Because they treat them as investments, not as overheads. And they expect them to make a return just like any other investment.
Overheads are something we want to minimise, to control, and to cut. Lower overheads of course mean more net profit. But cutting and managing overheads won’t make a massive difference to your bottom line once you’ve got them under control. That can only come from higher sales and / or better gross margins.
But what about marketing costs and things like training and consultancy?
We should treat these differently because we should be spending on things only to specifically improve our profits or performance. Most businesses lump their marketing, training and consultancy costs in with their overheads and try to control the costs the same way.
My suggestion is to keep those costs in a separate section of your profit and loss, so you can see how much you are investing every month and start to really question and challenge what return you’re seeing on those investments.
Marketing is the cost of buying and keeping customers and every penny spent needs to be justified. The old adage of test and measure is as important as ever, and yet rarely done in most businesses. If you don’t know what works and what it costs you, quite frankly what’s the point? Marketing becomes a bad investment if it’s not bringing in profitable customers.
Training and consultancy should be viewed in just the same way. If you’re going to invest in this area then be clear what you expect to get from it AND how you’re going to measure it:
- Will it increase sales?
- Will it improve gross margin?
- Will it improve customer service?
- Will it make our cashflow better?
- Will it improve efficiency?
- Will in bring needed skills into the business?
- Will it make the business stronger and more successful?
I do think this is a mind- set thing. I confess I’m a recent convert (after years of accountancy training seeing all costs as overheads) but it just makes so much sense and I now spend more than many companies 10 times my size because I want to keep growing, learning and making my business better.
Once you separate these areas out and challenge them as you would any other investment you’ll start to see how much opportunity there is to keep growing your profits and cashflow.
So when you next look at a marketing or training opportunity, rather than saying “we don’t have the budget, or we can’t afford it” try asking instead, “how much could this increase our sales, margins or cashflow by”