Playbook
How to cut costs in a consulting business, in the right order
What comes out of the cost base, in what order, with a written protect list and written restoration conditions before a single decision is announced.
The methodThe four-tier cut order
This playbook is a method for cutting costs in a consulting business in the right order: four tiers, each exhausted before the next opens, with a written protect list and written restoration conditions agreed before a single decision is announced. It is for founders and managing directors of people-heavy services businesses whose cost base has moved above the revenue line, who know the number to the pound and cannot yet change it, and who need to know what goes first. The tiers run overheads, then subcontractors, then billable capacity serving work the company has already decided against, and only then everyone's hours company-wide. Utilisation (utilization) does not give you the order. The order is a decision about what the company is going to be.
When the cost base sits above revenue, the question stops being whether to cut and becomes what to cut first, and most guidance is silent on the part that matters. Published advice covers overheads in detail and says almost nothing about sequencing billable people against overhead, because in a product company that question does not arise. In a services business the people are the product, so every cut into delivery capacity is also a cut into what you can sell. Cut in the wrong order and you lose the capacity you needed to trade out of the problem while keeping the costs that put you in it.
Two things are written before any tier opens. The protect list names what will not be cut whatever happens: the people, the customers and the capabilities the company is going to be rebuilt around. The restoration conditions say, in numbers you already track every month, what has to be true for each cut to be reversed, so that the way back exists before the way down begins. Then tier one, overheads: everything that is not a person delivering paid work. Tier two, subcontractors and contractors, because that capacity can be bought back later. Tier three, billable people on work the company has decided is off strategy, which is the tier most companies skip, because that capacity is invisible unless somebody has written down what the company is going to be. Only when all three are exhausted does tier four open: hours and pay, reduced together, for everyone, against the restoration conditions already agreed.
What is deliberately not in it: employment law, redundancy process, or any account of individual people. Those need a lawyer and a conscience, not a playbook. There is also no claim that the four tiers were a policy that existed in advance. The order is reconstructed from what several rounds of cuts actually did, in the sequence they turned out to follow, and the playbook says so. Retrospective advice is labelled as retrospective, and no published source I have found gives a sequencing rule for billable against overhead, so this one is offered as practice rather than doctrine.
I learned it in a cash crisis. In the business that became DevOpsGroup there was a period when I knew the cost base and the revenue line exactly, every month, and the gap between them was not closing. The board arithmetic was clear: the ceiling the company could sustain, the breakeven it had to reach, and the difference between them. The first round took out overheads and the contractor line. The next reached the work we had already decided the company would stop doing, which was harder, because those people were billable and their customers were paying. The last round reduced everyone's hours and pay together, mine included, with the conditions for restoring them written down and read out to the company. The hours came back in stages as those conditions were met. Writing the way back first is the part I would repeat.
The playbook is in development. Joining the waitlist means you hear when it is ready, and it gives me the chance to ask which tier you are standing at and what your protect list would need to hold. Nothing is for sale yet.
What you will get
Who it is for
Questions
- What should a consulting business cut first when costs are above revenue?
- Overheads, meaning everything that is not a person delivering paid work. Then subcontractors and contractors, because that capacity can be bought back. Then billable capacity on work the company has already decided is off strategy. Only when those three are exhausted do everyone's hours and pay come into it.
- Should you cut billable staff or overheads first?
- Overheads first, always, and then the question is which billable capacity. The tier most companies skip is the third: people on work the company has decided against, which stays invisible unless someone has written down what the company is going to be. Cutting everyone's hours before that tier is exhausted spreads the pain and keeps the wrong work.
- Why write a protect list and restoration conditions before cutting anything?
- Because the way back has to exist before the way down begins. The protect list says what the company is being rebuilt around and will not be cut whatever happens. The restoration conditions say, in numbers you already track, what has to be true to reverse each cut. Written first, they turn a round of cuts into something people can stay for.
- Was the four-tier order a policy you had in advance?
- No, and the playbook says so. It is reconstructed from what several rounds actually did, in the sequence they turned out to follow. That is retrospective advice, and it is labelled as such.