Rant: You Can't Save Your Way to Profitability

Layoffs are a sensitive topic, especially when profits are on the line. But let’s cut through the noise: You can’t save your way to profitability. 

Sure, reducing costs can improve your bottom line, but if you're aiming to grow a sustainable, thriving business, it’s not that simple. The first thing to assess is whether your compensation aligns with your business’s profitability.

Are you taking more money out than your company is actually generating in profit? If so, that might be an issue—especially when it comes to investing in the growth of your team and operations. It’s crucial to strike a balance between your pay and your company’s financial health. Otherwise, you might find yourself cutting back on raises, bonuses, or other necessary expenditures just to maintain your lifestyle.

Cutting Costs vs. Growing Revenue

Yes, you may find opportunities to trim costs, like redundant positions or outdated processes. But cost-cutting alone isn't a silver bullet. A more important question is: Are your expenses proportionate to what similar businesses are spending? Over the years, it’s common for long standing companies to find themselves in arrangements that once made sense but are now wildly out of line with their current scale or market norms.

Take labor costs, for example. If you've been in business for over a decade, you might notice that your payroll has quietly ballooned over time. It’s not necessarily because your team is “too expensive,” but because you haven't had to think about costs when revenue was consistently flowing. When that revenue starts to dip, suddenly, everything gets put under a microscope, and the hard questions start to emerge—“Is every role necessary? Are we overpaying in certain areas?”

It’s easy to look at payroll, software subscriptions, and service contracts as potential places to cut back. But if your revenue is stagnant or shrinking, the real issue might be on the other side of the ledger: sales. If you’re not actively bringing in new customers, you're probably losing older ones over time, and no amount of cost-cutting will change that.

For instance, I recently worked with a business that was pouring money into an IT service that was not only overpriced but also came with poor service. It was an easy expense to eliminate, but it wasn’t a magic fix. The company still needed to focus on growth.

Key takeaway

No matter how efficient you become, the most impactful action you can take as a business owner is to return to what made your business successful in the first place—selling and creating value. Go out and generate excitement about your product. Build something that customers rave about. It's not just about having a great service; it's about having a service or product that people are excited to talk about and, ultimately, pay for.

The reality is, if you're not actively innovating or selling, you may be forced back into a cycle of cost-cutting.