The question is: Should you be looking for 'what to cut" to save money, or should you be looking for the best place to invest your time and money? Managing with a "Cutting Costs" Mindset Don't get me wrong when I say this - there is a time to cut costs, there are times when we have simply splurged and spent in the wrong places, but, for the most part, cutting as most people do it is a plain "business killer.
" Why do I say that? As a business coach I get an opportunity to work with a lot of businesses that are struggling to help them turn around, and if there is one mindset I see that is actually the cause of their problem - it's that they are so focused on
Frankly, that is the wrong way to manage a budget.
For the most part we are loking for ways to limit our actions rather than ways to expand our thoughts and our income.
Managing with a "Return on Investment" Mindset I do several seminars a month and always ask the same question, "What would you do the first month that your gross profit, the profit you make on each sale during the month, doesn't pay your overhead?" The answer I get is pretty consistently wrong.
Rarely does anyone answer that question correctly.
I can tell you what the room is going to say before they say it, because it's a mindset rampant throughout the business world.
There is a reason that the Small Business Administration says that over 80% of all small businesses will fail within 2 years, and 90% within 5.
And, this is probably one of the biggest mistakes business owners make..
The answers I get start off with "I guess we've got to cut something from our overhead.
" To which I respond, "Does that mean that you won't pay your rent this month? Or your insurance, or utilities? What is it that you'll cut that you don't need?" That usually shakes up the room a bit.
They see that cutting overhead usually isn't going to be an option.
And what they could cut would be small.
In some cases, the really small home based businesses, don't have a place to cut anyway.
The next question, "So what would you do next?" The answers usually go in this order:
What happens when you cut marketing? Why should marketing even be on the table to be cut? When you, a business owner, look at anything in business as "a cost" rather than "what does it deliver,"yes, I see why you want to cut it.
Anything that is "cost" or "outgo" should be looked at to cut it out.
But don't you think thatanything that generates money when you invest time or dollars into it should be searched out to find the greatest return on investment and then more spend on that one? Cost Cutting May Save a Dollar, But Finding the ROI Multipliers Usually Will Generate 5-10 Times More When looking for places to cut, the usual result is a few dollars here or a few dollars there, and actually most of the time it's removing the dollars that when we look at the ultimate outcome after looking at the Return on Investment, looking at the multiplier in the business, results in HUGE cuts in revenue.
If, at first, we look at what anything we spend on generates, then spend only on the biggest multipliers, and spending where we HAVE to spend to get the dollars we want out of our business, we'll consistently be generating big bucks, even if this is a recession.
For most of my coaching clients, when we set down to develop the "multiplier" or "ROI" for different kinds of marketing I find two kinds of results:
" In other words they are still STUCK in their thoughts about what they can't do rather than looking for ways to make it happen.
Instead of trying to figure out where to get the money and then go invest.
I was once working with a construction company who had already experienced what this thinking could do for them.
They had already come from a $230K loss year, to a $200K first month profit after deciding what marketing to invest in.
However, it took only one more month for them to forget.
They had immediately fallen back to their "can't do this, can't do that, can't spend here" and had immediately stopped spending on marketing the very next month.
In fact, they had lost $30K per month for 6 months when they called me back.
After getting them to make the commitment in marketing again, they have now reached over $1M in sales, and that's even during a very bad recession, and one that has been extremely hard on most builders.
During a recession it's even more important to find the ways to generate more money instead of being caught in the cost cutting mindset that will put you into that downward spiral even worse because of the recession.
" Why do I say that? As a business coach I get an opportunity to work with a lot of businesses that are struggling to help them turn around, and if there is one mindset I see that is actually the cause of their problem - it's that they are so focused on
- How to stay within a budget.
- How to cut costs to stay within that budget
- How to cut costs so they can be more profitable
Frankly, that is the wrong way to manage a budget.
For the most part we are loking for ways to limit our actions rather than ways to expand our thoughts and our income.
Managing with a "Return on Investment" Mindset I do several seminars a month and always ask the same question, "What would you do the first month that your gross profit, the profit you make on each sale during the month, doesn't pay your overhead?" The answer I get is pretty consistently wrong.
Rarely does anyone answer that question correctly.
I can tell you what the room is going to say before they say it, because it's a mindset rampant throughout the business world.
There is a reason that the Small Business Administration says that over 80% of all small businesses will fail within 2 years, and 90% within 5.
And, this is probably one of the biggest mistakes business owners make..
The answers I get start off with "I guess we've got to cut something from our overhead.
" To which I respond, "Does that mean that you won't pay your rent this month? Or your insurance, or utilities? What is it that you'll cut that you don't need?" That usually shakes up the room a bit.
They see that cutting overhead usually isn't going to be an option.
And what they could cut would be small.
In some cases, the really small home based businesses, don't have a place to cut anyway.
The next question, "So what would you do next?" The answers usually go in this order:
- I guess we should cut marketing costs.
· - Cut employees.
What happens when you cut marketing? Why should marketing even be on the table to be cut? When you, a business owner, look at anything in business as "a cost" rather than "what does it deliver,"yes, I see why you want to cut it.
Anything that is "cost" or "outgo" should be looked at to cut it out.
But don't you think thatanything that generates money when you invest time or dollars into it should be searched out to find the greatest return on investment and then more spend on that one? Cost Cutting May Save a Dollar, But Finding the ROI Multipliers Usually Will Generate 5-10 Times More When looking for places to cut, the usual result is a few dollars here or a few dollars there, and actually most of the time it's removing the dollars that when we look at the ultimate outcome after looking at the Return on Investment, looking at the multiplier in the business, results in HUGE cuts in revenue.
If, at first, we look at what anything we spend on generates, then spend only on the biggest multipliers, and spending where we HAVE to spend to get the dollars we want out of our business, we'll consistently be generating big bucks, even if this is a recession.
For most of my coaching clients, when we set down to develop the "multiplier" or "ROI" for different kinds of marketing I find two kinds of results:
- One tends to be, gee, when we do this kind of marketing we see 2 times what we spend coming out of our business, or when we look at this type of marketing we see 10 times, or that kind 100 times.
The decision then becomes quite an easy one: Let's do the one with 100 times return.
(I hear some in the crowd saying, 100 times? Not possible.
Well you haven't been looking for it have you?) - The other tends to be, wow, it costs more to market than we generate.
In this case, we fix the marketing to move them into the first category, and that happens pretty quickly.
" In other words they are still STUCK in their thoughts about what they can't do rather than looking for ways to make it happen.
Instead of trying to figure out where to get the money and then go invest.
I was once working with a construction company who had already experienced what this thinking could do for them.
They had already come from a $230K loss year, to a $200K first month profit after deciding what marketing to invest in.
However, it took only one more month for them to forget.
They had immediately fallen back to their "can't do this, can't do that, can't spend here" and had immediately stopped spending on marketing the very next month.
In fact, they had lost $30K per month for 6 months when they called me back.
After getting them to make the commitment in marketing again, they have now reached over $1M in sales, and that's even during a very bad recession, and one that has been extremely hard on most builders.
During a recession it's even more important to find the ways to generate more money instead of being caught in the cost cutting mindset that will put you into that downward spiral even worse because of the recession.
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