As you may know by this point, I started out my career in business to business sales, so I’m really passionate about a good ROI calculation. I’m also very passionate about investing in your business, and frankly, investing in general. Click here for our free Retirement Guide for Creatives if you want some proof on that front.
The most important thing about investing in your business is seeing a good ROI - or return on investment. There’s no point in spending money if you’re not going to make some money back, but there’s no way to make money if you don’t spend money in the first place. Think about it - does Jeff Bezos (billionaire CEO of Amazon) bat an eyelid at a $300 expense? A $3,000 expense? Those things probably don’t even get anywhere near his desk. So if you want to think like a billionaire, you have to be willing to invest like a billionaire, and not be scared of spending money!
So how much can you spend?
Obviously we don’t all have billions at our disposal like Jeff does. But I’ll be honest with you - even at my level, a $3,000 expense doesn’t scare me. And if you want to put that into perspective, we’re on track to make about $150k this year, give or take, (so $3k is about 2% of our yearly revenue).
There’s no “right” amount to spend, because the truth is, investing isn’t about the amount you spend - it’s about the return. But as a general rule, don’t spend money you don’t have unless your ROI is quick and pretty much guaranteed. Taking on debt for your business is something you may have to do to get to the next level, but especially in the beginning stages, you should try to stick to what you’ve got in the bank.
This is why it’s important to keep savings for your business as well. Put away a little from every job (if you can’t - you’re likely not charging enough and that’s a whole separate conversation) or set up a monthly recurring payment like we do, so your savings is always growing!
...and if you’re someone who’s past this beginning stage, and has a lot built up in savings then you may benefit from some different advice, which is - INVEST MORE. You should have a rainy day fund, of course, but putting money back into the business is the smartest thing you can do to help it grow and become more sustainable over time.
What should I invest in for my business?
There are a lot of different business investments you can make. In our industry some big ones are new equipment (printer, laser cutter, etc.), employees, physical space/storefront, and education. Heck, if you’re just starting out, it can feel like an investment just to get a whole set of professional watercolors. So how do you decide what’s right for you?
First of all, the things that you should invest in are things that will save you money and time. Because, remember, time = money, right?! Start out with listing the things that cost you the most and take you the most time. Then think of ways that you can save yourself some of that time and money.
Secondly, you should invest in things that will you bring you closer to your goals. If you’re working toward higher-end clients, for instance, maybe you could invest in higher-end packaging or gifts for planners that serve those higher-end clients. Education is part of this portion as well - a conference, coaching program, or course could elevate your skills and mindset to bring you to that next level.
Calculating the ROI - Return on Investment
Alright, so here’s where we actually start calculating! The basic calculation for a return on your investment is this:
This means that your net profit on the investment, divided by the cost of the investment, times 100 is the percentage of your return. You want this to be positive, at least, and the higher the percentage, the better your investment was.
A simple one would look like this. You currently outsource your white envelope printing for $1.50/envelope and charge $2.50/envelope. You’re contemplating purchasing a white printer (maybe this one, that we ended up investing in). The total cost for this investment is about $700, which includes one white ink cartridge - an estimated 1,000 sheets can be printed on one cartridge.
So if you would otherwise have printed 1000 envelopes and made $1 each that’s $1,000. Your printer costs $700, so your ROI will be ( $1,000 - $700 / $700 ) x 100 = 42%! That’s actually pretty good - it means you recouped the cost of your investment PLUS 42%.
But of course, it can get a lot more complex than this, because there aren’t always direct costs and profits associated with your investments. In this example, you didn’t account for shipping costs from the original printer, or on the flip side, or for the time it’ll take you to actually print the envelopes - something you weren’t previously spending time on. You also only calculated the ROI for one cartridge of ink.
We’d recommend always estimating in the short-term (ie: one cartridge of ink, not 100), because that’s the best data you can depend on. And then make sure you add in time and other factors.
You may be contemplating an educational course - let’s use the Stationer’s Summit as an example. It’s $297 for Early Bird Pricing, which seems like a lot at first. So how would you go about calculating the ROI? First, figure out where you plan to see the most return. Here are a few ideas:
Raise your average job invoice by $100
Bring in 5 more clients this year
Save yourself 1-2 hours per job
Then calculate the profit/gain on that - for instance, if you’re bringing in 5 more clients this year, and your average invoice is $800 with $500 in profit, then that value would be $2,500. The ROI on that investment would be 742% (basically, a resounding YES).
How about saving time? If you charge $50/hour, and have 25 jobs per year, then your value is $1,250 (saving 1 hour per job) and your ROI is 320%. Except, maybe it takes you a full 18 hours to watch all 18 courses - I would argue you’ll earn more value as well during that time, but we’ll keep it simple - then you’ll subtract 18*$50 from the value. This leaves you with $350 and an ROI of only 18%. Still good, of course, but not quite as good as it seemed before. However, if you gain the value of bringing in more clients AND saving yourself time, you can combine that value, for an even higher number, not to mention what additional money you have time to bring in by saving 1 hour per job.
So, like I said, the more factors you take into consideration, the more complex this can get, but this is a basic idea of how you would start calculating the ROI on an investment. My general advice is to keep it as simple as possible, but don’t forget to account for time - for instance, don’t assume you’re just going to press “print” on that new printer and have it up and running perfectly! You and I both know that printers have anxiety and tend to shut down when they sense our stress…
No matter what you’re thinking of investing in, make sure it serves you in the long run, and brings you closer to a goal that you actually have - some things may appear cheaper (printing in-house for instance), but turn out to be a lot more “expensive” than you think because they take up all of your time and sanity! Read a little more on why we don’t print much in-house here and get excited for one of the best investments you can make for your stationery business - the Stationer’s Summit!