Cost Cutting


DEFINITION of 'Cost Cutting'

Measures implemented by a company to reduce its expenses and improve profitability. Cost cutting measures may include laying off employees, reducing employee pay, switching to a less expensive employee health insurance program, downsizing to a smaller office, lowering monthly bills, changing hours of service and restructuring debt.

BREAKING DOWN 'Cost Cutting'

Because salaries and wages are such a large expense, many companies look to layoffs as a cost-cutting measure when times are lean. However, there are actually many costs associated with firing people, including severance pay, unemployment benefits, rehiring costs, wrongful termination lawsuits, lowering morale, and the cost of no longer getting done what laid-off employees were doing or overworking remaining employees.

  1. Profit Margin

    Profit margin is part of a category of profitability ratios calculated ...
  2. Chairman

    An executive elected by a company's board of directors that is ...
  3. Wage Expense

    In financial accounting, wage expense represents payments made ...
  4. Organizational Structure

    Explicit and implicit institutional rules and policies designed ...
  5. Board Of Directors

    An appointed or elected body or committee that has overall responsibility ...
  6. C-Suite

    A widely-used slang term used to collectively refer to a corporation's ...
Related Articles
  1. Budgeting

    Laid Off? You Can Still Retire

    Joblessness is temporary, but neglecting your retirement savings has permanent consequences.
  2. Personal Finance

    The Layoff Payoff: A Severance Package

    If you must leave your job, go out fighting for the best benefits you can get.
  3. Budgeting

    Layoff Protection Plans: Good Deal Or Gimmick?

    If you get laid off, these plans can be of great value, but the best protection may be to avoid big purchases altogether.
  4. Budgeting

    Layoffs: Know The WARNing Signs

    Layoff rumors can run rampant, but if your company is required to give you two months' notice, you can plan for unemployment.
  5. Economics

    Explaining Appreciation

    Appreciation refers to an increase over time in the value of an investment or asset.
  6. Savings

    10 Ways To Budget When You’re Broke

    Budgets are some of the best financial tools around – when planned properly and followed faithfully.
  7. Savings

    7 Ways to Trim Fat from Your Spending

    Check out these seven ways to cut the fat from your spending.
  8. Savings

    7 Millionaire Myths

    Here are seven millionaire myths and realities that reveal they don’t quite have it all.
  9. Economics

    Calculating Long-Term Debt to Total Assets Ratio

    A company’s long-term debt to total assets ratio shows the percentage of its assets that are financed with long-term debt.
  10. Economics

    Explaining Like-for-Like Sales

    Companies use like-for-like sales figures to compare sales volume from one period to another.
  1. Do dividends affect working capital?

    Regardless of whether cash dividends are paid or accrued, a company's working capital is reduced. When cash dividends are ... Read Full Answer >>
  2. Do prepayments provide working capital?

    Prepayments, or prepaid expenses, are typically included in the current assets on a company's balance sheet, as they represent ... Read Full Answer >>
  3. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  4. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  5. Can your insurance company cancel your policy without notice?

    In most states, an insurance company must give a policyholder written notice of at least 30 days before canceling a policy. ... Read Full Answer >>
  6. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!