When it comes to spending money on your business, not all expenses are created equal. In your business, there are certain areas where a small investment can make a leveraged return and there are other areas where a big investment can be a waste of money.
The flip side of that is there are places and times where a big investment could have an even bigger payoff. The trick is knowing the difference between the two.
Strategic Expenses
A strategic expense is any expense that will yield immediate profit for that expense, or it’s an expense that strongly protects profit in the business. So, let me give some examples of strategic expenses. Marketing that works. Salespeople who sell. Key team members who are doing client work that is highly utilized and as such are highly profitable.
Other strategic expenses would include protecting intellectual property that you have by registering a trademark or filing a patent. Other strategic money would be the intelligent use of outside advisors and coaches. So, for example, the work that you spend with your tax strategist on how to best handle your business’s tax situation to maximize the company’s after-tax profit. Or your work with a business coach helping you stay focused on those things that produce the highest return.
Non-Strategic Expenses
So, what are non-strategic expenses? Marketing that doesn’t work. Salespeople who don’t close. Team members who are a drag and don’t produce positive returns for their work, wasteful expenses that don’t add to the bottom line. R & D – research and development that is not able to be commercialized. In other words, you can’t use it. Those are examples of non-strategic expenses.
Finding The Balance
Finding the balance between strategic and non-strategic expenses isn’t always cut and dry. The rule of thumb is this – wherever possible spend heavily or actually not spend – invest heavily in strategic expenses but cut ruthlessly your non-strategic expenses. We call this here at Maui Mastermind, feeding your winners and starving your losers.
For example, you might have two salespeople, one of whom is extremely strong in terms of her closing. One of whom is extremely weak in terms of his closing, yet, you might distribute leads equally.
In order to maximize your strategic spending, you should give your best sales leads to your best closing people. Why? Because it’s the most profitable thing you can do inside the company and as a strategic expense spending money on those commissions for salespeople who work makes more sense to double down on them.