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.

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