If you have a decision to make in your business, such as:
Should I hire a new person?
What if I switch suppliers to a new vendor?
Should I invest in this new marketing channel or double down on an old one?
How will my company change if I switch locations?
Should I take on a new business partner?
How will this market change impact my business and how should I respond?
Try this:
Start by thinking about the profit equation.
All business profits are built in essentially the same way:
Profit = Revenues - (Fixed Costs + Variable Costs)
So, ask yourself:
What potential impact will this have on the Revenues part of the equation?
What potential impact will this have on my Fixed Costs?
What about impact on my Variable Costs?
Here's why this works:
It may seem obvious to think about costs and revenues when it comes to making decisions. But thinking about a decision's impact on a FORMULA is different.
1) It helps you be ruthlessly specific about INPUTS.
How much will this ACTUALLY cost?
Are you SURE?
What will be the REVENUE impact?
"I'm not sure" isn't an answer. If you don't know, how can you make a logical NUMERIC guess?
2) It orients you as to WHERE in your business this decision will have impact.
What are the unanticipated potential outcomes of the decision, where will they happen, and will this impact be temporary or permanent?
Is this decision an emotional one? Or will it actually decrease cost and/or increase revenues?
Is this a pure cost-side move? If so, why are you making it?
Looking at the math doesn’t stop you from running your business based on your killer gut instincts.
But it does force you
To make it make sense.
(And make cents 💵).
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