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The Smart Way to Justify Business Expenses

Braun’s classic calculator, which inspired Apple’s iOS Calculator app. Product image via Unison.

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Speaking as an MBA and business owner, your business purchases should always be based on the value they return (ie, “Return on Investment” or ROI as it’s commonly known). Every hire, every tool, every free sticker with purchase should be approached in the way I’m about to share. It’s the for big investments like website redesigns to one-time tools like Screaming Frog (which is an especially good deal).

Though Common People doesn’t provide SEO services (it’s just not something that energizes us), and we’re not millionaries. But I didn’t blink when I needed Screaming Frog for one part of a client project (taxonomy work). It’s a killer deal. Anything under $1k that can help save time and bring more customers should almost always be a no-brainer.

That sounds great, but how can you know whether it’s a good investment or not?

Maybe I’m revealing too much of my secret sauce here. (I’m going to do it anyway.) When you’re considering a purchase, ask this: how much is a customer worth to you over the course of a year?

Say it’s really low, like $100. Could a $150 tool like Screaming Frog help you bring in >2 new customers over the course of a year?

I would say that’s an easy yes.

So yeah, it’s a smart investment to make.

You Can Use This Question to Sell Your Client Services, Too

By the way… that question is basically a formula to close business deals. Whether I’m selling a website, or a design, or just tech setup, I always ask the following sequence of questions:

“What’s a customer worth to you, on average, over the course of a year? Just a ballpark number is fine.”

Let’s pretend they say each customer is worth $1000 to use a round number.

“And how many new customers are you adding, on average, right now per month?”

Let’s say they’re adding 5 customers per month, again for easy math.

“Okay, so that means you’re currently adding about $5000 in annual revenue per month from your current setup. If were able to increase your monthly customer acquisition by even a single customer, that would represent an additional $12,000/year in revenue. Does that sound about right?”

Adding one new customer per month at $1k/year in value times 12 months equals $12k/year.

“This would boost your current annual revenue from approximately $60k/year to $72k/year, or a 20% increase.”

And here’s the closer:

“The cost of this service/tool/etc. is $XXXX. Do you think it’d help us close at least one additional customer per year?”

The answer for every good-fit project is going to be “yes.” So this leads to the next question:

“Alright, so the math for this makes sense and we should get started. Which email should I use for the tool/invoice/contract/etc.?”

The goal is to create a momentum of “yes” answers to your questions so the close doesn’t feel like a big decision. You’re breaking a big question “Should I spend my hard-earned money on this thing?” – which has big emotional weight – down into smaller, bite-sized questions.

One Quick Warning with This Script

Of course, a “No” answer along the way likely means the product/service isn’t a good fit for the business’s current revenue. That’s why this last bit of advice is so important:

Avoid leading clients into these purchases because while you get cash now, you get a big headache later.

The wrong match between value added/cost of the investment (or, a too-small ROI) means there’s going to be outsized pressure for this solution or service to perform. I’ve seen plenty of scenarios where business owners spent a lot of money on an expensive tool or service. Then there was a feeling that this tool or service has to “save” that business because the investment was so high.

Not a fun place to be.

Everyone takes the “wrong” job at some point, or hires the wrong person. It’s part of learning the game. Hopefully this tip helps you quantify whether taking on a client or investment is a smart move.

By the Way, This Works Wonders When You’re Working In-house

A version of this script would be a good fit to walk through with your manager, boss. “Hey Screaming Frog would save me about 10-15 hours/month, how much is that worth each month/over a year?” etc.

Use it whenever you’re trying to justify purchases such as:

  • Conferences
  • Courses
  • Trainings
  • Tools
  • Office supplies
  • And anything else your boss would get to write off

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