Cutting Costs

Hostels are generally businesses with very small profit margins. For many of us, surviving low season is just as much about controlling costs as it is about generating revenue. 

Here is an article from the Harvard Business Review about How to Cut Costs More Strategically.

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The best-run companies… think of cost management as a way to support their strategy, and of cost as precious investment that will fuel their growth. They put their money where their strategy is and continually cut bad costs and redirect resources toward good costs. After all, if we aren’t directing spending to the right places, what chance do we have to grow?

Management teams at such companies spend a lot of effort separating out the costs that truly fuel their distinct advantage from the ones that don’t. They base their decisions about where to cut and where to invest on the need to support their greatest strengths: the capabilities that enable them to create unique value for customers.

Thinking of cost control this way is good.  Allocate your spending to where it can be the most beneficial.  Cut costs, but don’t reduce the services that set your hostel apart or that have been promised to guests.

Here are some suggestions from the article:

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Connect costs and strategy. Look at every opportunity to cut costs as an opportunity to channel investments toward strengthening your value proposition.

What is your plan to be the best hostel? Is the money you’re spending contributing to that plan? If no, then it can be cut.

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List all the expenses related to the activities of the enterprise, move them into a metaphorical “parking lot,” and then, one by one, decide whether to let them back in.

The hardest part of this suggestion is actually breaking down all of the expenses into a list. Luckily your accountant probably already has this if you have submitted your receipts. (If you haven’t, then those purchases come out of your hostel’s profit or out of your own pocket instead of being business expenses)  If you’re not already in the habit of tracking your expenses, then you are bound to spend unnecessary money.

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Make your cost-management plan sustainable. Build financial systems that create more transparency around “good” costs, those associated with differentiating capabilities, and dispensable “bad” costs, leveraging your culture to increase awareness of the difference.

In other words, get your team involved in cutting costs. Make it clear to them why it’s beneficial to focus spending on certain things and cut funding for others so they can also take part in saving your money.

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Be proactive. Fix the roof while the sun is shining. Once you’re in trouble, you may not have the luxury of making the right kinds of decisions.

It’s expensive to replace things when they break. It’s much cheaper to reinforce them or tune them up while they’re still working.  This goes for physical repairs as well as human resources.  It’s also good practice to avoid being cheap - start with the highest quality you can afford right from the beginning.

What are your best tips for cutting costs in your hostel?