I wanted to post this article that my boss wrote on Investment Purchases v Expense Purchases. I find it to be dead on and very informative. Customers have read this recently and not only commended him on it but my customers have looked at their purchases differently ever since. Hope you find it as informative as I have. Enjoy!
As in previous editorials, my goal is to pass on some of my experiences in life, in hopes of making your business life a little easier. In 28 years of sales consulting, I’m often amazed at some of the purchasing practices I’ve come across. Let’s face it; there are many people in this industry and others that may not have the best business sense. For the most part, business is not all that difficult. There are many people that have blazed this trail long before we came along. Just like in life, mistakes have been made that should not be repeated, lessons both good and bad are out there for all of us to learn from. We are not re-inventing the wheel. This has all been done before. All you need to do is to look at the past and see what has worked and what you need not repeat. (If only our government could do that). I guess you could say it’s easier said than done. I believe that these topics should be taught in school before some of the other topics.
In general, anytime you are purchasing something for your company, there are two basic approaches: investment purchases and expense purchases. Although both purchases are similar, one couldn’t be any more different than the other.
There isn’t a week that goes by that I don’t hear an unhappy customer say that they purchased a piece of equipment on the Internet and either it doesn’t work or they can’t get any support
or training. I’m not talking about a toy; I’m talking about a major piece of equipment like a large format printer. In their small shop, this printer will be the single most important income producing piece of equipment and probably one of the biggest investments they will make in their business for the next year or so.
This is a perfect example of an investment purchase that was treated as an expense purchase. In other words, the owner thought the cost was more important than the return, or they tried to save a few dollars over the Internet versus buying locally from someone that could help them. Another common mistake is the perception that the purchase of equipment is the END of the buying cycle, when in fact it is just the beginning.
Please let me explain the difference. There are many thingsevery business needs to do their day to day work; staple items like laser printer paper, pens, coffee, paper towels, toilet paper, etc. None of these items generate any revenue for the business, yet they are essential to help run the business (some more so than others). Without them, we would struggle. These items are expense purchase items. They are literally an expense of running the day to day business, they don’t produce any income for your business so you don’t want to pay any more than you have to. You can get them from a huge number of suppliers and having a good reliable supplier, convenience as well as a good competitive price, is usually the only concern here.
In a nut shell, an investment purchase is exactly the opposite of an expense purchase; it is something you purchase because it’s going to make money, hopefully more money than the
investment cost itself. It’s as simple as that— you are purchasing it because of the return on your investment.
Similar to stock on the stock market, people invest in a particular stock because either they believe or have been advised to believe that they will make more money (the “return”) by
investing in a particular stock. With the exception of extreme cases, the price of a single share of stock is usually not a big concern; the big concern is what will the “return” be or how much money will it make. The price of a stock is relative to the return; in other words if you invest $50.00 per share the return should be bigger than the return of stock bought at $5.00 per share.This concept is not new to most people and everyone seems to get it.
This is where the criss-cross happens, as I mentioned earlier, when people make important purchasing decisions over the Internet and sometimes make the dreadful and tragic mistake of
treating what should be an investment purchase as an expense purchase.
For many small businesses, I know a major equipment purchase like a large format printer or flatbed printer should have a lot of thought put into it. It’s not something you buy on the
Internet. After all, it is usually the single most important income producing piece of equipment and the biggest investment they will make in the near future. Most likely, all income producing
activities in their shop will revolve around this important INVESTMENT. Yes, I said investment, and that’s exactly what they are doing. Don’t take this purchase lightly. You are making the
investment for the return, not for what the equipment costs.
If you are going to make a rinky-dink investment, expect a rinky-dink return. How much money do you want to make in your business? A little or a lot? Since the Gerber Edge came out in the early 90’s, to this day, I will still find someone saying, “they never bought an Edge because it was too expensive.” I know dozens of owners that, over the years, made several MILLION dollars with their Edge they purchased for only $22,000. Investment purchasing is not about the cost, it’s about the return.
Most companies that have been in business for years understand the importance of part two of their investment purchase. With the purchase of an important, pivotal piece of equipment (say that three times fast), these companies know who they choose to purchase their equipment from can be just as important as the equipment itself. Most of these owners have experienced
the horrors of costly down time or, worse, they have lost a big client because they couldn’t get the support they need when they needed it. Basically, when you invest in a machine that prints money, how much does it cost you when your money printer doesn’t work? How much would it cost you to lose one of your biggest customers? Even spending several thousand dollars more to buy your equipment from a local dealer that will support you, that is a ONE TIME expense that pales in comparison to losing one of your biggest accounts ($50,000 - $100,000 per year). It is a one time expense versus missing multiple jobs for multiple repairs over the life of the machine. A few thousand more dollars is worth every penny when you think of it this way!
Please don’t misunderstand what I’m about to say… In many cases, even the purchase of an identical piece of equipment for anywhere from one to several thousands of dollars less over
the Internet or from “the cheapest guy in town” compared to purchasing from a local dealer that can train you, support you, and service your piece of equipment is most likely NOT in your
best interest. Many times I’ve seen people that got little to no use what so ever out of what they bought from the “cheapest guy in town” or over the Internet. At one time or another, most
of us have been burned going the cheap route, and it’s much harder to swallow this concept when the dollars are much bigger. And, especially when the dollars are much bigger, it is more
important that you take a step back. Do more investigating and research on what you are investing in with regard to WHO you are investing in. After all, running your business is like running an Indy race; you want to invest your money wisely in the best equipment/car and invest your money in the best pit crew if you really want to win the race.
-Craig E. Tyrrell
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