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You are bound to incur expenditure because expenses are inevitable for both business as well as for personal usage. However, are you being wise with your expenses? Are you spending right? How are the significant expenses contributing to growth? Are you spending money blindly or incurring expenses in a planned and evaluated manner?
Let me elaborate with an example.
My coaching client, a B2C company wanted to acquire more customers to increase their revenue as the previous years’ business was affected by the lockdown. They wanted to make good the loss of revenue. With this goal in mind, they increased their marketing effort. They spent a lot of money on different forms advertising, branding of their product and conducting campaigns. They had spent a significant amount of time, effort and money in this process. The total of the marketing cost spent was about 15% of their revenue. It was 10% higher than their normal spending. (Read here about Tamil entrepreneurs)
What do you think was the outcome of this marketing task? Here is their learning:-
- While they wanted to increase the revenue by incurring this marketing expense, they had not set any measurable target for the sales increase.
- Yes, there was an increase in the top line. But the increase was only by 20% & they had hoped it to be much more.
- Further, the company was unable to state if this increase of 20% was because of the marketing efforts undertaken. They could not differentiate if it was in the normal course of business or because of the marketing.
- They realised they did not follow a clear marketing strategy.
- The amount was spent haphazardly and in a sporadic manner.
- They incurred the expenses because the company decided to spend 15% on marketing.
- They were unable to quantify the return on investment of their massive marketing effort.
- It dawned on them that they did not follow a planned way for marketing.
- There was no proper mechanism to measure the returns of marketing over the period of time.
The company had to pay this huge price to learn the lesson of financial prudence.
Are you spending money blindly or incurring expenses in a planned and evaluated manner?
Similarly let me share the outcome of a coaching conversation with another client, regarding management of personal expenses.
Prem was star performing technology leader and was working for a large organisation. Although he was well paid, he never had sufficient savings. He would spend all the extra money he earned. Over the years he had become slightly overweight. He wanted to get fit. So one day he went and subscribed himself for an annual membership in a gym, hired a personal trainer and bought a high end cycle just like his colleague.
What was the outcome? Like you would have guessed, Prem discontinued. His enthusiasm of working out died within one and half months. It was a struggle for him to wake up in the mornings after working late night. He stopped going to the gym, did not work out with his personal trainer and the cycle rusted over the months. The only change was the steady increase of his weight!
Don’t take impulsive financial decisions without exploring alternatives
His learnings from our coaching conversation:-
- Not to take impulsive financial decisions.
- Not to spend without proper planning
- Spending without being clear of required outcomes
- Not exploring alternatives
- Not to succumb to self-imposed peer pressure
- Not incur wasteful expenditure
To get the most by incurring expenses & to maximize the efficiency of the spend, (be it personal or professional), you can:-
- Set relevant parameters for the spend
- Have realistic targets
- Work on a clear strategy and
- Define measurable outcomes.
Here are some thoughts for reflection for you. You can think about it in both your personal life as well as in professional life.
- What have been your wasteful expenditure for the past 2 years?
- How could you have avoided these wasteful expenses?
- What will you do to prevent yourself from incurring similar wasteful expenditure?
Learn to maximize the efficiency of your expenditure.
(Sangeeta Shankaran Sumesh is a Chief Financial Officer turned Business & Leadership Coach, & has rich corporate experience of twenty-five years, including leadership positions with multinationals. An Independent Director & a TEDx Speaker, Sangeeta is a chartered accountant & credentialed from International Coaching Federation (PCC), and is a business advisor, professional speaker and the author of the bestseller “What The Finance”, “Get High” & “Where’s The Moolah?”.)
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