How to Make Spending Decisions
Aug 19, 2024Today, Shannon dives into the art of making spending decisions final for your business, using an engaging analogy that's both simple and effective.
Shannon introduces us to the "business macros" concept. Just as our bodies rely on macronutrients—carbohydrates, fats, and proteins—our businesses thrive on three core categories of expenses: acquisition, fulfillment, and operations.
Acquisition is all about attracting new clients and growing your customer base. Investments here include marketing, sales efforts, and lead generation. Think of it as the "carbohydrates" for your business, providing the quick and necessary energy to keep things moving.
Fulfillment involves the quality and delivery of your product or service. Spending in this category elevates the user experience, ensuring that customers get what they were promised. It’s akin to the "protein" for your business, building the muscle and strength needed for long-term success.
Operations covers the backbone of your business—systems, processes, and day-to-day tasks that keep everything running smoothly. These expenditures are the "fats," providing cushion and stability, ensuring that the business functions effectively.
Shannon advocates for focusing on one of these categories each quarter. By dedicating a period to enhancing either acquisition, fulfillment, or operations, you can make significant improvements without spreading yourself too thin. As Shannon wisely notes, "It's a healthy approach to pick one of these things and really go in on it."
With her extensive fitness background, Shannon aligns the business macros with dietary macros. Balancing your business expenses among acquisition, fulfillment, and operations helps you achieve optimal growth. In fitness, you aim for nutrient-dense foods; in business, you aim for nutrient-dense expenses. These are costs that justify themselves through a high ROI. For instance, investing in a robust CRM system might seem costly initially but can save you time and bring in more business over the long term.
A client’s story punctuates this lesson. She wanted to attend a mastermind event that wasn’t part of the business plan. Upon examining the financials, Shannon highlighted that this would set the client back two weeks of cash flow. However, the event also presented a room full of potential clients worth over $200,000 in client lifetime value. Shannon asked her client to assess how she would secure these clients and validate that the event was a nutrient-dense expense.
Essential questions to consider for any expenditure are: What will you get out of it? Is it a short-term or long-term benefit? Is it the right time for this expense?
In volatile economic conditions, Shannon warns of endless opportunities to spend money. The trick is to filter these opportunities through the lens of their actual value and impact. Not every tempting offer or spontaneous idea should be acted upon. Instead, focus on the nutrient-dense expenses that serve your long-term goals.
Shannon advises analyzing your profit and loss statement, breaking down your expenses into the three macro categories, and calculating the percentages. Identify which expenses are high in value and contribute significantly to your business growth. Choose one category to focus on each quarter, ensuring balanced and methodical improvement.
By viewing your business expenses through the lens of macronutrients, you simplify the decision-making process. You optimize spending, ensure healthy business growth, and keep your financials lean and effective. Remember, it's about making smart, nutrient-dense decisions that fuel your business in all the right ways.
What you'll hear in this episode:
05:27 Manage finances with three sources of fuel.
07:26 Program assigns points to food for budgeting.
11:45 Evaluate spending decisions with logic and intention.
If you like this episode, check out:
Are You Overspending on Networking?
Strategies to Minimize Payment Processing Fees
When to Invest in Premium Products and Services
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
