost. While it’s important to manage short-term risks, don’t lose sight of long-term opportunities. Research shows that companies reallocating resources effectively – shifting an average of 56% of capital across business units over 15 years – achieved 30% higher annual returns for shareholders compared to those that didn’t.
If cutting projects feels too drastic, explore alternative financing options to free up cash flow rather than canceling initiatives outright. Keep in mind that about 9% of companies thrive following economic slowdowns, outperforming competitors by at least 10% in both sales and profit growth. These businesses strike the perfect balance: trimming costs to stay afloat today while investing strategically to grow tomorrow.
6. Reduce Workforce Costs Without Hurting Morale
Labor costs can eat up as much as 50% of revenue, making them a prime target for trimming during tough economic times. But before jumping to layoffs, consider this: companies that avoid mass layoffs tend to recover twice as fast in revenue after a crisis compared to those that resort to cutting jobs. Instead of layoffs, explore smarter alternatives that protect both your budget and your employees’ morale.
One effective approach is offering voluntary buyouts or early retirement packages. Take Cisco, for example. In 2023, the company offered early retirement to over 4,000 employees, cutting $1 billion in annual costs while maintaining morale. Another option is reducing work hours or implementing temporary pay cuts. Patagonia successfully avoided layoffs during a retail slowdown by introducing a 4-day workweek and temporary salary reductions. For added support, work share programs can help offset reduced wages with unemployment benefits.
"The actions you take now will define the rest of your corporate life. If you don’t take care of people, if you haven’t put them first, you think they’re not going to remember when the recovery comes?" – Eric Ries, LTSE Founder and Executive Chairman
Another strategy is redeploying employees to roles where their skills are most needed. ServiceNow used AI to identify transferable skills across its workforce of 22,000 employees, successfully reskilling 3,500 workers for project-based roles and avoiding layoffs entirely. Similarly, cross-training employees can make your team more versatile, reduce dependency on temporary hires, and offer long-term operational advantages.
Flexible work arrangements and remote options can also help cut costs while keeping employees happy. In fact, 89% of HR professionals reported improved retention after adopting flexible work policies.
Communication plays a huge role in maintaining trust during challenging times. Companies that prioritize clear, consistent communication – through one-on-one meetings, town halls, and transparent updates – see turnover drop by 45% over two years. Employees are more likely to stick around when they feel informed and valued.
Encouraging employees to use PTO can delay furloughs, and asking for their input on cost-saving ideas often uncovers valuable insights into inefficiencies .
Employee turnover is expensive – costing between 50% and 200% of an annual salary when you factor in recruitment, training, and lost productivity. By focusing on alternatives to layoffs, you not only save money but also position your workforce for long-term success. These strategies, combined with operational adjustments, can help create a leaner, more resilient organization ready for sustainable growth.
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7. Cut Non-Critical Marketing and Discretionary Spending
When economic challenges arise, marketing budgets often take the first hit. But across-the-board cuts can end up costing more than they save. Instead of slashing your entire marketing budget, focus on trimming strategically. Pinpoint high-performing campaigns and allocate resources wisely – companies that keep or even increase their marketing efforts during recessions often come out ahead in terms of brand awareness, customer loyalty, and revenue recovery.
Start by analyzing your campaigns. Identify underperformers to cut, and double down on activities that deliver strong returns. Shift your ad spend to bottom-funnel strategies that focus on capturing existing demand, rather than broad, brand-awareness campaigns. For example, prioritize direct marketing, targeted online ads, and search engine campaigns. Adopting an SEO strategy that aligns with shifting customer priorities – like targeting long-tail keywords such as "affordable" or "alternatives" – can also help you stay relevant.
A great example of this approach comes from De Beers during the 2008 financial crisis. Initially, the company reduced its U.S. marketing budget. However, after research showed that diamonds retained their symbolic value, De Beers doubled its Christmas advertising spend. This decision helped maintain stable prices and demand.
Another smart move is reallocating resources toward customer retention rather than focusing solely on acquiring new customers. Retaining high-lifetime-value customers is often more cost-effective and delivers better returns, especially during uncertain times. Consider creating content that provides value and support to your existing customers, such as guides or tools that address their current needs.
To make this process more effective, group your campaigns into three categories: eliminate underperformers, scale back marginal ones, and invest heavily in high-performing initiatives. Stay tuned to how customer preferences are evolving – adjust your messaging to reflect their changing priorities and brand-switching behaviors.
Flexibility is key. Be ready to adapt quickly based on performance data and shifting customer needs. By taking a targeted approach instead of blanket cuts, you can seize market opportunities as competitors pull back. This strategy not only strengthens your position during tough times but also sets you up for a faster recovery. These marketing adjustments work hand-in-hand with broader cost-saving measures to prepare your business for long-term success.
8. Use Technology for Efficiency Gains
Investing in automation tools like Robotic Process Automation (RPA) can significantly reduce operational costs – by as much as 10–30% – while improving accuracy and scalability. Unlike traditional cost-cutting methods that can hinder productivity, automation actually enhances your team’s efficiency and capabilities.
Here’s an example: Businesses using digital workers have increased their savings to 24%, up from 19% in 2019. On top of that, 80% of global industry leaders now consider automation a key priority for achieving success.
To get started, focus on small, strategic projects. Begin with pilot programs targeting repetitive, time-consuming tasks like data entry, invoice processing, or customer service inquiries. These processes are often rule-based, making them ideal candidates for automation. Engaging front-line employees in identifying inefficiencies ensures you target the right areas for improvement.
No-code platforms make automation even more accessible. These tools allow your team to implement solutions quickly without needing advanced IT skills or costly consultants. For more complex tasks, Intelligent Process Automation (IPA) – which combines RPA with artificial intelligence and machine learning – can handle decision-heavy operations like customer support, financial analysis, and supply chain management. Additionally, AI and analytics tools can boost marketing ROI by 15–25% through smarter audience targeting and content creation.
Collaboration platforms are another way to unlock efficiency. These tools reduce operational expenses while saving employees 5–10% of their time – equivalent to 2–4 hours per week – by streamlining communication and cutting down on redundant work. For example, the World Health Organization successfully used digital collaboration tools to host its first virtual World Health Assembly during the COVID-19 pandemic, proving that even critical operations can benefit from these platforms.
To ensure your technology investments deliver real value, track measurable outcomes like reduced processing times, lower error rates, and productivity improvements. Establish baseline metrics before implementing new tools to clearly demonstrate ROI. Without clear success metrics, many organizations fall short of their goals – 89% of companies pursuing digital transformation have achieved only 31% of expected revenue increases and 25% of projected cost savings.
For the best results, consider working with an automation consultant to adopt a modern approach tailored to your needs. Aligning technology investments with broader cost-optimization strategies not only strengthens your financial position but also ensures long-term resilience. The aim isn’t just to weather economic challenges – it’s to emerge stronger by enhancing operations, not simply cutting costs.
9. Review and Consolidate Subscriptions and Services
Subscription costs can quietly eat away at your budget. Research shows that only 34% of subscriptions are actively utilized, with organizations potentially wasting up to $600 million every year on unnecessary subscription spending. Even more alarming, nearly half (47%) of subscriptions continue long after their last use, meaning you could be paying for services no one in your company is using. On top of that, 20% of subscriptions are tied to two suppliers for the same service, and 12% involve three or more vendors, leading to redundant charges for identical functionality.
To tackle this, start with a thorough audit of your subscriptions. Comb through bank statements, credit card charges, email confirmations, and app store purchases to compile a comprehensive list of active subscriptions. Then, sort them into three categories: essential, valued, and nonessential. Essential subscriptions are critical for operations, valued ones deliver measurable returns, and nonessential ones? Cancel them immediately.
For larger companies, SaaS usage monitoring tools can be a game changer. These tools provide insights into license utilization and employee usage patterns, helping you identify unused licenses and avoid overpaying.
"We need to create this culture where company money is as important as your own", says Julien Chriqui, Procurement Product Lead at Spendesk.
To keep things in check, establish approval workflows. Require a short business case for subscriptions costing under $10,000 annually and a detailed review for those exceeding $50,000. Schedule quarterly reviews to prevent subscription creep and conduct a full portfolio assessment twice a year. Set calendar alerts ahead of renewal dates to reassess whether each service still adds value. Many businesses overlook annual renewals until the charge hits their statement.
Look for bundling opportunities to consolidate services with a single provider. This can save you 20–30% by combining tools like email marketing, CRM, and customer support into one integrated platform.
Finally, ensure ongoing oversight by assigning account owners to manage licenses. They should deactivate unused accounts promptly and oversee renewals. When it’s time to renegotiate, leverage your usage data to secure better rates or promotional offers. Without consistent oversight, recurring charges can snowball, straining your cash flow – especially during tough economic times. Keeping a close eye on subscriptions is a practical way to optimize costs and maintain financial health.
10. Find New Revenue Streams and Business Models
Cutting costs can only take you so far – finding new ways to bring in revenue is what truly builds resilience during tough economic times. When a recession hits and revenue drops, CEOs need to think beyond their current streams of income. Data shows that companies that pivot and diversify grow at 5.8% annually, compared to a mere 0.5% for those that stick to the old ways.
One way to do this is by expanding your product or service offerings. Look for opportunities in industries that tend to hold steady even during downturns. For example, healthcare, grocery stores, tax and accounting services, and supply chain delivery often remain in demand no matter the economic climate. Consider this: the global delivery on-demand industry is expected to grow at 4.30% from 2024 to 2031, and Americans spent an average of 29% more on home improvement projects in 2023 compared to 2015.
Adding complementary products or services to your existing business is another smart move. A hair salon, for instance, could start selling hair care products, or a consulting firm might launch online courses. Expanding geographically – whether by boosting online sales or entering new markets – can also help reduce reliance on a single region or economic area.
Digital transformation is another powerful tool for creating new revenue. As remote work grew from 20% to 28% between 2020 and 2023, demand for IT support, digital marketing, and tech solutions soared. Subscription models are also worth exploring. They offer predictable, steady income even in volatile times. Take Costco‘s membership model as an example: millions of members pay annual fees, providing a reliable revenue stream regardless of market fluctuations.
"The secret of change is to focus all of your energy not on fighting the old, but on building the new." – Socrates
Freelancing and consulting services offer another avenue with low overhead. Financial expert Steve Wilson, founder of Bankdash, highlights the benefits of this approach:
"By contracting with independent contractors for certain jobs and activities, businesses can save a lot of money. Instead of hiring permanent staff, this enables them to pay for those duties separately as and when they are required".
Emerging markets are also worth exploring. For example, the childcare sector is projected to grow by 5.86% between 2024 and 2030, while spending on pet care hit a record $150 billion in 2024. Clean-tech manufacturing is another exciting area, with heavy equipment manufacturers planning to introduce over 20 electric and hybrid models by 2026.
Amazon is a prime example of what strategic diversification can achieve. Starting as a simple online bookstore, the company expanded into cloud computing (AWS), streaming (Amazon Prime), and logistics. Each of these sectors operates on a different economic cycle, allowing Amazon to stay profitable even when one area experiences a dip.
The most successful businesses combine multiple strategies: they serve a variety of customer segments, operate across different regions, and create diverse revenue streams through products, services, subscriptions, or digital platforms. This approach ensures that when one income source falters, others can step in to maintain stability. By pairing cost management with these diversified revenue streams, CEOs can not only weather economic uncertainty but also lay the groundwork for sustainable growth.
Cost-Cutting Strategies Comparison
Balancing immediate savings with long-term business health is a delicate but essential task for CEOs. A study of 1,500 global public companies revealed that 62% of those implementing cost transformations between 2015 and 2018 experienced weaker revenue growth and profitability over the next three years. Meanwhile, the remaining 38% achieved stronger growth and higher profit margins. This stark contrast underscores the importance of aligning cost-cutting efforts with sustainable growth objectives.
The challenge lies in finding a balance. As one expert aptly put it:
"When so much in the world feels beyond our control, costs are, to a large extent, controllable. But cutting costs if focused solely on short-term savings is myopic."
To make informed decisions, it’s essential to distinguish between hard costs – like fleet vehicles or equipment – and soft costs, such as the impact on productivity. Effective cost transformations focus on reinvesting savings to create customer value. For example, indirect procurement alone can account for up to 50% of a company’s purchases. George Koenigsaecker, an investor and Lean Manufacturing expert, highlights the importance of persistence in these efforts:
"Most managers have a mindset that if you apply a tool once, you’re done… But to get the 400% gain, you have to use it at least 10 different times. You must study the process over and over."
Timing is another critical factor. A PwC survey from November 2022 found that 42% of senior executives planned to prioritize cost-cutting efforts in 2023. Early, value-driven actions often yield better outcomes during economic downturns.
Interestingly, investing in the employee experience can have a profound impact, with data showing it can quadruple profitability. Despite this, 82% of businesses reported missing their annual cost reduction targets in 2023. These figures highlight the need for a more thoughtful and strategic approach to cost management.
Cost transformations typically span two years, requiring a blend of tactics that address both short-term relief and long-term value. The most successful strategies integrate multiple approaches, focusing on customer value and employee engagement. This comparison lays the groundwork for a comprehensive cost-optimization strategy that balances immediate needs with sustainable growth.
Conclusion
Steering through a recession calls for more than just slashing expenses – it demands a strategic mindset. A recent survey reveals that 42% of Fortune 500 CEOs are planning cost-cutting measures over the next 12 months. However, the companies that truly succeed during tough times are those that balance short-term financial adjustments with investments aimed at long-term growth.
The economic outlook underscores the need for this balance. In Q2 2025, 82% of CEOs reported worsening economic conditions – a sharp increase from just 11% in Q1 – while only 2% saw improvements. These numbers highlight the importance of making smart financial decisions, carefully weighing what to cut and where to invest to ensure future success.
A winning strategy blends tight cost control with forward-looking investments. Successful leaders regularly evaluate their business units and expenses, cutting or divesting areas that don’t align with their long-term goals. They also recognize the game-changing role of technology. For instance, 68% of US CEOs believe generative AI will significantly reshape how their companies create and deliver value over the next three years.
Having a clear list of cost-saving options prepared in advance enables leaders to make informed, data-driven decisions under economic pressure. This approach helps avoid cuts that could weaken critical capabilities or hinder future growth.
Support from peers can also play a pivotal role. CEO Hangout provides a platform for leaders to connect through exclusive events, expert insights, and a strong peer network. These shared experiences and proven strategies can be the difference between merely weathering a recession and setting the stage for accelerated growth once the economy rebounds. Combining disciplined cost management with a forward-thinking vision creates a path to not just survive but thrive in challenging times.
FAQs
How can CEOs cut costs during a recession without hurting long-term growth?
To save money without risking future growth, CEOs should adopt strategic cost management instead of making hasty, short-term decisions. Focus on maintaining investments in critical areas like innovation, customer relationships, and employee development – these are the building blocks for sustained success. At the same time, look for ways to reduce spending on non-essential activities.
It’s equally important to align any cost-cutting efforts with the company’s broader goals. Avoid severe cuts that could harm your competitive position or tarnish your brand image. A more balanced approach can help achieve immediate savings while keeping long-term growth on track.
How can CEOs renegotiate supplier contracts to cut costs while maintaining strong relationships?
To renegotiate supplier contracts successfully while maintaining strong relationships, prioritize clear communication and shared benefits. Begin by engaging in conversations about common objectives and industry challenges, aiming to uncover solutions that benefit both parties.
Be upfront about your requirements, but also demonstrate a commitment to working together for sustained success. Back up your requests with up-to-date market data to ensure your proposals are reasonable and grounded in reality. By building trust and focusing on collaboration, you can reduce costs without jeopardizing essential supplier partnerships.
How can CEOs leverage technology to cut costs and improve efficiency during a recession?
How CEOs Can Use Technology to Cut Costs and Improve Efficiency
During economic downturns, CEOs can turn to technology to trim expenses and enhance operational efficiency. Tools like automation, artificial intelligence (AI), and data analytics play a key role in streamlining processes, reducing manual work, and cutting labor costs – all while keeping productivity on track.
On top of that, adopting productivity tracking tools and robotic process automation (RPA) can help identify inefficiencies and make better use of resources. These technologies not only help businesses stay steady during challenging times but also open doors to new growth opportunities and advancements.
