Wow! My business is finally making money. I can start buying some of the things I have always wanted now, right? WRONG! Yes, you have worked hard to get this far and you deserve to reap some rewards. But if you want your business to continue to grow you must continue to invest in it. Now is not the time to start spending all of your profits on you. Reward yourself a little, but reward your business also by investing some of those profits in ways that will help move it to the next level.
There are many ways you can invest in your business. Start by determining what percentage of your profits you will reinvest. I started by investing an average of 50%. Some months it might have been a bit less. Some months it was a bit more. But on average, I suggest you invest approximately 50% of your profits back into your business.
Once you decide how much to invest, you need to decide where to spend the money. Look carefully at all of your options before you make this decision. Sometimes the smallest investment is the wisest choice. For example, should I spend $2000 on a business conference when I could spend $500 on a new logo for my website and print material? The material you use to communicate with your market helps prospective customers determine who you are and whether they want to do business with you. The smaller investment to create a more professional-looking site and marketing material may actually be the wiser choice.
Another great way to invest in your business is by outsourcing. You may be saving money by doing your own web design or copywriting. But if you are not a professional, you may actually be losing money. You might be losing sales because your web site is not converting as well as it could. A professional web designer or copywriter, while costing some money up front, may actually increase your profits by generating more sales.
You also need to think about your own time and what it's worth. If you are saving $2000 a month by doing all of your own paperwork, but it's costing you $5000 a month because that's time you could have spent consulting, speaking, or meeting with new clients, you haven't saved any money. You're actually losing $3000 a month. Hire an assistant or VA and use your time in a more profitable manner. That's actually a lesson I have just learned myself. I'm proud to announce that I have hired an assistant of my own named Christy Robertson. I'm sure many of you will get to know her better in time as she takes over more of the daily office tasks!
How do you determine the best way to invest in your business? You have to calculate the ROI or return on investment. ROI is defined as the profit or cost saving realized for a given use of money.
If you are looking at two different forms of marketing for your business, you would calculate ROI by determining the projected increase in revenue for each marketing venture and then dividing them by their respective costs. For example, if a local ad that costs $35 will generate a potential 50 new customers and my product sells for $100, then 50 x $100 = $5000. Subtract the $35 it took to generat that income and I have a profit of $4965. Divide that by my $35 investment and my ROI is 141%. Pretty good! But perhaps I am also looking at doing a direct mailing. This will cost me $1000 but I anticipate 100 new customers because I am able to reach a wider market. 100 new sales x $100 each = $10,000. Subtract my $1000 cost and I have a profit of $9000. Divide that by my $1000 investment and I have an ROI of only 9%. So while it may look like a smarter decision to try to reach a larger market, in this case the better use of your money may actually be the smaller local print ad.
Sometimes you have to spend some money to make even more money. But by carefully evaluating each opportunity to invest in your business, and calculating your maximum return on investment, you should be rewarded by watching your business continue to grow.