Cost vs. Investment: Making Wise Decisions on New Opportunities

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Last week, I talked with a client who was distressed at having to pay about $1,000 for some equipment necessary for making a presentation to a group of her ideal clients.  After listening for a few minutes and confirming my expectation that she’d be able to use the equipment over and over for similar presentations, I suggested that she think of the financial outlay as an investment rather than a cost.

“What’s the difference,” she sighed, “call it cost or investment, that money is just plain gone.”  I understand the pain of having to pay a hefty unexpected expense, but you have to recognize the distinction between a cost and an investment in the business context.

A cost is “the amount or equivalent paid or charged for something;” an investment is “the outlay of money usually for income or profit.”  The difference?  No matter how beneficial, a cost is money paid or time spent that doesn’t produce further profit or income.  An investment, however, is intended to be recouped and, if the investment is well chosen, to bring in more money than you originally paid.

This distinction matters because you can use it to position the services you offer your clients.  A photographer who offers headshots, for example, can legitimately refer to the expense as an investment, because a headshot is so important for website and other marketing purposes.  A good headshot helps to develop the “know, like, and trust” factors, and even if it isn’t traceable, we know that a good headshot will be a factor in landing new business.

Equally critically, you must understand this distinction so that you can evaluate opportunities that come your way.  When you are presented with a chance to do something, whether it’s sponsoring some sort of event, speaking to a group, or enhancing your own professional development through training or coaching, you need to be able to discern whether you’ll be paying a cost or making an investment.

For example, in the last few years, I’ve made an annual 5-figure investment in joining marketing mastermind groups, and those investments have paid off handsomely.  The feedback I’ve received and the ideas generated have brought in substantially more than the sums I paid.  I decided to make those investments after following the mentors and carefully evaluating what was offered.  I would not pay the same amount as a cost that I didn’t expect to recover — but I’ll happily invest any amount of money when I know that it will produce a multiplied return in new income.

When you’re making a decision about an investment (including whether the opportunity is an investment and whether it’s the right one for you), consider these questions:

  1. What benefit can I reasonably expect from taking part in this opportunity?  Consider not just financial or business benefit but also the ancillary relationship benefits that may accrue.  For example, if attending a meeting holds little direct benefit to you, but one of your best clients has asked that you attend, you might find that the benefit of meeting your client’s request will merit the investment.  If the only benefit is emotional and unlikely to lead to a business benefit — your own enjoyment or development of a social relationship — then you should consider the opportunity to be a cost rather than an investment and make your decision accordingly.
  2. What’s the likelihood of reaping that benefit?  You may not be able to predict with mathematical certainty how probable it is that you’ll attain the benefit that you’re seeking, so a qualitative estimate is all you need here.  Look for a threefold return on your investment.
  3. What will I need to put into this opportunity to increase the likelihood of getting the benefit?  Especially when an investment is primarily financial, it’s important to recognize that you may need to put in additional time and energy — and perhaps additional money — to get the results that you want.  That isn’t necessarily an indication that you shouldn’t make the investment, but you need to know what you’ll need to do before you commit.
  4. Am I able to make the necessary investment of money, time, and energy?  When you know what else you’ll need to do to get the benefit you’re seeking, determine whether you can make that investment.
  5. Am I willing to make that investment?  As I often tell my coaching clients, if you want things to change, you will need to change.  Even if an opportunity carries no financial cost, be sure you’re willing to invest your time and energy, since no benefit flows without some sort of investment.

Use these questions in making your own decisions, and use them to help your clients see the benefits of investing in working with you on financial and other levels.  For lawyers, a clear need often precedes an engagement, and convincing is unnecessary.  When your work is characterized as planning or arranging something (estate planning, for example), you may get more business when you’re able to demonstrate how investing will pay off, in reduced taxes for your client’s estate (financial benefit) and in reduced stress for your client’s survivors (emotional benefit).  Consultants may discuss their engagements as investments that improve effective business operations.  Photographers may cast their family portraits as an investment in creating a family history.

How do you use the language of cost vs. investment in your own business and in making your own decisions?  Your assignment, if you choose to accept it, is to notice the ways you think about the outlay of money, time, and energy.  Are you making the right investments?

Will You Give To Grow?

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The Go-Giver (Bob Burg and John David Mann)
and
The Referral of a Lifetime (Tim Templeton)

I’ve never reviewed two books in a single review before, but these two are such neat parallels in both style and message that I just can’t resist the temptation.  The message of both of these short, quick reads is simple:  if you genuinely care about other people and helping them to succeed, your business will grow well and authentically.

Both books are written as parables, using the story of a struggling business person’s meeting with a kind and mysterious, all-knowing mentor to illustrate how exactly to go about creating meaningful business relationships.  I don’t care for the parable style of business book, simply because it typically rings a little hollow and sometimes permits the teaching to stay at a superficial level, never getting the specifics.  Both The Go-Giver and The Referral of a Lifetime avoid these problems.  The Referral of a Lifetime excels particularly, because it includes an appendix with templates and samples that the reader can adapt for his or her own needs.  The parable style is also handy to convey a great deal of information without pedantic repetition, and it ends up being quite effective in both books.

Each book is based in just a few simple principles.  The four principles offered in The Referral of a Lifetime are:

  1. The 250 by 250 Rule:  It’s not only who you know that counts, it’s who your clients know that is important.
  2. Build a database [of your contacts] and ABC it.
  3. Just Let Me Know:  Educate your clients about how you work and your value to them through regular, tangible actions performed without fail.
  4. Keep in touch consistently, personally, and systematically.

The Go-Giver shares what it calls The Five Laws of Stratospheric Success:

  1. The Law of Value:  Your true worth is determined by how much more you give in value than you take in payment.
  2. The Law of Compensation:  Your income is determined by how many people you serve and how well you serve them.
  3. The Law of Influence:  Your influence is determined by how abundantly you place other people’s interests first.
  4. The Law of Authenticity:  The most valuable gift you have to offer is yourself.
  5. The Law of Receptivity:  The key to effective giving is to stay open to receiving.

The principles set out in these two books are consistent and mutually supportive, yet the two books are quite distinctive.  The Referral of a Lifetime teaches you a system for defining and harnessing your already existing network of clients and other contacts, whereas The Go-Giver offers more of a general approach to living and doing business and less of a step-by-step system.

As I was reading these books, I saw them in action with a friend and colleague.  Late on Friday afternoon, I received an email from this person, looking for help because a shipper had failed to pick up a pallet of her product from a manufacturing facility in a small town.  She was facing two separate time crunches:  her product would expire if not shipped promptly, and she needed it to be delivered to her customer more than a thousand miles away no later than Tuesday at noon.  Her shipper couldn’t help, and she sent out a request for help after all of the obvious solutions proved unworkable.

A note about this person:  in addition to having a fabulous product, she genuinely seeks to help everyone she meets.  She’s one of these “never met a stranger” types of people who loves nothing more than sharing her contacts and resources.

Within just a few minutes of sending out her SOS, my friend has received a bunch of ideas and suggestions.  Within a couple of hours, one of her contacts arranged for the product to be shipped at a price less than 1/3 of the price that other shippers had quoted for slower service, and that same contact had introduced her to a potential joint venture partner.  Good luck that this contact saw my friend’s email?  Sure.  But it was their relationship (and his adherence to the values behind The Go-Giver and The Referral of a Lifetime, whether he’s actually read those books or not) that prompted him to swing into action.

If you read only one of these books, I’d encourage you to start with The Go-Giver.  It’s a very fast read, and the principles it shares will affect the way you see and do business.  Once you’re convinced that giving to others is not just the right thing to do but the smart business move, then read The Referral of a Lifetime to get specific ideas on how to implement the principles into your day-to-day life.  Even if it takes you some time to figure out how to build your own system, I almost guarantee that the books will change how you approach others in business — for the better, for you and for them.