We all know cost control is something we should be doing, but let’s be honest—it’s not as simple as it sounds. Saying “no” is hard, and knowing when to say “yes” can be just as challenging. As a result, many businesses end up with unnecessary expenses. So how do we manage costs effectively? The good news: there is a way. But first, we need to clear up a few common misconceptions.
Myth #1: We should focus on controlling costs only when business slows down or expenses rise.
Not true. The best time to control costs is when business is strong—when you’re growing and adding expenses. That’s when you need to be most critical of the effectiveness of each new cost, not after the fact.
Myth #2: Cutting costs means cutting growth.
Again, not true. Some costs drive growth, but many do not. The key is knowing which is which.
Myth #3: If costs are within budget, everything is fine.
Absolutely not. Budgets are based on assumptions, and those assumptions rarely hold perfectly over time. The farther you get from when the budget was created, the more likely it is that real conditions have shifted.
How Do You Begin Your Cost Control Journey?
So where do you start? Begin by understanding your company’s value. What do you do that matters most to your customers—excellent service, fast response times, strong relationships? Know what sets you apart. Costs that support your core value should be protected and strengthened.
If you’re known for superior customer service and cut those investments during tough times, you may face long-term consequences. In fact, during hardship you may need to invest more to maintain your competitive edge.
Next, look at the flip side: costs that do not support your customer value should be minimized. Some non-value-add costs are unavoidable—taxes, regulatory requirements, etc.—but spend no more than necessary. Many other expenses add no value at all.
These are the ones to cut immediately, whether times are good or bad. They might include a failed project, an underperforming leader, or software you don’t need. You tend to notice these wasteful costs more when business slows, but the best time to eliminate them is when things are going well.
It’s also important to understand which costs are fixed and which are variable. Some will rise and fall naturally with your business. For example, inbound freight costs drop automatically when volume slows, so reducing them during a downturn isn’t a “win.” Negotiating better rates is helpful, but the real value comes from improving variable costs during periods of growth, not decline.
Exploring the Heart of the Matter
Then we get to the heart of cost control: fixed costs. This is often where the biggest opportunities lie. There’s a saying in accounting: “Over a short enough time frame, all costs are fixed; over a long enough time frame, all costs are variable.” For our purposes, think of fixed costs as those that increase in steps—holding steady, then jumping when expanded. Payroll is a common example.
Fixed costs that don’t add value should be eliminated or reduced first. But—and this is key—even in slow times, fixed costs that do add value should be maintained or invested in if possible. Companies that prepare during downturns are typically the ones that thrive when recovery begins. Being lean means aligning resources to where customers see the most value and minimizing everything else.
Finally, involve your customers and stakeholders. Keep them informed and engaged. Transparency is your ally. When customers, employees, and investors understand the reasoning behind your decisions, they’re far more likely to support the changes. You’ll need their help at times, and the more involved they are, the easier it will be to make—and execute—difficult decisions.
Allen Riggs is the chief financial officer at PSA Network.
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