Spending Money to Make Money: Costs you Cannot Afford to Cut
by Larry Slusser on February 4th, 2008
Cut your operating costs. Run your business lean. Bootstrap-spend your way to success. All of these mantras involve minimizing spending and if you follow them all, you won’t make any money. There are times in the life of your business where you are going to have to spend money to make money.
Also, there are some aspects of your business that you just can’t afford to cut out; the cost to your business is too high. The key to success in business is having the wisdom to know when and what to invest in and when and where you can cut expenses without hurting your enterprise.
How Do I Know If Something Is Critical Or Not?
If I cut this out, how will it impact my business? This is the key question to ask yourself before you get too far down the road planning to cut out something. Whether you are contemplating a reduction in product or service offerings, or looking at laying off an employee, look at how will the reduction impact your business. In the short term the answer may be that the impact is negative – but what does the long term look like?
If you were in the wagon wheel industry as a marketer or reseller, you needed to transition when Henry Ford invented the automobile. Those who failed to shift their strategy paid the price. While this example is extreme, the lesson is still valid – change happens and you and your business need to be aware and ready for change.
If I Make This Investment What Will the Payoff Be? How Long Will It Take to Realize the Benefit?
Most people in business have heard of the term ROI, or return on investment. While there are many math calculations to help you figure out the ROI of a capital investment, there are other more subjective factors to consider in the return on your investment.
If you are considering a new product offering, make sure you have an accurate gauge of the demand for the new product or service. While this can be difficult to estimate, look at similar industries or technologies and study how the demand developed and trended over time.
If the investment you are considering is a capital investment, will it result in additional sales or increased efficiency? For example, you may be considering the purchase of a new multi-function printer for your business. If you are able to double side print your documents, improve your use of toner, and save on spending at your outsource copy company, the investment will save money for your operation. If you are having to spend time to go to the copy facility and use gas to drive there, be sure to calculate a cost for your time and the vehicle fuel and maintenance. It is important you calculate all costs into your decision matrix so you can make the best decision possible for your enterprise.
Remembering to ask these three questions when considering cost-reduction tactics can save you time, money, and your sanity in the long run.