Legal Business Development: How to Determine Whether a Rainmaking Expense is a Cost or An Investment (And Why It Matters)

I once talked with a client who was upset at the prospect of paying nearly $1,000 for equipment required for making a presentation to a group of her ideal clients.  She confirmed my expectations that she’d be able to use the equipment again for similar presentations, and I suggested that she view 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.”  You spend cash for both costs and investments, true, but the distinction is critical in making smart decisions about rainmaking expenses.

A cost is defined as “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  Big difference!

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.  Both have their place, but you have to budget differently for each kind of expense.

For example, in the past few years, I’ve made an annual 5-figure investment in working with business mentors, 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 spending (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 of time.  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 the anticipated benefit?  You may not be able to predict with mathematical certainty the probability of attaining the benefit that you’re seeking, so a qualitative estimate is all you need here.
3. What’s the magnitude of the anticipated benefit?  I look for at least a 2-to-1 payoff for financial investments.  For instance, when I had the opportunity to travel to Los Angeles a few years ago to speak at a conference, I weighed the $2000 travel and hotel bill against the lifetime value of getting at least one additional client.
4. What will I need to put into this opportunity to increase the likelihood of getting the benefit?  Especially when an investment is primarily beneficial, 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.  To continue the previous example, in addition to the financial expenditure, I knew it would take several days to craft and practice my presentation.
5. Am I able to make the necessary investment of money, time, and energy?  When you’ve defined the scope of expenditure you’ll need to make to get the benefit you’re seeking, determine whether you can make the investment.
6. 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.  In many substantive areas of practice, 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).

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?