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How to Incentivize Employees to Spend Less
A startup expert explains how to motivate your workforce to cut costs.
While most small business owners are laser-focused on increasing sales, lowering expenses is equally important to building a profitable company. But how can you encourage employees to get on board?
“Aligning the organization with the financial performance of the company, and then reviewing the numbers with your team is key,” says Troy Vosseller, co-founder of Gener8tor, a concierge startup accelerator in Madison, Wisconsin. Here, Vosseller offers some advice on how to get employees to willingly slash expenses and create a more profitable enterprise for all.
As a small business owner, why is it important to involve employees in the cost-cutting process early on?
Transparency allows employees to understand what’s important to the business and, frankly, the bottom line.
Are there key steps that small business owners should take to begin that communication?
As a starting point, lay out the business model and the financial picture for the company. It’s important for people to understand where the revenue’s coming in, how much the expenses are, and how it all comes together. This is especially true if your company is going through growth spurts. Ownership and management have to make that clear and identify how each employee plays a role in the company’s success. Meet monthly or quarterly to discuss the outlook with team members.
How do you incentivize employees to care about watching business spending and the bottom line?
One way is by giving equity to employees, especially senior and key employees. The more skin they have in the game, the more they will care about the bottom line, and be incentivized to boost it.
Cutting business expenses across a company is a group effort. Is there a specific challenge that owners can lay out to their teams?
A lot of it has to do with role modeling. As the owner, remember that employees take cues from you. Whether it’s travel spending or purchasing software, mind your behavior because employees look frequently to the top.
Beyond that, it comes down to active management and having a pulse on the business. Review what your employees are spending money on, and if needed, intervene and have a conversation with them.
Should small business owners ask employees for ideas on ways to cut costs?
I think a group brainstorm exercise around how people can cut costs is great. Some of that might be new tools or websites that other employees are aware of, that they recommend to the group. I think that can have a great benefit.
Where do you think small businesses overspend the most?
I’d say travel. The more you can plan ahead, in terms of travel, or think twice about, ‘Do I need to be there in person, or is this something that can happen virtually the better. The biggest hurdle is planning.
For companies that are introducing cost-cutting measures, but struggle to keep employees engaged, can you give an example of when it’s been done right?
Some companies have a completely open book policy. Employees can see all the finances of the company, meaning they know everyone’s compensation, as well as all the expenses of the company. For that company in particular, it’s been effective in motivating people not only to drive revenue for the business but also control costs.
Everyone may not be on board with the changes. How can owners prepare for critical or cynical feedback?
The owner and the management need to really be grounded in what’s important for the business. I think having some of those hard conversations will be easier once you’ve created that baseline and clearly communicated it. Unfortunately, if you have employees that aren’t willing to go along with that—and I’m not saying initially, meaning change can take time—I think that becomes a more difficult conversation.
Once the tide turns, how do small businesses celebrate progress?
Good question! Try team events such as a social gathering, a dinner, or a baseball game. It could even be financial rewards. For best results, it’s important for management to share in the financial success of the business with their employees.
Effective cost-cutting strategies can lead to greater profits but they have to start at the top, Vosseller says. “The more that you can set a positive example, [the more it] rubs off on employees.”
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