Discretionary spending refers to costs that can be cut to save a company money, and can also apply to personal household budgets. Companies may start by cutting benefits or unnecessary costs, but should not disrupt business operations. Advertising is often one of the first expenses to be cut.
Discretionary spending is another term for discretionary cost, which is a cost that can be cut or cut entirely to save the company money. Some companies focus on discretionary spending when there are money issues with a company, but others continually look for ways to save the company money, with the ultimate goal of increasing the company’s bottom line.
Although discretionary spending is often used in business settings, it can also refer to costs within a personal household budget. These are costs that are not considered basic living expenses, which are typically those related to housing, utilities, clothing, transportation, and food. On a personal budget, discretionary expenses can include entertainment, cable TV, and home décor. When adjusting a budget, discretionary expenses are often the first to be reduced.
When a company is going through a process of reducing the costs of discretionary expenses, the company begins by cutting benefits or those costs that are not necessary. The key component of cutting discretionary spending is not to disrupt business operations and your ability to earn money. When a business is in cost-cutting mode, it typically starts by cutting back on the extra benefits around the office or that employees have access to.
For example, one of the first discretionary expenses for company salespeople is the expense or expense account. Some companies limit the amount of money salespeople have to spend to entertain customers or prospects. Other companies cut the expense account entirely. Which option the company chooses depends on how much money you need to save.
Another way to look at the cost of spending is in a managed cost situation, where instead of giving departments and employees a carte blanche on spending, the company carefully watches how much money it spends. In addition to how much money the company is spending, you’re also paying close attention to how much the company is spending its money.
Discretionary spending measures can be short-term or they can be long-term measures. Again, this depends on the goal of reducing expenses to begin with. For example, the company may choose to stop hosting an annual company party. Instead, you can allow departments to host a small holiday lunch.
One of the top discretionary expenses that companies seem to cut first is advertising. The problem with reducing advertising costs or eliminating advertising costs is that advertising and business promotion are imperative to increasing sales. This, however, does not prevent companies from cutting advertising costs when they are in discretionary spending mode.
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