Why Firing Your Employees to Save Money is a Bad Idea

Layoffs have costs. Firstly, they are economically messy situations. Employees often have long notice periods or severance agreements, which add costs back into the balance sheet. The drop in productivity from losing a pair of hands will also be noticeable in your output, and the employees that are left may have to work overtime to pick up the slack. In the end, the net budget cut might be smaller than you thought.

Layoffs also have internal consequences, such as lower employee morale and attractiveness to new talent. Yet, most importantly, letting employees go hurts your company’s reputation and has adverse effects on your sales pipeline, customer retention, and long-term investability. News about downsizing spread fast, and mass layoffs quickly end up in the headlines. For example, a worldwide study of 205 mass layoffs by car brands showed that sales dropped by an average of 8.7% after the news broke. Multiple layoffs in a row are especially damaging, as customer and investor faith in your vision can be irreparably damaged. Therefore, I would look long and hard at other options before cutting employees.

Audit everything, not just your workforce

Is your company using all its SaaS subscriptions to the fullest? Are you getting everything you need from your service providers? Are your processes as efficient as they can be? These are the questions you should ask yourself. By streamlining your business operations, you can free up funds without letting people go.

For work tools, the recipe for overspending is well known. You start by adding one or two SaaS services to help your business run more efficiently. Then, as you grow, more and more tools and cloud services are added. A study has shown that US companies with over 1000 employees have access to 177 SaaS tools on average.

By critically reviewing the toolbox, you can filter out the nice-to-haves and why-do-we-haves from the must-haves. The market is full of solutions that help you manage your SaaS subscriptions, and companies that can buy software at a minimum cost and risk have a competitive advantage. Having a clear procurement strategy and getting help from a SaaS procurement and management partner are great ways to remove duplicate tools, discover Shadow IT and help you spend less on the services you actually need.

Secondly, you should talk to your service providers. Most SaaS providers want to help you be successful. After all, their business depends on it. Still, they can only help you if they know about your problems. Especially large business management systems like Salesforce or HubSpot have almost endless capabilities. If you talk to them, they may be able to help you in ways you did not anticipate. You can even renegotiate contracts mid-period to get a service offering that serves your actual needs at the right cost.

Finally, go through your processes. If workers spend time on unnecessary tasks or decision-making processes are too complex, they lose time. And time is money. Some tasks can be automated with technical solutions; other processes can be streamlined. This will not only help you save by improving productivity; removing frustrating bottlenecks also makes work easier for your employees.

Your workforce is your most valuable asset, and letting people go should be the last option on your list of potential cuts. By looking at your business operations and toolbox instead, you can make those savings while keeping employees happy and your reputation intact.