Avoiding False Economies

Everyone wants to save money – that is a given. Beware falling victim to false economy however. You do not want to save money in one area of your business only to have that savings cost you more in another. The classic example of this is driving across town to save a few cents on gas. Yes, you saved seventy-five cents on the gas you bought, but you used a dollar’s worth of gas to do so. What you have is a net loss.

false economySometimes in business the cause and effect of expenditures are not as direct as buying gas, but they are still there. For instance, many small businesses are tempted to use the least expensive phone service available. The problem is that an undependable phone connection can cause you frustration, lost customers, and give your business a poor reputation. All it takes is one or two clients turning away from you because you are hard to get hold of or the connection is always scratchy to more than offset that savings you gained by using a cheap service.

Another example is the purchase of equipment such as computers, faxes, or printers. Too often the price of the machine is the overriding factor in what is bought. What is left out many times is the needs assessment. If you invest in a new computer without looking at the requirements to run your software, the environment that it will be running in, the number of users it will have, the expected life-span and so on, you will end up either having to buy additional equipment or you will find your operations hampered. If processes take too long to complete, can’t be done, or must be out-sourced, this can result in lost customers, employee frustration, and direct additional expenses.

Finally, and an often neglected area, is training. When you or someone on your staff is not up-to-speed on the software you are using, tasks take longer, errors are introduced, and poor job satisfaction follows which can result in turn-over and poor customer service. Sure training costs money, but I have seen many an example where simply taking a one day class would give a person skills that enable them to shave hours per week off their work. Those hours can be spent doing additional work, building strong customer relationships, or even just enjoying life! Here, a class that cost perhaps two-hundred dollars can pay for itself in time and productivity within a few months. In more than one case I have seen days cut off monthly procedures and outsourced functions brought easily back in-house.

The key to all of these is to think beyond the immediate outlay of cash to what that purchase is really providing to your business. Every expenditure you make is an investment for your business. If using a cheaper alternative costs you even one sale, is it worth it? In some cases the answer may be yes. But in other cases, when you really look at how much it costs you to drive across town for that gas, the more expensive option may be the one that provides the greatest return.