Applying the 80/20 Rule to Cutting Costs

Cost reduction and containment are of prime importance in this economy. Even without the downturn in the economy, rationalizing and optimizing your costs and expenses should be an ongoing focus of Entrepreneurs.

How do you go about cutting costs? Do you randomly select areas to focus on and start reviewing items to cut?

I suggest that you might want to apply the 80/20 rule to cost reduction. Focus on 20 percent of your cost categories that account for 80 percent of your dollars spent. Start with the most significant dollar-weighted category and move down the list.

This should allow you to get the optimum results. Starting and spending too much time on low-dollar cost areas will not provide you enough returns on time spent.

With apologies for revising  an old saying, I suggest “Be Pound Wise and Penny Foolish.”

For more info, please contact Patel CFO Services at

Ravi Patel


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