Cost vs. Investment: Making Wise Decisions on New Opportunities

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?

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