Avoiding Buyer's Remorse When You Invest in Your Business
You have a choice.
You can spend money in your business, or you can invest it. And there's a subtle but powerful difference between the two, when it comes to business success.
Spending money in your business is often the last time you think about that money. You put it down to being another necessary expense, you account for it to get your tax deduction, and then forget about it.
Think about the last course or coaching program or piece of office equipment that you purchased. You probably know how much you spent on it. But do you know if it was worth it?
Investing money in your business is different. Once you've accounted for it to get your tax deduction, you don't forget about it. You start tracking the difference it's making in your business. In other words, you look for how it's made your business more profitable. And that means working out how much that investment saved you money, saved you time, or increased your revenue.
STEP 1: Decide what difference you wanted the investment to make.
This will obviously depend on what the investment was, but once you've pinpointed it, ask yourself if you invested in it because you wanted to free up your time to spend on higher value tasks, or if you wanted to save money, or if it should have increased your revenue.
Say you invested $500 in a training course to revamp your email newsletter. A possible difference you'd want from that is that your email newsletter brings you more new customers (and of course, this means more revenue). Here are a few more examples to warm up you up:
- Sales coaching -- you want to double your sales conversion rate.
- A virtual assistant -- you want to have more time to take on more clients of your own.
- A new teleconferencing provider -- you can run teleseminars and phone meetings instead of commuting into the city
STEP 2: Write down what the investment cost you.
When you spend money on something that you really want to track the return on, don't hide it in your Quickbooks or MYOB system. Write the amount down in a spreadsheet or somewhere that you can easily refer to, particularly when you start step 3 and 4 below.
Take care to note once-off costs as well as any ongoing costs.
- Sales coaching -- once-off cost of $3000
- A virtual assistant -- monthly ongoing cost of $500
- A new teleconferencing provider -- monthly ongoing cost of $70
STEP 3: Measure and track the impact of the investment.
In the same place that you wrote down what the investment cost you, write down also the impact the investment is having. If you can, translate the impact into dollars, through either revenue increase or cost decrease.
- Sales coaching -- what is your sales conversion rate before you started the coaching, and how is it changing from month to month since you started the coaching? What new revenue is coming as a result of this?
- A virtual assistant -- how many more clients were you actually serving before getting the VA, and how is that increasing since getting the VA? What revenue are the new clients bringing you?
- A new teleconferencing provider -- how much money are you saving in commuting costs? Is this free time earning you any more revenue or reducing costs elsewhere in your business?
STEP 4: Measure the ratio of the impact to the cost of the investment.
The measure of ROI is simply the total impact your investment has had (you worked this out at step 3) expressed as a percentage of the total amount the investment cost you (which you noted at step 2).
Now, you'll want to give it some time before you draw any major conclusions, but use your common sense. How quickly should your investment have delivered the impact you wanted? Track the ROI for at least that long.
Are you game?
Sure, it can be very unnerving to discover that some investments you've made didn't add value to your business' bottom line. But it's so much more empowering to get better and better at knowing how to spend your money more wisely!
YOUR CHALLENGE:
What's one purchase you've made, that knowing its ROI could help you make wiser decisions in the future?