The Coupon Trap: Conserving Costs

Have you ever fallen into the coupon trap?

You stand at the brink of a purchase – you’re not quite sure you should buy it – but the discount is just too good to pass up.

Then you get home, and find yourself with a sweater or pair of jeans that are an unbelievable bargain for SOMEBODY… just somebody with a different body or taste level than you.

It seems like a paradox, but “saving” in the wrong way we can make us spend far more than we should. This happens when we’re so dazzled by the price that we lose sight of why we buy: the surplus. (See more on this at Why Does Anyone Buy Anything?)

 

Avoid the Coupon Trap
In a business context, we can avoid over-emphasizing price by applying the CONSERVE savings path before the COMPETE path. (For more info on the three paths of savings: Conserve, Compete, and Commit, take a look at this great article here on our site called: Three Steps To Saving Your Company Money: How To Compete Purchases)

How do we Conserve effectively?

 

Step One – Write Your Top Goals

First, step back from the purchase itself (or the area of spending). Don’t even think about it.

Now, write down your top three business goals. (Four is OK, but not more than that.)

Why are we getting strategic?

Lewis Carroll wrote that “If you don’t know where you’re going, any road will take you there.” By the same token, if you don’t know your business goals, then any purchase will do.

But the aimless path is expensive. Strategic direction is an essential context for true savings. So you have to know your goals.

 

Step Two – Get the Number

Now back to the purchase. Write it down on the left side of a page. On the right side, put your business goals.

What goes in-between is the quantitative measure that results from the purchase and leads to the goal. Here’s how, and two examples:

 

Template

Purchase ———- >     Specific Quantitative Result   ———- >      Business Goal

Example 1

Consulting Project —– >   15% Lower Labor Cost for Widget X —– > Goal 1: Increased Profitability

Example 2

SEO Expenses ———- >     4,000 more monthly website hits ———- >     Goal 2: More Revenue

 

Every expense should tie to a measurable result. Here are a few other common metrics:

  1. Increased leads
  2. Reduced time to close
  3. Quicker development time
  4. Lower number of complaints
  5. Fewer hours of staff time spent
  6. Higher customer satisfaction scores

This number is the bridge between your dollars and your goals, so it is essential. If you can’t figure it out, you probably have found excess spending that can be cut with little or no impact.

Step Three – Gauge the Impact

Assuming you have a number, it’s time to estimate what would happen to that number if you used less of the purchase (and how that would impact your company goals).

To gauge where you are on the curve of diminishing returns, ask yourself:

  1. What happens if you reduce the quantity by 10%?
  2. What happens if you reduce by 20%
  3. By 50%?
  4. Completely? (100%)

You may have data that gives you solid insight into these answers, or it may be largely guessing. If it is guessing… you can get the data quickly by pulling back for a month or two, and then watching what happens.

The math won’t be precise, but you have a logical progression from the purchase volume to the business goals. You also have a sense of the sensitivity of the purchase – how tweaking volume may impact results.

Findings & Actions

If you follow this exercise for your ten biggest vendors, here’s what you’ll find:

  1. Some purchases that aren’t related to your main business goals
  2. Other purchases that support your goals, but can be reduced in quantity with little impact in results.

Whether you cancel or pare back, buying less smartly is a sure way to save… no matter how great the price is.


Here are some other great articles that will help you conserve costs for your business as well:

3 Ways To Save Money: The Only Things You Ever Need In Business Dealings

Expensive Sentences: Common Buying Mistakes That Can Hurt Your Bottom Line

Get your free Savings Kit and additional resources:

Get Your Free Savings Kit!

Includes 25 Savings Tactics, Video Tutorial, and spreadsheet with template.

JackSignUp