Discretionary expenditure is another term for discretionary cost, which is a cost that can either be cut back or cut out completely in order to save the company money. Some businesses focus on discretionary spending when there are monetary problems with a business, but other businesses continuously look for ways to save the company money, with the ultimate goal being to increase the bottom line of the business.
Although discretionary expenditures are often used in business settings, it can also refer to costs within a personal household budget. These are costs that are not considered basic living expenses, which are typically those associated with housing, utilities, clothing, transportation and food. In a personal budget, discretionary expenditures may include entertainment, cable television and home decor. When tightening a budget, discretionary expenditures are typically the first to be cut.
When a business is going through a discretionary expenditure cost cutting process, the company starts by cutting benefits or those costs that are not necessary. The key component of discretionary expenditure cutting is not to alter the operations of the business and its ability to make money. When a company is in cost cutting mode, it typically starts by cutting out the fringe benefits of the office or that the employees have access to.
For example, one of the first discretionary expenditure to go for the salespeople of the company is the spending or expense account. Some companies limit the amount of money that the salespeople have to spend to entertain clients or prospects. Other companies cut out the spending account altogether. Which option the company chooses depends on how much money the company needs to save.
Another way to view expenditure cost is in a managed cost situation, where instead of giving departments and employee carte blanche on spending, the company carefully watches how much money it spends. In addition to the amount of money the company is spending, it is also paying very close attention to what the company is spending its money on.
Discretionary expenditure measures may be short-term or it may be a long-term measure. Again, this depends on the goal of cutting the expense to start. For example, the company may choose to stop throwing an annual party for the company. Instead, it may allow the departments to host a small holiday lunch.
One of the major discretionary expenditure that companies seem to cut first is advertising. The problem with cutting the costs of advertising or eliminating advertising costs is that advertising and promoting the business is imperative to boosting sales. This, however, does not stop companies from cutting advertising costs when they are in discretionary expenditure mode.