Don't go cheap on these business expenses

By Nate McCallister

Last Updated July 8, 2021


First, I have absolutely no issue with cutting costs when necessary. There is no virtue in spending money wastefully. However, it pains me to see business owners cut costs too much and on the wrong things. 

Even though it doesn't always seem like it, a great business expense is an investment that can boost revenue indefinitely. Cutting costs and saving money has a much more finite value and can in many cases (which I'm about to mention) cost you much more money in the long run than it will save.

Think about it...Is it really "saving," if it's costing growth and revenue in the long run? No, it isn't. This is part of the reason 25% of businesses fail in their first year.

On a quick side note, the stat above is dramatically exaggerated in the entrepreneur community, it isn't the 90%+ number that is so often cited.

Costs = Investments Example

Although these numbers are totally relative, let's make an example of a scenario that this would play out.

Let's say you hire cheap designers to build your brand website or choose to do it yourself because the better designers are asking for what seems like too much money, $10,000.

Doing it yourself or hiring someone for far less might save you a few thousand dollars that month, but what is the long-term impact? Are you certain that your cheaper alternative is as good as the premium alternative?

What if that $10,000 site is faster, and more aesthetically appealing (99 times out of 100 it will be) and it increases conversion rates a messily 2% over the life of your business? Your sales go from $50k per month to $51k and the extra costs are recouped within 5 months. Your initial investment is now driving $1,000/month and your business is permanently more valuable. 

Yes, scale does matter, and it's why bigger businesses often win. We can't ignore that a company earning $5,000/month won't as easily justify a $10k website for a 2% conversion bump. However, the "spend to improve vs save to protect," approach is still at play. 

There will be other areas of opportunity that they can spend instead of save and if done correctly, they can leverage these smaller great investments until they can afford the benefits of the economies of scale.

So, you might not be able to pay top tier prices on all 7 aspects mentioned below, but if your business is just marginally profitable, you can get started with at least one or two of them and know that they are the last things you want to cut costs on if in a bind.

#1 Accounting and Bookkeeping

Bookkeeping and accounting are beyond boring, but they are critical to your business's success. Without good accounting and bookkeeping, you can face...

  • Costly audits
  • Missed deductions
  • Misleading financial reports that hurt decision making

A good accountant is worth his or her weight in gold. I really wanted an accounting joke here but couldn't think of one...

#2 Employee Wages 

If you're going to cut costs on employees, it should be by laying off ones that aren't performing, not by paying lower wages. Don't be cheap when paying your best people or filling new positions. There are more than a few good reasons to pay above-average wages to your team. 

Read my article on Price's Law to learn more about why rewarding your few all-stars is an amazing investment.

#3 "Bottleneck" Tech 

I call this "top of funnel productivity" items. I've written about it at length here. Essentially, this includes any of the core things that affect everything else. Things like... 

  • The speed of your internet at the company office 
  • The quality of computers your team uses
  • The software you use most often

Make sure to view expenses relative to their overall scope of value. Yes, paying 2x more for internet than you could may seem high, but dividing that benefit over each employee every single day will easily make it negligible. 

#4 Advertising

Henry Ford

Stopping advertising to save money is like stopping your watch to save time.

Henry Ford

If you cut advertising costs, you're stealing from your future earnings. If your advertising isn't working, by all means, make changes to fix it, but don't cut your advertising budget first. 

#5 Continued Education 

Now, I'm not going to lecture you on how you should join a $50,000 mastermind or buy every new $2,000 course that comes out, but you should never guilt yourself about investing in your education or that of your team.

#6 Branding and Websites 

The price of branding and website development is all over the place. You can get a website built for the cost of a dinner for two or the cost of a beach house. If you're a small business, you can find a lot of value in the sub $2,000-$10,000 range for branding and website development. 

Yes, you can do these things on your own absolutely, but if your business is here to stay, getting the branding and website done well is an easy expense to justify.  

#7 Customer Support

Keeping a customer is far more affordable than acquiring a new one. Data suggests that. acquiring a new customer costs 5x as much as retaining an existing customer does. Depending on the nature of your product, the value of high-quality customer support will vary, but everyone should invest a healthy amount into it.

Conclusion

Saving money is actually more of a risk than spending it is as long as your expenses are logical and strategic. Saving money is one of the least effective ways to grow a business and your own wealth and it can be harmful if you aren't careful. 

Sources

  • (The high costs of bad bookkeeping) https://www.budgetease.biz/blog/cost-of-bad-bookkeeping
  • (Why pay higher wages) https://www.inc.com/john-boitnott/7-reasons-you-should-pay-your-employees-above-average-salaries.html
  • (Cutting advertising steals from future revenue) https://brandwidthsolutions.com/blog/are-you-stealing-from-your-future-revenue-the-risk-of-cutting-marketing-expenses-first/
  • (Cost to keep a customer vs. acquire a new one) https://www.outboundengine.com/blog/customer-retention-marketing-vs-customer-acquisition-marketing/
  • (Acquisition vs. retention) https://www.huify.com/blog/acquisition-vs-retention-customer-lifetime-value

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About the author

Nate is the founder and main contributor of EntreResource.com. He is a lifestyle entrepreneur who spends his time building businesses and raising his four kids Sawyer, Brooks, Van and Lua with his beautiful wife Emily. His main interests include copywriting, economics and piano.

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