We make investment decisions all the time; even on things we don’t consider investments (stocks, mutual funds, real estate, etc.). 0n the personal side it could be a car or appliance. We have to decide if the wash machine for $1,000 that will last 20 years is a better deal than the $300 model that will last not nearly as long and require more repairs.
On the business side it could be hiring a new sales person whom wants a $3,000 per month base or one whom requires a $6,000 per month base. We look at the output and compare our return on investment. If the lower priced sales person has a history of generating $50,000 per month in sales and the higher priced person can generate $125,000 in sales then it’s a no-brainer. The higher base salary is more than covered by the increased sales.
The same holds true when selling a business. It’s more important for a seller to know what they will have after taxes and expenses than the gross sales price. On a recent deal the buyer showed the seller how a price that was 10% less than he was asking could give him a higher net after tax.
It’s not just the cost. It’s the value of the benefit we get from that cost.
“Strive not to be a success but rather to be of value.” Albert Einstein
