Spending money can be a big problem
As the adage goes, “you have to spend money to make money,” right?
While it is true that spending money is part of doing business, having the attitude that it “has” to be spent in order to be successful is a dangerous way to think and is a one-way ticket to letting your spending slip off the rails into a dramatic Hollywood-esque fiery crash.
The problem lies in spending money on items which aren’t actually an investment in your business. In fact, “you have to spend money to make money”, was recently quoted in this Smart Company article as a phrase only financially illiterate people use.
Does this mean all spending is bad for business? Of course not, but there is a mammoth difference between renovating your office, storefront or other business space with top of the line everything to give the impression of success, and investing IN your business to ensure you have the right people, processes and structure to function in a way that promotes healthy cash flow, and puts profit first.
To help, I’ve narrowed down my list of the only three things you should spend money on in business: To keep customers, to get customers, or to grow, educate and/or improve you and your team. Let’s have a look.
1. To keep customers
It’s five times cheaper to retain customers than to attract new ones. To do this requires an investment in strategies which to show some love to the warm audience which makes up your customer base. Unfortunately, many businesses spend a ton of money and time to gain customers (see point #2 below) but lose interest and let the relationship lapse the moment a sale has been made. Customer retention largely depends on satisfaction and improving the customer experience. This may come in the form of:
- Special offers for return or loyal customers
- hiring and training for the best customer service possible (also applies under point #3)
- A great CRM with a dedicated pipeline to nurture your current customer base
- Increasing customer service KPIs (like your net promoter score, average resolution time for issues and how many times problems need to be escalated before they are solved)
- Improvements to product quality and/or service integrity
2. To get customers
For many businesses, this is where the money meets the road. It can also be very easy to overspend on customer attraction methods that won’t necessarily prove effective when it comes to the return on investment, so before you throw your money into marketing, be sure that you are tracking results and investing only where it makes sense. Fish where there are fish to be found, as it were. The easiest way to do this is to know your customer, understand their needs and know how to solve them before you ever fork out for a series of Facebook ads.
Some other examples of how to spend money to get customers include:
- Investments in technology (such as online ordering or a mobile-friendly website)
- Targeted marketing campaigns that work
- Improving your selling strategy
- Samples and free trials
- Special Offers
3. To grow, educate and improve
This is arguably the most important place to spend money on your business, but also likely the least utilized for business owners (to their detriment). Investing in yourself as a business owner, and in the technical knowledge of your staff has the ability to directly impact how well you attract and retain customers as well as how sustainable your efforts at growth will be.
The best part is, it doesn’t need to break the bank. From picking up a book to help you nail your business strategy, to one day seminars to group and one-on-one business coaching, there are so many options to strengthen your business and implement changes immediately that will net results.
Conversely, an investment in staff training, conferences, or even covering the cost of professional development courses or books your employees are interested in will pay your business back in spades, both in knowledge, and the required engagement from your employees that will make a positive impact on the marketplace, finding and retaining your customers.
And, for those business owners who claim that it sounds nice, but they don’t have time for professional development, check out this blog post on how to find it, and another one on how to free up 15% of your time immediately.
How not to spend money on the wrong things
To figure out if you tend to spend money on the wring things in business, you don’t need to look too far beyond your personal bank account.
Habits are hard to break, particularly when they come to the way we manage and treat our finances. Chances are, the way you treat your personal finances will likely mirror the way to approach your business ones. So, whether you find yourself reaching for impulse purchases, are a financial risk-taker, or are notoriously tight-fisted, you’ll likely see a parallel in your business spending.
If you don’t know what your personal spending habits are, this article has some great descriptions which you can use to identify where you tend to lean and provide some advice on correcting those habits where necessary.