Using business math to offset our emotions.
A simple breakdown.
Running a business is often very emotional.
We pour a lot into these ventures…
And plenty is on the line at all times!
As much as we tell ourselves that we're able to suspend our emotions and "be logical"...
Realistically, this is often harder than it sounds.
Something that I've found to help is applying "business math" to my decisions.
By putting numbers to our assumptions, we can often flush the emotion out of them...
And stay much more rational.
Here's what I mean.
Let's pretend your health insurance broker emails you tomorrow with a message...
"Rates are going up 20% again. I know I said they wouldn't, but they are. We are also going to be charging you some additional fees. Hope that's fine. Thanks, Rep."
Likely, you're going to have some emotions.
"How could they trick me on this?"
"What? No, it's not fine."
But, instead of firing back an email: "Are you kidding me?? I'm done with you."
You pause. And take out a calculator.
Since you're paying $3,000/month right now in benefits...
We're talking about $600/month extra. Or $7,200/year.
And let's say their extra fees will be $800 more per year.
So $8,000 total.
The next question becomes...
What is the % likelihood that another broker REALLY can give you similar benefits for substantially less money?
Maybe 15%? At best. Realistically not high.
And the time spent to evaluate other brokers and switch providers would probably be at least 6 hours?
Since you're making $600,000/year, your time is worth $300/hour.
So we're talking about $1,800 right there.
And back to our other estimate? We think there is a 15% chance that someone else could save us, what…$2,000 at most?
The math supports emailing them back:
"Thanks. I get it. Really appreciate your help."
Or, let's look at a second example...
Spending on cybersecurity.
Nobody wants to do it...
And every time we see that $2,200/month security bill...
Our emotions will tell us: "Hmm. Do we REALLY need to pay for security?"
Again, back to the calculator.
The Change Healthcare hack is estimated to have already cost United Health roughly $872 million.
Obviously, this is a big enterprise. And a pretty high-profile hack...
But there are plenty of small businesses that can easily lose $1 million due to ransomware. That will never make the news. But will be completely devastated by this amount of cash hit.
So, while the $2,200/month is annoying...
Compared to going out of business?
The math supports paying it.
I'll give you one more example...
Many companies are committed to paying their people as little as humanly possible to keep them...
So they are constantly trying to find the bottom of the "acceptable market rate" for a given person.
The problem with this approach?
Good people aren't dumb. And this type of stinginess does not make them more likely to stay.
Back to the math.
Let's say a top person contributes $550,000 of revenue to our business...
And we're paying them $186,000. But they really would like to make $200,000.
Plenty of business owners will hold the line and say: "Nope. This is all you get. I don't care how it makes you feel."
The smart ones, though?
They'll realize that $14,000 is worth spending to protect $364,000...
They'll realize that this one person bringing two of their friends via referral will really save them on recruiter's fees...
And they'll realize that the commission required to land new business would quickly surpass this small bump in salary to deliver great service on existing accounts.
So, calculator in hand, they will just smile and pay the money.
There are a million more of these examples...
But here's my punchline:
Use business math to keep your emotions at bay.
It can help.