Make Sure to Spend Money on Things that Bring Money Back!

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I've seen many people get stuck in the circle of spending money on experimentation, and before they know it, years have gone by, and they aren't profitable in their businesses.

This may have happened to you. I can assure you it's happened to me before many times, and I'm writing this post to help those who might easily get tangled into the web of experimental spending.

Business Risks

In business, there are risks we inherit. We have to constantly make the right decisions in order to see our businesses grow, mediocre decisions will make the business stay stagnant, and the wrong decisions will make the business collapse. Stats show that in the US 80% of businesses fail in the first 5 years!

I'd bet, you don't want to be like one of those who fell into the statistic, and I'd also bet that those who fell into the statistic didn't want to. Spending is a huge decision you have to make and if it's made wrong, your business will never see the potential it could.

There are 3 main levers you control in business: operating expenses, sales volume, and price. If you pull one lever wrong, you could end up with a business that needs to shut their doors. The 3 levers are very fragile, and when you become very seasoned as an entrepreneur, you know which lever to pull when.

Business failure is no respector of persons. It also doesn't care about business age. A new business is more susceptible to failure, but sometimes, older businesses pull a lever wrong, and they end up having to shut down too.

Money and time are always finite and the responsibility to steward them well doesn't go away regardless of how much you get. I can assure you that the people on the Forbes list of richest people are very good at making spending decisions, and they didn't all start with making big spending decisions first.

What is experimental spending?

The definition of experimental spending is "a quick route to business failure".

Just kidding...Hahahaha.

No. Experimental spending is when you're in the circle of making business spending decisions with the underlying thought, "Let's TRY this and see if it works".

The Reasons Many People Get Stuck in the "Experimental Spending" Trap

I've noticed that most people who get stuck in the experimental spending trap get stuck there because:

  • They're desperate for a change
  • They don't do enough research
  • They don't seek honest or knowledgeable enough advisors
  • They're trusting people for advice without really knowing them or knowing their advice works
  • They're too gullible

Business Owner and Investor Mindset

In his book, Cashflow Quadrant, Robert Kiyosaki talked about the business owner, the investor, the employee, and the self-employed person. They each had very different thought processes, and their income results reflected that.

The Business Owner may have to do some experimental spending, but even the "experiments" are quite calculated. As a business owner or investor, it shouldn't be a monopoly of the business spending decisions. There should be some general calculations and these should be the standard expectations in buying decisions:

  • If I buy this, I will get my return in XXX amount of time (with a large percentage of assurance)
  • If I buy this, XXX is going to be the added value to the company which will increase XXX key performance indicator

Using Wealthy Affiliate as an Example

For example, many people come to Wealthy Affiliate thinking, "Let me try this and see if it works"--experimental spending. Instead, a business owner would see the proof it works (case studies showing newbies success stories from students up to 7 figure annual incomes!), verify the case studies, see that it helps give you skills to reach customers more effectively, and use case studies to determine a potential expectation for when they'll get their return on investment (most people I've seen who do the work can get their annual tuitions paid back in less than 2 years).

Making the Shift

When you're starting a business (regardless of what type), it's difficult to know what operating expenses are appropriate. In our cases here, you might be wondering:

  • Is it necessary to have social media automation software to make my business work?
  • Is it necessary to have video software, DSLRs, and green screens to make money in my business?
  • Is it necessary to have SEO tools (like SEMRush, AHRefs, SE Ranking, Spyfu, or others) to make money in my business?
  • Do I need a premium theme?
  • Do I need conversion tools?
  • Do I need this course to make money in my business?
  • And the list can go on and on...

When you're asking these questions and you're uncertain about your buying decisions, reach out to someone who can mentor you and help you make those fragile buying decisions. If you're not careful and you simply decide to "just try it and see", you can go on spending and spending without an end in sight!

Instead, my advice to you is to make sure each buying decision is backed by an expected date to get a return. If you decide to buy a DSLR, backdrop, and video setup, then set goals to ensure you'll get the return from the investment before moving into more and more uncalculated and untracked buying decisions.

Examples After the Shift

For example, I signed up for Wealthy Affiliate at $359. I expected to learn SEO, see case studies, get around others who had the same goals, get mentorship to develop my skills and get my $359 back in less than one year's time.

The interesting spin was that not only did I improve my skills, but I was able to sell many things as a result of my investment. I sold my own high ticket services more effectively. I sold other people's products and I've referred many people here as an affiliate. I've gotten such a high return on investment from signing up here and taking action, and it's continuing to increase more and more!

Now, I'm able to take the income I've grown from sales, and cover my membership again (when the time comes), and buy more relevant things that will help me continue to scale my business. Each purchase I'm making is done with research and given an expected date for my return. Most times, I beat my expected return date, and I'm getting better and better with making spending decisions in my business!

My Challenge to You--Make the Shift

My challenge to you is that before you press "add to cart", "buy now", or exchange currency for a new "operating expense", do your research, make sure people are getting returns or being satisfied with the purchase, and set a date for the expected return.

My Questions for You

  • How do you make sure to get your returns on your investments?
  • What operating expenses did you feel were mandatory to make money in your online business?
  • Have you fallen in the "experimental spending trap"? If so, have you identified it?
  • What's your #1 recommendation to help people avoid the "experimental spending" trap or "shiny object sydrome"?

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Recent Comments

24

Thank you for this great post.This ill really help..

You're welcome! I'm glad it was helpful for you.

I havent yet mastered the art of earning money online before spending it. Alan

Hahaha. Keep practicing with needs vs. wants in focus, and you'll get it.

I love the idea to earn the money back you spent on something, for example, I currently try to earn $359 in the first year :-) :-) :-)

Love this article anyway!

It's totally possible. It depends on what you do.

I just bought a Camera.
I didn't buy it online. Went right to the store after researching it online.

Don't know how to use it yet, but I think it will be a beneficial tool that is considered an operating expense moving forward. Lot's of accessories to be had.

Thank you for your post.


I agree it could be a valuable operating expense. There are many things that could be valuable operating expenses, but timing and prioritization is really crucial. Education and developing the skills would be beneficial too. You just have to prioritize based on what you have and how quickly you want to see the money back.

Agreed. Priority is something we tend to look over. Budget is another area.

I do love your posts Tiffany, they really give me an insight into the 'reality' of business and the decisions that will affect success and longevity.
So far, the only expense has been the initial subscriptions (inc. annual) they were funded outside of the family accounts so as not to have any impact. I've also raised the capital needed for the second year, again 'self-funding' if you like (selling long hoarded items)
My next purchase could well be a laptop and this will be so I can become mobile. This will make my time (as you say, it is finite) more productive as I will be able to 'escape' to quieter places so as to maximise content creation.
Nothing out there I need at present that warrants further investment. When I do you can be sure I will seek necessary guidance and do my own due diligence.

It sounds like you're a pretty disciplined guy Twack. We need discipline like that to make it far. Best wishes.

Excellent

Thanks!

I don't experiment spend much. I already knew affiliate marketing was definitely a viable and proven source of income. I purposely tried WA free for 7 full days. I upgraded to premium at $19 for a month, during which I experimented. I decided this was very legitimate and went for it.

I try out other things, like social media management and plugins, but as my income from my business is not more than breaking even with my WA membership (and a new domain last month), I mess with free trials first. See if it's worth the expense right now. If I don't expect I need it YET, I'll put it on the backburner. Same with plugins and themes. If I'm trying to decide what I want exactly, I try it out free first. If it doesn't do everything I absolutely need without premium and it's a great product that I plan to use and need it, THEN I purchase.

But with low traffic and switching niches, I don't need a lot of premium functionality yet.

It sounds like you have a great perspective on needs and wants. Sometimes I categorize wrong, but staying focused on ROI goes a long way.

You're absolutely right. Like I love the Astra theme right now. I'm definitely going to go with a pro version eventually. But I had to think about it. Do I need it yet? Everything I consider purchasing, I ask that first. I love Canva and that's going to be a subscription purchase too, but that's more of a want because I have fun with creating social media images. So I tried the free trial of the pro version and decided I will do it. Just not until I can justify it with social media traffic and conversions. A social media management system comes first.

I'm on the eClincher free trial right now. :)

Tiffany, I agree that spending money with an investors mindset is something I did not do several times before, and it cost me a lot in many ways.
This time in developing my online business I see how easy it is to spend in many areas unproductively.
Focus in all areas is certainly something we have to do especially this part.
Thanks Tiffany.

I agree. I think it's a habit we have to develop and I'm improving as I continue to point myself back to it. Sometimes, I'll spend without thinking right, but I get better at pointing myself back to the question, "How long will it take me to get my money back?".

Great post! At this point in my life, with the exception of food, I do not purchase anything unless I think that it will some how benefit my business that I am trying to build.

As far as "mandatory expenses for an online business: internet connection, Wealthy Affiliate (website hosting and continuing education) and of course a computer.

I have also shifted to a "cash" only mode. If I do not have the money to try something out, I don't buy it. When I do make sales, a significant portion goes back into the business.

Yes, I do experiment with some things. I justify those purchases as things I can write product reviews about. Thinking about it, I need to start doing more reviews about the items that I have purchased for my businesses.

Tiffany, I hope that you have a great week.

I've shifted to items that I have bought, items I will buy, items I can test without needing to pay anything, and items that I'm buying to improve my business.

The "cash only" mode is a great discipline! Great advice from the words of an accountant.

How did you go about finding the case studies in WA and verifying them? I'm interested to know as it would help to improve my writing in the WA Bootcamp.

Also, thank you for your many informative blogs here!

I read them and network with the people who wrote them. I also follow the people who wrote them and see their level of knowledge and mastery. Best wishes.

You can check mine out on my profile under "training". I've included other case studies in mine and you can check those out.

Thank you very much and I shall certainly do this!

This is changing the trajectory of my business. I hope it does the same for you.

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