Knowing When To Spend Your Money And When To Save It

When it comes to building/growing any business what you do with your money is vital to the health and future of your business. What makes a given business effective at being in business is their ability to assess the risks and rewards attached to various investments they have made in their business. Whether a business owner is investing in staff, office space, signage, marketing, or sales infrastructure each investment has a direct effect on their bottom line. This is why at its core an effective business need not be viewed as anything other than several risk/rewards ventures going well at the same time! But it is important to remember that each and every thing that goes well for a business, is usually the result of a successful investment being made by the owners or managers of that business!

Growing up I was often very successful at winning the game of poker against amateur players and not because I was better at reading people, or bluffing people, or understanding my odds of winning a hand better - because I understood the difference between “hand odds” and “pot odds”. Hand odds are what everyone is familiar with and the odds they display on TV poker tournaments. They are the odds that your hand is the winning hand when the rest of the cards are shown, or essentially your odds to win the hand. Pot odds however, is the comparison of the money you must invest each round vs the amount of money there is in the pot. In some cases, you will be asked to invest $10 to continue your chance to win a $100 pot. So your pot odds are 10 to 1. Where most people make a mistake is that they fail to factor their pot odds into their hand odds which tell you that even if you only have a 20% chance to win a hand, it’s a safe bet to make if you have 10 to 1 returns on the money you must invest to continue playing.? This understanding is also key in business, that some things you must invest in are not very likely to work, or even likely to NOT work but have the potential to return many times more value than you invest if they do work, and therefore are more than worth doing. See more on this topic here > Embrace Long Odds When The Cost To Play Is Low.

Most businesses that have a good product, good people, and a good marketing plan are having to choose whether their money goes into one area of their business or another - without ever having all the money they would like to have to spread around. In these cases, it is important to be able to compare returns on investment, along with risks in order to choose the most effective form of return on that investment within their business. Running a business, or rather running a budget within a business requires a strong understanding of game theory to be able to most efficiently deploy the resources that the business has on hand. The only way for this to be done effectively is to understand the larger picture for a business and understand what objectives are available and rank them by which are the most important to running the business, and which are key to growing the business.

Most of the areas within a business at a certain point, are properly funded and no longer require additional investments to be maintained well. This is generally when a business will start to see a “profit” that is left over after the business has invested in the areas that needed it. The way a business views money is not the same way that a person or individual should view money, because they have different objectives. A business's job is to use money, to make more money. One area of every business that is never fully done investing in, is in effective, scalable advertising.?

As we spoke about before, every investment a business makes should be based on how there is a return involved, and nowhere is this easier to track than with effective online/social advertising. The KEY OBJECTIVE for every business is to discover it’s “Cost of Acquisition” or the amount of money you must spend in marketing to earn the next paying client. Once a business knows the cost of their next customer they can essentially “order” as many clients as the business can effectively handle. Businesses that make it to this step, rarely fail. Businesses that know this number on Shark Tank, always get invested in for example, and that is why. When a Business knows their COA it can easily find investors, take loans, and invest existing capital effectively to raise its revenues, improve its margins, and grow the business. There is no more valuable information in the world for a business than knowing their own Cost of Acquisition.?

Discovering the Cost of Acquisition can take many forms because there are many areas a business can invest in to help acquire more and new customers beyond advertising. Smart business owners must work very hard to sort through the data and understand the moving pieces involved with acquiring more business, customers, or prospects.

Consider sources such as:

-Outside Vendors

-Networking/Events

-Effective Sales Team(s)

-Training of Staff

-Sales Software / CRM

Of all those sources of business development none of them are as powerful, or offer as much “clean data” as using the Facebook/Instagram platform to build your business. With Facebook we can know exactly how much each sale that was caused by our ads cost to generate, how much that sale was worth, and know exactly what techniques we will use in gaining our next sale. We can predict how much a given amount of sales (like a quarterly revenue goal) will “cost” to generate, and we can give our partners all the data they need to make solid, calm, confident investments in growing their business. Knowing exactly how much it costs to generate new customers allows business owners to focus on what they are most passionate about, running their business and managing their processes and team!

If you would like a consultation to talk about the value of using social advertising to grow your business.