The Value of a Hard-Earned Dollar

Happy Friday,

We value a dollar less and spend it easier when we don’t earn it ourselves. Think lottery, inheritance, government. It can also happen in a consulting business, albeit to a much lesser extent. Over time, leaders can get used to seeing revenue and profit numbers, making it easier to take them for granted and spend them on things a more competitive and prudent leader wouldn’t.

Here's a simple way to keep your eyes on the ball:

Let’s say your consulting business keeps 15% of its consulting revenue as profit - about average. So, your company has to win and do a million dollars of consulting work to put $150k in the bank.

Now, think about everything that went into competing for and accomplishing a million dollars of consulting work. The broad categories include employing multiple humans, preparing and winning multiple competitive proposals, proper scoping, budgeting, and performance of the work itself; incurring contract, performance, and safety risk, and ultimately receiving payment. There was probably a lot of stress and some late nights, too.

It's a lot of effort and risk, and a lot has to go right for a measly $150k! (before taxes)

Now that you've converted dollars back to the original effort and risk, you can weigh that expense. HR says, “We could use another person to help out.” Salary and benefits—$150k. Is that position worth a million dollars a year of consulting work?

You should view all of your existing staff and expenses through the same lens.

Casinos exchange chips for cash to disassociate betting from the effort and sacrifice it took to earn it. It’s easier to throw down a meaningless black chip than to plunk down a hard-earned hundred-dollar bill.

When weighing business expenses, don’t just look at the numbers and toss in another black chip. Do the quick conversion in your head and take into account the effort and risk it takes to earn those dollars. It makes it a lot easier to say no.

And have a great weekend!

Dave

Feedback and blowback are always welcome: dave@goodnewsfriday.com

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Written by me, not ChatGPT, with speed assist and blunder avoidance by Grammarly