Subscription Options

March 8, 2009

Pssst.. wanna buy a dollar for 50 cents?

So you have fought tooth and nail and made it through the last month/quarter whatever. You've been very active and managed to sustain / grow your consulting engagements, personal financial commitments have been met, and you have a surplus of funds.

Now what? What do you do with them?

In business you have three options, you can

a) Put them back into the business to try to create additional value
b) Purchase growth through expansion or acquisition, or
c) Return them to the shareholders (you) for them to reinvest where they can get a better return.

These are your options every time you have excess capital to allocate within the business world. (Or even the private investment world)

All are valid options and any right thinking consultant in the early 21st century should at times be doing all three of these. But for now lets look at option a) reinvesting in the business.

Going for growth means increasing the return on capital invested, either through increased revenues or improved margins.

Cost reduction is something we have spoken about here a lot, and with the abundance of software and technology out there today there is no reason why you cannot slash a lot of the infrastructure costs associated with running a small to medium sized consultancy.

Increasing revenue through investment.. now thats a different story. As I have always seen it you have two options.. You can invest in either (1) your assets, those things that by themselves will produce revenue, or (2) your enablers. (Those things that will not produce revenue without something else)

The choice is clear and the decision is pretty straightforward. Where will you get the best return on capital? Think like a client, they won't spend money with you unless it provides the best returns for what they are trying to do.

Why should you be any different?

Option 2 is really about enablers and abilities. This is very wise to consider if you are lacking in skills that can earn you more revenue. Sales training for example, with a reputable vendor, can provide you with a powerful skill set that will return you many times the investment.

But the skills need to be something that will add to your bottom line, or that will allow you to expand your offerings into other commercial areas somehow.

Option 1 is where I like to invest. What can I put cash into today that I can leverage to sell more consulting and generate greater revenue. These are assets, not enablers. Enablers will, when combined with assets, hlp you to generate more wealth.

Assets, well marketed, will generate revenues with little additional efforts.

Software, SaaS products, training course development, Intellectual Property, and online communities are all forms of assets. All examples of how you can leverage todays cash to produce tomorrows revenues.

So are any of these a $1 for 50cent option? This is a hard one to sort out. Given that you have already canvassed your client base, and you see a real opportunity there, not just a pie in the sky dream, then this may help.

What is the ROIC (Return on invested capital) for existing revenue streams? Which are growing at a steady rate? For example, say you run a services arm focused on delivering business process work for

How much do you spend on that every year? How much profit does it generate? Is it steady, does it dip or is it growing? 

Or maybe you deliver some range of productivity software, what is the ROIC on that product? Same deal, is it growing, steady or shrinking?

This can give you a pretty good idea of what your market is likely to go after, as well as what the market you have exposure to like to spend money on. With todays technology for advertising you can take this a step further and try to calculate the ROIC for your online advertising also. 

Once you know where the money is likely to come from, then you need to work out how to get into it for less than the price you would normally pay.

If it is about your webpage then get a quote locally. With this in hand take time to scour and other freelancer sites. Again, you are looking for the same value (now that you have calculated the value) but at a discount. 

That way if you get it wrong, and the product or service is going to return 10% instead of 15% then you have less at risk, and you are still likely to turn a dollar over. 

What are your investment options this quarter?