By Roger Green
Almost every business cost you incur will fall into one of two categories. It's either a cost or an investment, but which is which, and how can you tell?
Something might cost more than another product or service, but at the same time it might be a better investment: a cheap lawyer is great if you want to save £1,000 on preparing a key document, but not so good when a loophole is exposed in that document that costs you £10,000.
At the 'cost' end of the scale are the basic commodities such as utilities, fleet costs, stationery, and other necessary supplies and services. Given that your time also is a cost, you want reliable, efficient suppliers who will work away seamlessly and at the best prices you can achieve. Of course, you need to visit these costs from time to time to avoid cost-creep.
Your people are the ultimate investment, and your business almost certainly relies upon them. The more you empower, energise and align them within the framework of your goals, the greater the return you will see.
Employees who are left to drift, unmanaged, unmeasured and unmonitored will soon become a drag on your growth and profit. If you set realistic, measurable targets for each member of staff or department, you’ll soon establish who's performing and who isn’t.
Marketing is an area I always like to investigate for 'cost v investment' outcomes. Companies can spend vast amounts of money on general name awareness without gaining a single customer. I was speaking to a company last week that was spending £1,200 a month on Yellow Pages ads, with no measurable enquiries for six months, yet their free Pinterest account had generated two sales in two weeks.
The key thing with all marketing activity is to list the cost of each activity over a year and establish what you've won from it. Include networking, social media, sponsorships, email marketing, PPC – and see where the real investment is. Stop what doesn’t work and do more of what does work. You might be surprised.
Beware the wolf in sheep’s clothing
Anyone selling a product or service might try to close a sale with "I know we’re not the cheapest, but don’t see this as a cost, see it as an investment". He or she may be correct, but really try to envisage what the return would be, and how you could measure it.
A top of the range franking machine that folds your letters, weighs them, and ‘self-franks’ may well be an investment inasmuch as it saves you time – but don’t be seduced by this. Is that time saved (let’s say 45 mins per week at £10 labour) really worth the £1,500 additional annual cost?
There are so many compelling purchases out there: a better website, a better social media campaign, a better recruitment firm. It’s not surprising that so many companies are seduced into buying things they don’t really need, on the promise of a return on investment.
Checking out reviews and speaking directly to existing customers is normally the best way to know how genuine these promises are. Next time you oversee a business cost, ask yourself – is this a cost, or is it an investment? What's the return, and how will I measure it?
Beware the lawyer selling to you on price. It’s quality, reliability and experience which are the real differentiators.