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Difference between non-strategic versus strategic spending, and why is it significant?

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Not all business expenses are made equal when it comes to spending money. There are certain areas in your business where a modest investment might yield a tremendous return, and others where a large investment can be a waste of money.

On the other hand, there are places and periods where a large investment might provide even greater returns. The key is to distinguish between the two.

I’ve spoken with and taught hundreds of thousands of business owners at various phases of development over the last 25 years. And one of the most significant financial turning points for my customers is when they understand the distinction between strategic and non-strategic spending.

Strategic Expenses

A strategic expense is any expense that will result in immediate profit or that strongly protects profit in the business. A strategic expense can also be one that will result in future earnings in the short term.

So, here are some examples of strategic expenditures:

Marketing that is effective. Selling salespeople

Key team members who perform client work and are thus highly used and profitable.

Assume you own a professional services firm, and one of your professional staff members is a lawyer, accountant, or engineer. She is now most certainly 70%, 80%, or 90% billable, and as such she is a strategic expense.

For every one dollar ($1) you spend on her salary, you’re probably billing four dollars ($4) to someone – four dollars or more to the client. That is an example of a strategic investment.

Other strategic costs include registering a trademark or filing a patent to protect your intellectual property. Another strategic investment would be the wise use of outside consultants and coaches.

For example, the time you spend with your tax strategist determining how to best handle your company’s tax situation in order to maximize after-tax earnings, or the time you spend with a business coach assisting you in staying focused on the things that provide the highest return.

Or working with a consultant to solve a significant challenge inside the business that will have a positive ROI and are considered strategic spending.

Non-Strategic Expenses

What exactly are non-strategic expenses?

Marketing that is ineffective. Salespeople who do not close deals.

Team members who are a nuisance and do not produce a positive return on investment, as well as wasteful expenses that do not contribute to the bottom line. R&D stands for research and development that cannot be commercialized.

To put it another way, you can’t use it. These are some examples of non-strategic expenditures.

Finding the Right Balance

Finding the balance between strategic and non-strategic expenses isn’t always cut and dry. The rule of thumb is to spend substantially or not spend wherever possible – invest heavily in strategic expenses while cutting non-strategic expenses ruthlessly.

We call this here at Maui Mastermind, feeding your winners and starving your losers.

Here’s an example:

You might have three salespeople, one of whom is extremely strong in terms of her closing, one of whom is extremely weak in terms of his closing, yet, you might distribute leads equally.

In order to maximize your strategic spending, you should give your best sales leads to your best closing people. Why? Because it’s the most profitable thing you can do inside the company and as a strategic expense spending money on those commissions for salespeople whose work makes more sense to double down on them.

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