Everywhere you look, people be cutting costs. Google and Facebook are NOT “doing layoffs” but it feels like every other tech company under the sun is getting leaner. Companies are scrambling to maintain their current trajectory, meet investor expectations, or in other cases just stay alive.

Less examined is when companies say “we need to cut costs”…what exactly do they mean? And, as leaders, how can you understand your menu of options to better plan? When the plan comes down from on high, it’s good to be prepared!

First is to understand the sequential order of costs by size. What are your largest costs? It’s probably headcount, marketing and T&E (business travel) in some order. Executive leaders are usually going to weigh the size of the cost with the speed in which it can be cut. Basically anything variable that has been brought on to increase growth is likely to be culled when there’s clear diminishing returns from those more recent incremental investments.

Let’s assume marketing expenses are going to go first. Advertising, events, swag. Those can be cut rather quickly and there’s less emotion around it. Keep your best performing channels. Cut some under performers. Maybe do the bronze sponsorship instead of the gold sponsorship at the conference. Less sweatshirts, more stickers. That kind of thing.

Next is T&E. I’ll assume your team’s budget for quarterly events or non-essential travel has vaporized over the summer. If not, please do enjoy as time allows. But that’s got to go too. Happy hours will stop until morale improves (the growth arrow returning back up and to the right).

Last, the most sensitive and emotional cost center. Headcount. You know it’s coming. If it hasn’t already! This is going to be examined by function (core players), impact (performance) and project (strategic initiative).

Function is usually going to be the first area of scrutiny. Recruiting. Sales. Marketing. Very critical roles that are, unfortunately, variable in nature when a company’s aspirations contract. If there is little hiring to be done, recruiting is a less essential function. It stinks, but it makes sense. Marketing team members who managed those underperforming “experimental” channels? They’ve got to go to too. And if sales are slumping with only so many leads to go around, some sales people are also going to have to go.

Next is performance. As brutal as it is to say sometimes these leaner times are good opportunities to cut your bottom 10-20% of performers. Addition by subtraction. If you had 10 people on your team and only had to lose 1 or 2 I’d imagine you probably would know who has to go.

Lastly, they’ll look at a team’s proximal impact on the company’s future – core products, revenue, strategic initiatives, and a variety of other factors around competitive positioning and alignment. This area is where you hear the *rarer* R&D cuts come from. Engineers are so hard to hire so they usually are the last to go. But when they do, it’s because those engineers were working on non-core product areas or areas that are due to receive less investment moving forward.

In summary, I’m not saying your company will cut costs. It’s just…everyone else is doing it. Might as well have your head on a swivel and understand how the cookies will likely crumble at your factory. Good luck!