Play Red Light, Green Light

You should never be as concerned with how much money you’re actually spending as you are with the results you get by spending it. At some point in your career, it will take the careful spending of money to make money, so over time be prepared to invest money back into your business to build it. It is not the spending of money that is the problem. The problem is holding the money you’re spending accountable for results.

 And the solution is the same old game Red Light, Green Light. So, if you begin the process by Leading with Revenue, and you are always investing money your sales business has already generated, then your job is to hold that investment accountable. Now at some point the dreaded “cost creep” will probably occur. However, you can greatly minimize your risks by following sound business practices like Leading with Revenue and Red Light, Green Light. When your costs just creep up with no corresponding increase in results, that is when you really have risk. We call that “good money chasing bad business practices.” You correct it by pulling out your stop sign and reevaluating that expense.

 In terms of insulating your company against unexpected income shifts, you want to concentrate on keeping your fixed costs (like rent, salaries, leases, etc.) as low as possible. If you have higher fixed costs and face a shortfall in revenue, you might be tempted to cut back on variable or unfixed expenses (like lead generation), which drive your business. This can create a wicked catch-22 situation in which, because of falling revenue, you cut back on investing in the very activities that are likely to increase your revenue. Keep your fixed expenses as low as is practical and hold your discretionary expenses accountable to appropriate results.

Obviously, as your business grows from one stage to the next, your actual costs will be very different; however, your percentages may not be. What we have discovered is that no matter where you are on the continuum, the percentages remain remarkably stable. Figures 18 and 19 illustrate some general examples of what budgets at various production levels might look like. Budgets are to be respected. They are there for a reason—to guide you as you invest in your business. Doing the research to determine how the money in your business should be spent and then not following it can be summed up in two words: Sheer folly.

Lastly, I want to point out to you that there is a natural monthly rhythm to business, which demands that you examine your books at least once each month. I’ll go so far as to recommend you keep a monthly budget but address it on a weekly basis.