7 Ways to Reduce Costs During a Downturn

If customers spend longer comparing estimates and ask for discounts more often while materials and delivery become more expensive, your usual service price may no longer cover your costs.

In this situation, it is important to calculate and manage the cost of providing a service. Once you know the cost per unit, such as m², a project stage or a site visit, it becomes easier to decide where to improve purchasing, eliminate downtime or revise your price list.

Below are 7 practical tips using construction and renovation as examples. They focus on reducing waste, making site operations more predictable and maintaining financial discipline.

What counts towards the cost of a construction or renovation service?

The cost of a renovation service seems simple until you open a bank statement. Everything is mixed together: advances to tradespeople, delivery, consumables, fuel, returns, paid parking, warranty call-outs, office costs and advertising. Without separating these transactions, a manager can see cash movements but cannot understand the cost of the work completed.

Two independent ways of classifying costs are useful for management decisions. According to how they are attributed to a service or project, costs are direct or indirect (overhead). Direct costs can be linked directly to a particular job: the person's pay, materials, subcontracting, delivery or equipment hire for that project. Indirect costs are allocated across services and projects using a justified allocation basis; examples include office rent and administrative staff pay. According to how they respond to work volume, costs are variable or fixed within the chosen period and activity range. The same amount can be both direct and variable, or both indirect and fixed; these classifications must not be added together. Classify consumables, warranty call-outs, taxes, marketing and subscriptions according to their terms and their relationship to the work.

Managing costs during a downturn comes down to identifying and eliminating recurring losses. Instead of a general policy of “saving on everything”, choose specific rules that the team can follow every day.

Tip 1. Calculate cost per unit of service

Trying to “cut costs” without a unit of measurement creates a risk of different interpretations. A manager says, “We need to reduce renovation costs”; the site supervisor hears, “Save on purchasing”; a tradesperson hears, “Cut pay”. The result may be conflict, poorer quality and additional rework.

Choose a unit of service and calculate its cost. For repetitive finishing work, m² for a particular type of work may be appropriate; for construction, it may be a stage, such as foundations, the building shell or building services, or an entire project if the projects are comparable. Then compare planned and actual figures for that unit: where a variance occurred, why it happened and which rule could prevent a recurrence.

Consider a hypothetical example of one homogeneous service: plastering of the same complexity, measured in m². The customer buys the main materials, so they are included neither in the price of this service nor in the calculation below. The tradesperson is paid 250 ₽ (Russian rubles) per m². For this example, estimate consumables at 10% of that pay specifically: another 25 ₽ per m². This is an illustrative assumption that must be checked against actual consumption in practice. These 25 ₽ are not included in the 250 ₽ and are not counted again. Suppose that, during one month, the company provided only this service, completing 1,000 m², and its indirect costs for the same month were 300,000 ₽. Allocating those costs across this homogeneous volume gives 300 ₽ per m². There are no other costs in this simplified example. The calculated cost per m² is 250 + 25 + 300 = 575 ₽. If you provide several services, each needs an appropriate allocation basis; you cannot add together m² of work with different labour requirements without justification.

After this calculation, you can assess how much the price exceeds the calculated cost. At a price of 575 ₽, that difference is zero in this simplified model. An actual price close to 575 ₽ does not, on its own, establish a profit or a loss: the outcome depends on actual costs, volume, the terms of the order and whether the calculation is complete. This comparison helps you examine the effects of discounts, productivity standards, purchasing and downtime.

Tip 2. Classify costs by project and by how they change with volume

During a downturn, it is important to distinguish costs directly associated with a project from the company's shared costs. Savings on materials for one project may be outweighed by office costs, underutilised roles, services and advertising whose return has not been established.

Count each amount only once when calculating cost: attribute direct costs straight to a service or project, and allocate indirect costs. Use the “variable or fixed” classification separately to analyse how costs change when work volume changes. If direct costs are high, check standards, productivity, payment terms and subcontracting. If variable costs are growing faster than volume, examine rework, warranty call-outs and consumables. If overhead costs are a heavy burden, review roles, workload, rent, subscriptions and your sales model.

To establish this approach, create a consistent list of expense categories and compare planned and actual figures for each. The 101 article on allocating expenses by category (in Russian) provides related guidance.

Tip 3. Standardise your service to reduce rework

Rework can cancel out savings made while carrying out a job. For example, an estimate says “wall plastering”, a tradesperson works as usual, the customer expects a different result, the site supervisor promises to “finish it off”, and the team returns for a second visit. Money goes on labour and logistics while revenue stays the same.

Standardisation helps reduce the risk of rework: every price-list item should define the scope of work and acceptance criteria. The minimum information includes what is included, what is excluded, the specified materials and consumption allowances, the expected result and the photographs required for reporting. The price list becomes more than a set of prices; it also serves as a working guide for the team.

To strengthen this system, read the 101 article on an effective price list and payments to contractors (in Russian). It explains how a price list connects payment, work volume and responsibility.

Tip 4. Reorganise purchasing and logistics for a downturn

If the site supervisor handles purchasing, they have to keep the site supplied while controlling costs. Buying wherever is quickest, holding excess stock, forgetting returns and leaving materials unrecorded can increase costs. Review these transactions together across several projects over a quarter.

A downturn is a reason to make purchasing repeatable: consistent specifications, clear alternatives, fixed substitution rules and stock control. Compare suppliers' offers taking delivery, timing and returns into account, and check the effect of your agreements against actual costs.

Review the following rules:

• Use one specification for standard work, covering primer, filler, fixings and consumables, so tradespeople do not have to improvise the material mix on site.
• Use one purchasing source for each group of materials where delivery deadlines and availability allow.
• Record remaining materials against the project and appoint someone to manage returns.
• Schedule deliveries around the work programme to avoid idle-time costs caused by logistics.
• Photograph materials that will be concealed and keep photographs of receipts promptly, while the information can still be recovered.

Tip 5. Manage site time as carefully as materials

Waiting can be a cause of lost working time: materials have not arrived, another contractor has not finished, or access, a customer decision or a tool taken to another site is unavailable. In a report, this may appear as a single line: “the day went by”. With time-based pay, downtime means paying for time during which the planned amount of work was not completed.

During a downturn, a short planning cycle is useful: a weekly work plan for each project and a daily record of actual progress. You can use the first two weeks to collect observations: where downtime occurs, which tasks slip, which teams meet the standard and where organisation gets in the way. Reliable conclusions require comparable data over a period that is sufficient for your company.

Another task is to simplify reporting so the team can keep it up regularly. The 101 article on reducing the time spent on reports covers this topic. Timely data helps you spot mistakes earlier and check their effect on costs.

Tip 6. Set up payments to tradespeople and subcontractors based on completed work

When a company is under pressure, it may be tempting to reduce pay for the people doing the work. This creates a risk of staff turnover and poorer quality. For work carried out under a contractor agreement, you can agree in advance on payment for a defined volume and specified result, recording the terms in the contract.

For example, a subcontract can define the scope of work, acceptance criteria, supporting documents, an advance and stage payments. Payment procedures and deadlines are determined by applicable law and the contract; prepare invoices and acceptance documents in accordance with those terms. Acceptance by the end customer is not a universal condition for every payment. In Russia, employees' pay is governed by labour law and their employment contract: wages must not be delayed until the customer accepts the work.

If your company uses many subcontractors, check advances and the wording of work assignments separately. Agree the advance amount, stages, documents and payment deadlines in the contract. An unclear scope increases the risk of additional work and payment disputes; describe in advance how the parties will agree changes to the scope.

Tip 7. Drop unprofitable service models and protect your margin

Sometimes there is limited scope for further cost reductions: the team is fully staffed, purchasing is organised and rework is under control. Then it is worth considering management options: discontinue an unprofitable service model, revise what a service includes or recalculate its price.

During a downturn, discounts can support demand while reducing the amount by which price exceeds cost. To avoid cutting prices blindly, choose a pricing method that takes costs, risks and target profit into account. The 101 article on pricing methods during a downturn (in Russian) offers related guidance.

Another practical step is to stop answering “too expensive” with a discount. Distrust or uncertainty about the scope of work may be behind the objection. In these cases, explain what the price includes, how you record the work, which reports the customer receives and how quality is controlled. The 101 article on price objections provides a detailed discussion, while the article on marketing in construction (in Russian) covers how to present your offer and choose marketing channels.

A 14-day plan: where can you start without heroics?

The following is a guide for your first 14 days of working on service costs. Start with a few services and one project; the implementation schedule and results will depend on the state of your records and how the team works:

1. Choose 3 services that sell more often than the others and define the unit: m², a project stage or a site visit.
2. Calculate the direct costs of each service and check that all relevant amounts have been included.
3. Check consumables and other variable costs against actual data; if you use a percentage estimate, specify the base and exclude amounts already counted.
4. Allocate indirect costs for the same period using a justified basis to obtain a cost per unit; check that services are comparable if you use m².
5. Create one work instruction for the most disputed service on your price list and introduce acceptance criteria.
6. Start recording remaining materials and returns on one project, then extend the rule to the others after checking it.
7. Compare planned and actual time: where downtime occurs, what causes it and which rule could prevent a recurrence.

If you want to connect costs, markup and project results, explore management accounting in the 101 App. During a free presentation, you can discuss your needs: price lists, payments, reports and analytics.