How cutting expenses can backfire for shops

Cutting expenses may seem like the fastest way to improve a repair shop’s financial performance, but poorly targeted cuts can damage morale, reduce revenue and create long‑term problems, a financial analyst told an industry conference.

Chris Kelly, a chartered financial analyst, said shop owners need to understand which costs support revenue before reducing spending. He warned against making across‑the‑board cuts without examining how those expenses affect operations and employees.

“You don’t want to cut so much that you’re decreasing revenue,” Kelly said at the Midwest Auto Care Alliance Hi‑Tech Training and Vision Expo in Kansas City. “You don’t want to cut that you’re hurting employee morale.”

Kelly said not all costs are equal. Some expenses directly support growth or customer acquisition, while others have little impact on performance. He cautioned owners against eliminating spending that generates a return.

“If you’re spending this dollar and it’s returning you some amount of revenue, don’t cut it,” he said.

Kelly contrasted variable expenses, such as marketing and credit card fees, with fixed costs like rent and subscriptions. Fixed costs, are often easier to reduce, he said, but even those cuts should be evaluated carefully.

“A dollar saved is a dollar in my pocket,” he said, noting that fixed costs have a more direct effect on profitability than revenue increases.

However, Kelly warned that aggressive cost-cutting can backfire when it affects workplace culture. He shared an example from earlier in his career, where leadership eliminated small perks to save money during a downturn.

“They also cut snacks because we were eating snacks at our desk,” Kelly said. “Everyone hated the team, and no one wanted to work anymore.”

He said the short‑term savings were outweighed by the loss of productivity and goodwill. “Their idea of saving $300 or $500 a week on snacks cost them probably 50 hours of work,” he said.

Kelly said owners should separate costs that truly drain profitability from those that help employees do their jobs or keep customers coming back. He also urged shop leaders to avoid what he described as “chasing pennies,” such as obsessing over small percentage differences while ignoring major revenue drivers.

“You’re getting lost in the details,” he said. “You’re not talking about labour gross profit.”

Instead, Kelly said shop owners should focus on a small number of core metrics that matter most and evaluate expenses through that lens. Cuts should be intentional, justified and aligned with long‑term goals.

“Don’t be too harsh and draconian with cutting costs,” Kelly said. “You don’t want to end up hurting team morale and hurting revenue.”

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