A Spectrum of Spend
Smart businesses often need to spend in order to to save or earn more. Like planting seeds rather than hoarding them. But while every pound shouldn’t be guarded, it should ideally be given a job.
I have a mental framework for considering spend through a strategic lens. Each category reflects a different mindset — from cautious under-investment to proactive value creation, all the way to total spend blindness.
Here's how I group the concepts.
Cost Investment
This involves spending money wisely to increase long-term gains. You might spend because these investments have the potential to boost revenues, profit, production, reach or efficiency. Every pound spent is scrutinised not just for its cost, but for its return - what's the impact? This encourages thoughtful spending: if £1 brings back £3, that’s smart money. You embrace calculated risks, knowing that short-term costs could lead to substantial long-term benefits - but only after fine-tuning for efficiency and ROI:
Service Innovation → Designing new offerings based on unmet needs.
Product Development → Focused investment guided by customer needs.
Technology Stack → Software/tools that streamline operations.
Marketing & Advertising → When tied to measurable outcomes like leads/sales.
Example: Hiring a specialist may seem expensive, but if their expertise doubles your sales or unlocks a new market, that’s spend optimisation.
Cost Waste
These are the pitfalls that drain resources and provide little to no value:
Sunk Costs → Money already spent that can’t be recovered, often with no strategic benefit. Decisions continue to be influenced by these past costs, even when they shouldn’t.
Classic example: Pouring more money into a failing project just because you’ve already spent so much on it.
Excess Inventory → Ties up capital and can lead to losses. Often due to poor planning, lack of analysis, or impulsive decision-making.
Classic example: Overordering inventory that later expires or isn’t needed.
Spending that lacks alignment with business goals or performance outcomes. May happen due to internal pressure, following trends, or “keeping up” with competitors without analysis.
Prestige Spending → Unnecessary travel, events, or vanity projects.
Trend Chasing → Buying tech or services without real use case.
Classic example: Investing in flashy tech no one uses or hiring roles without a clear purpose.
Cost Avoidance
This tends to be a more restrictive, sometimes short-sighted approach. Avoiding spending money simply to reduce immediate expenses, even if it stifles growth, or saying no to a cost that could drive future revenue — often out of fear or rigid budgeting. Cutting corners or deferring investment may save money now but cause losses later.
Opportunity Cost → Refers to the value of the next best alternative you give up when making a choice. Ignoring an opportunity may save cash short-term, but you might miss out on a big opportunity.
False Economies → A bit like cost avoidance taken too far. When cutting costs results in greater future expenses or damage to quality, reputation, or productivity. Skipping software upgrades to save money might lead to inefficiencies or breakdowns that cost more in lost productivity.
These are the quiet game-changers — often ignored due to cost fears, inertia or difficulty measuring but can bring huge benefits:
Change Enablement → Training, coaching, or systems to support transformation.
Preventive Maintenance → Ignored until it’s too late, yet saves major repair costs.
Business Intelligence, Market Research & Analytics → Overlooked but sharpens decision-making.
Process Automation → Upfront cost, long-term operational win.
Cost Blindness
Refers to unintended or unnoticed spend that erodes profitability — usually untracked or unmanaged:
Untracked Innovation Spend → No visibility into experimentation costs.
Redundant Software Licences → Tools paid for but unused.
Auto-renewing Contracts → Forgotten vendors still charging monthly.
Unmanaged Subscriptions → Small charges that accumulate.
Ad Hoc Purchases → Miscellaneous spends outside procurement controls.