Cost Reduction Plan From Your Contracts

Targets usually arrive as one figure: "take out $2 million." Before you build anything, ask which number that is. Run rate is what the cuts save over a full year once they are in place. In-year savings are the cash they save between their start dates and your year end.

The gap between the two is the calendar. A $120,000-a-year software contract that ends on October 1 saves $120,000 at run rate, but only $30,000 in a year that closes on December 31. Report both numbers on every line and in every total.

Ask what the savings are measured against, too: this year's budget, last year's actual spend or the latest forecast. A budget that assumed growth can show savings while spending rises.

Start from the last 12 months of actual spend by vendor and account, since one month times 12 misses annual invoices and seasonal swings. Flag anything already ordered or prepaid for the rest of the year: that money is spent whatever you decide.

Then mark each line as committed (it changes only at renewal or for a fee), variable (it moves with volume) or discretionary (it stops when you decide).

Work down from the largest lines, then check the small discretionary ones and anything nobody owns. For each candidate, name the lever it pulls:

• Stop: end what nobody needs, such as unused software seats
• Shrink: buy fewer seats, lower volumes or less space
• Renegotiate: get a better price or terms, usually at renewal
• Switch: use a cheaper supplier or a different way to do the work
• Defer: delay a purchase or a hire, which saves cash this year only

Note what each candidate buys and who relies on it. Before you replace contractors with employees, or the reverse, compare contractor and employee costs on the same footing.

Committed spend stops on the date its contract allows, not the day you decide. Pull six things from each agreement behind a candidate.

Software contracts show why the paper matters. Unless an order form says otherwise, Salesforce's standard Main Services Agreement renews subscriptions for one-year terms unless either side gives written notice at least 30 days before the term ends¹. It also bars cutting quantities mid-term and reprices a smaller renewal without regard to the old per-unit price.

A contract summary with a dated obligations list puts a long agreement's deadlines on one page, and a commercial lease review dates a lease's renewal notice window.

Price each role at its loaded cost, not its salary. In June 2026, private employers' benefit costs averaged $14.07 an hour on top of $32.82 in wages², the Bureau of Labor Statistics reports. From the saving, subtract severance, notice pay and any overtime that replaces the work. The Fair Labor Standards Act doesn't require severance pay³, the Department of Labor notes, so price it from your own policy and agreements.

In the US, the WARN Act generally covers employers with 100 or more full-time employees. It requires at least 60 calendar days' notice⁴ before a plant closing or a mass layoff. A mass layoff is one that, within 30 days, reaches 500 full-time employees at a site, or 50 if they are at least 33% of its full-time staff⁵.

Separate cuts can add up. The WARN regulations tell employers to look 90 days back and 90 days ahead⁴ to see whether smaller cuts at one site reach those numbers together. The exception is cuts the employer can show have separate and distinct causes.

State laws can go further. New York's version⁶ requires 90 days' notice from private employers with 50 or more full-time staff in the state, and it can apply to layoffs of 25 full-time employees. Build each notice period into the start date.

In-year savings run from each cut's earliest date to your year end, minus one-time costs such as exit fees, severance and overlap while you switch.

Count only cost that actually stops. OpenStax's managerial accounting textbook explains that in the short run, only avoidable costs are relevant⁷: the ones you can eliminate by choosing one option over another. Rent allocated to a team doesn't vanish when the team does.

Last, write down what each cut affects in plain words: which shift loses cover, which customers wait a day longer, which report stops. Say whether you could undo it, and at what cost. When two cuts are close, prefer the one you can reverse.

Total both numbers against both targets and say plainly where you land. If the run rate clears its target but this year's cash falls short, show the gap and how you would close it. List the large savings you rejected and why; the board will ask.

Turn the approved plan into a calendar that lists each notice with its recipient, deadline and sender. Each month, have each owner report savings delivered against savings committed, and carry the cash timing into your 13-week cash flow forecast.

To start faster, the tool at the top of this page reads your cost detail and contracts, then drafts the dated candidate sheet and notice calendar for you to check.