How to reduce operating expenses

Most founders experience a moment where business growth is strong and the roadmap is full, but they're burning through cash faster than expected. If you’re feeling pressure to extend your runway — whether it’s coming from investors, markets, or your own cash flow forecast — now is the right time to rethink how to reduce operating costs.

The goal with operating expenses isn’t austerity, but clarity. To reduce operational costs effectively, you need a clear view of where money flows; and of which expenses fuel momentum and which quietly chip away at your margins. When you know the difference, you can operate lean without feeling constrained.

This guide will walk you through practical and high-impact ways to reduce operating expenses in a business, especially for early-stage companies without an in-house finance team. You’ll also get a process founders use to stay sharp, spend intentionally, and build healthier unit economics.

You can’t reduce operating expenses if you don’t have a complete picture of what you’re spending and why.

Understand OpEx vs CapEx vs COGS

Early-stage teams often lump expenses together, but categorization matters:

• OpEx (operating expenses): Recurring costs to run the business day-to-day (e.g., salaries, software, marketing, rent, contractors, travel expenses)
• CapEx (capital expenditures): One-time investments in long-term assets (e.g., hardware, infrastructure, long-term assets)
• COGS (cost of goods sold): Expenses tied directly to delivering your product (e.g., hosting per customer, materials, payment processing)

Overspending typically hides in OpEx, where recurring costs pile up without regular scrutiny.

Where early-stage companies typically overspend

The same overspending patterns tend to show up across industries. Audit these categories first to spot unnecessary OpEx quickly:

• Software sprawl: Multiple tools serving the same function
• Freelancers and contractors: Unnecessary outsourcing or overlapping responsibilities without clear ownership
• Travel and entertainment: Expenses approved without consistent guidelines
• Agency retainers: Ongoing monthly costs that exceed actual deliverables
• Unused data/storage plans: Subscriptions that auto-renew, but not might be necessary anymore

But identifying waste is only half the battle. When spend is spread across multiple banks, cards, and spreadsheets, it’s hard to get a single source of financial truth. Without that visibility, reducing operating costs becomes guesswork. 

This is where unified financial infrastructure helps. Tools like Mercury do this by unifying banking and spend visibility in one place, making it easier to see where money goes, identify waste, and manage OpEx with confidence.

You don't have to make big structural changes or sacrifice growth to extend your runway. For fast relief, focus on high-impact, targeted cuts that reduce costs without slowing momentum.

Renegotiate vendor contracts

Most SaaS vendors expect negotiation. Ask for:

• Annual-billing discounts
• “Startup” or “early customer” credits
• Lower tiers with usage add-ons

It’s often possible to secure a 10–20% reduction, particularly when switching to annual billing or adjusting scope.

Downgrade underused software

Most teams use only a fraction of the tools they’re paying for. A quick subscription audit can surface:

• Seats that belong to ex-employees
• Premium features you don’t use
• Duplicate tools across teams

Downshifting is one of the fastest ways to cut operating costs with minimal disruption — just make sure you confirm usage needs before making changes.

Use smart controls 

Controls help catch waste before it compounds. This is an often-overlooked way to reduce operational costs:

• Cards with custom limits and expiration dates
• Merchant and category restrictions
• Software-tagged transactions so SaaS costs surface instantly

Instead of discovering overspend at quarter-end, you can address it as (or before) it happens.

Discover how Mercury simplifies expense management with smart controls and corporate cards.

One of the most effective ways to reduce operating costs is to decrease your manual workload. Automation frees your team to focus on higher-leverage work and keeps hiring intentional.

Use cases that immediately reduce operational costs

• AI chatbots: Handle inbound support triage, freeing up your team to focus on complex issues
• Business process automation: Approvals, onboarding, recurring workflows
• Automated bill pay: Eliminates late fees and manual time sinks
• Accounting integrations: Automatic reconciliation reduces errors and headcount pressure

This isn’t about replacing people. It’s about giving your existing team more room to operate at full power.

Learn more about how Mercury uses AI to automatically code transactions and expenses, saving time and increasing accuracy.

The most effective teams don’t treat cost reduction as a one-time cleanup. They actively manage operating expenses over time to optimize them.

Forecasting and scenario planning

Building a forecast helps you understand not just what you’re spending today, but how those costs evolve as the business grows. It’s a foundational step in OpEx optimization.

Build a few scenarios, including your base case, stretch case, and low-burn contingency. This allows you to see the long-term effect of today’s spend and make cuts or investments with more confidence.

Monthly OpEx audits

Regular OpEx audits prevent small leaks from becoming structural problems. This discipline supports long-term optimization of operating expenses, not just short-term cuts.

A 30-minute monthly review keeps spending aligned with reality. Look for:

• New subscriptions added without approval
• Spikes in contractor hours
• Travel expense trends
• Underused tools

Keeping tabs on things each month and implementing corrections early helps prevent large overhauls later.

Spend dashboards for real-time visibility

Dashboards turn raw transactions into insight, making it easier to spot outliers as they happen. Real-time visibility gives you the confidence to act quickly instead of waiting for month-end reports. 

With additional visibility, teams can spot patterns that might not be as easy to catch in spreadsheets. Spend patterns may show up in several categories, particularly software, people, contractors, infrastructure, and marketing.

Platforms like Mercury can support you by bringing accounts, cards, and categorized spend into one place, giving you a clearer view of operating expenses without waiting for month-end reports.

Even well-intentioned teams can undermine their efforts to reduce operating expenses by falling into predictable traps.

Mistake 1: Cutting strategic people or processes

Reducing headcount or removing core processes can deliver short-term savings, but the downstream cost is often slower execution and lost momentum. Consider whether the role or workflow supports capabilities that are hard to replace once they’re gone.

Before you cut, ask:

• Does this reduce our ability to ship?
• Does this weaken our customer experience?
• Does this remove institutional knowledge we can’t replace?

Mistake 2: Cutting without tying decisions to strategy

When cost reductions aren’t anchored to clear business goals, they can create confusion and misalignment across teams. Every cut should reinforce your priorities, whether that’s product velocity, customer retention, or reaching profitability.

If you cut without aligning to business goals, you risk fragmenting your roadmap. Cuts should support your mission, not work against it.

Mistake 3: Not tracking impact over time

Cost reduction isn’t complete once the decision is made. Without tracking outcomes, it’s impossible to know whether savings came at the expense of performance or customer trust.

Some key metrics to track are:

• Savings achieved
• Productivity gains
• Customer experience impact
• Changes to burn and runway

This is how you build cost consciousness into the culture, not just the budget.

Reducing operating expenses isn’t about being frugal, but about being deliberate and efficient. High-growth teams win when they know their spend, cut what doesn’t serve them, and tie decisions back to strategy. The key is to review spending regularly so you catch unnecessary spend early, and think strategically about what tools you have in your arsenal — e.g. automation — to make cost-cutting more effective.