These may include real estate, mergers and acquisitions, research and development, and stocks. There are potential discretionary investments that a company may make to propel growth and diversify its income streams. Finding the events, social media sites, websites where they can be found and reaching them there will generate the highest ROI.

20% of a company’s business comes from 80% of its customers.įocusing the marketing team’s efforts on these ideal customers will be crucial. Some discretionary items found in the marketing budget include advertising, events, video production, agencies and freelancers, collateral, and public relations.ĭeciding where to cut back can be challenging but make it easier by applying the Pareto Principle. MarketingĪlthough marketing isn’t optional for the majority of businesses, it does encompass a large number of areas that can be examined for ways to reduce costs. In general, these are the areas where most companies can choose not to invest in for the short-term future. What may be discretionary to one company may be non-discretionary to another. The most important thing to remember is that discretionary costs will not be the same for every company.

Discretionary costs will vary depending on the business and it’s specific needs. Managing discretionary costs allows companies to pinpoint where they can make cuts to save money during financial difficulties. While these costs can be paused they need to be paid to stay in business at a minimum. Managing discretionary costs wisely is important because it can’t be a long-term strategy. A company may decide to reduce discretionary costs if it finds itself with cash flow difficulties, or if it wants to present more favorable financial statements.ĭiscretionary funds shouldn’t be reduced for a prolonged period since this can present a number of challenges. When it’s necessary to reduce the budget, cost-cutting has to come from discretionary funds since cutting essentials costs is risky and often impossible.Ī number of expenses can be cut without causing serious damage to a business that are discretionary or managed costs.Ī discretionary cost, discretionary expenditure, is an expense that can be forestalled or eliminated in the short-term without negatively affecting a business’s short-term profitability. Mandatory or non-discretionary expenses like salaries, rent, and insurance expenses must be paid to avoid legal ramifications or to avoid shutting down completely. These are essential expenses which are integral to running the business. Non-discretionary expenses or mandatory costs, can’t be cut without running the risk of causing serious damage to the company. High expenses mean that a company needs to generate a substantial amount of capital to reach the break-even point. Cost management is critical during a financial crisis and may be the only way to keep a business sustainable.

Discretionary expenses