Cash to Cash Flow: Do Not Be Afraid to Reinvest Into Marketing!

Discussion in 'Marketing' started by Ryuzaki, Oct 12, 2017.

  1. Ryuzaki

    •  
    •  
    Ryuzaki 女性以上のお金 Staff Member

    Joined:
    Sep 3, 2014
    Messages:
    2,360
    Likes:
    4,313
    Degree:
    6
    One of the most ubiquitous problems amongst entrepreneurs, front-end developers, graphic designers, back-end coders, SaaS dev's, app creators, etc...

    Most are Afraid to Invest MONEY.

    It's a strange phenomenon, but I get it and to some degree or another have fallen prey to its jaws too. We'll spend countless hours creating an amazing product of some sort for the sole purpose of making money, but when it comes time to get it out there earning, we won't spend money. I think there's several reasons for this:
    • It seems backwards to our caveman brains, spending money when you're trying to make it.
    • We fear judgement of the product, failure of the product, loss of assets and income...
    I said 'caveman' because you can imagine the idea of throwing apples and meat out of your cave and hoping even more apples and meat magically fly back into your cave. We think of money like a hard, physical object, but that's not right.

    Money is a metaphor for value.
    It's green karma. Let's not get into the problems with money... just remember that that's what it's supposed to be. It's a meta-object. It is the blood that flows through societies veins. It is a means of exchange, all condensed down to this ephemeral thing that's becoming even more 'magical.' Soon there won't even be cash, it'll be completely abstract. That's the first clue that money can't be treated like other objects.

    I noticed that there are two types of people when it comes to money in their daily lives. Some people think of money in terms of net worth and assets, and some think of it in terms of cash flow.

    - The Net Worthers want to see their numbers growing and have safety nets and padding in their accounts.
    - The Cash Flowers live up to their means, promising out monthly as much as comes in, and they weather emergencies with credit cards, and rebalance the equation to break even again later.

    I think in daily life it's better to be a Net Worther. But in business we need to be thinking more like Cash Flowers.

    Here's the mathematical reason:
    • Cash --> Cash Flow --> Cash
    Let's say, for the ease of calculation that a high priced liquidation will fetch 30x the monthly profit. A lot of us will hesitate investing cash, especially in the early stages when we're trying to pay bills and be ready for emergencies, but once you're past that stage, dumping money back not only lets us spend less of it on taxes but it actually increases our net worth based on the value of the asset, if you're investing wisely.

    Say you spend $1,000 on content and promotion of one piece, and that can result in an additional $5 in cash flow daily. That's $150 a month, multiplied by the 30x liquidation multiple = $4,500. So, not even counting the cash flow that you can keep to break even on that deal or reinvest before you sell, that's basically an immediate $3,500 profit on the valuation alone.

    Which is to say it's completely ridiculous not to be reinvesting. You're literally transmuting $1,000 cash into $3,500 cash once you sell, not counting the cash flow you'll collect in the mean time.

    Part of the problem comes from being Net Worthers in our daily lives and trying to shake that off to see things as a Cash Flower in business. It's much more sexy to see an extra $1,000 in the bank account than to see $1,000 less and waiting 200 days at the extra $5 per day to break even on that investment. You definitely can't go too balls to the wall with investment unless you're sitting on cash or can raise funding or will take a loan. Which is why we boot strap so much.

    But the reality is: We need to reinvest as much as we can.

    Without being stupid about it, especially in a scenario where we KNOW we have an asset that can increase in cash flow with a cash injection, it's really stupid not to do it if you're game is to ultimately liquidate (which should be most of us).

    ___________________________

    I hate knowing there are next-level ideas out there that get executed and rot away because the owner wouldn't invest in marketing. It might be because they're scared of loss and judgement, don't have money and won't let go of equity to bring on a partner, won't take funding because 'what if', and all the other reasons.

    Not only are there people that should be millionaires and billionaires even, but they live in squalor and low self-esteem and resentment. It's sad for them to not have what they could have, but it's even more sad that there's so much value that every member of human society could have reaped if only we knew the product existed and could have given our cash in order to consume it.

    Save money. Work in the trenches. But as soon as you have a consistent income, you need to partition off a chunk of it for a marketing budget. And never stop reinvesting once you do. Consistency is the key and it's like putting a brick on your accelerator. It might be 0 to 60 in 2 years, but eventually you'll hit 60, and there's no brakes until you sell the whole car.
     
    Aezio, infotech, Andrey and 9 others like this.
  2. Tao

    Tao

    Joined:
    Apr 29, 2017
    Messages:
    53
    Likes:
    49
    Degree:
    0
    Thanks for this. It is quite timely as I was thinking of posting to ask about reinvesting the profits I am making at the moment into more content. However, my question was more around what a "sensible" percentage to reinvest would be?
     
  3. Kris

    Kris

    Joined:
    Nov 14, 2016
    Messages:
    55
    Likes:
    36
    Degree:
    0
    Very true. Lots of people fall into the trap of needing instant gratification. Delaying that will make a world of difference. Every time I get money from client work, it's instantly invested straight into my sites.
     
  4. Future State

    Future State

    Joined:
    Jul 22, 2014
    Messages:
    67
    Likes:
    53
    Degree:
    0
    This should go without saying, but nobody can tell you what's sensible for your business and your life.

    The OP did say:

    So your answer is "as much as you can." The reason to push it to the limit is because it accelerates your growth the fastest. The sooner you get to large amounts of cash flow, the sooner you can stabilize and flip the property for a huge payout.

    You don't need to put yourself in a position that you end up divorced and struggling to pay your mortgage, while you're making $30k a month in cash flow. Keep enough out to maintain a reasonable standard of living. If you're single it's probably a good idea to restrict your lifestyle so you can end up retiring early or getting huge payouts to fund the next project.
     
    CCarter likes this.
  5. Nomad

    Nomad

    Joined:
    Jul 16, 2017
    Messages:
    5
    Likes:
    6
    Degree:
    0
    Very interesting thread. I like the distinction between Net Worthers and Cash Flowers- its something that comes up a lot on personal finance and investment forums, but I haven't seen the psychology put so succinctly.

    As a compromise between spending your gains and re-investing everything you can, you might consider reinvesting 70%* of increases in profits. So, if you've been making 1k/month and taking out 1k/month, but this month you make $1500, you'd take $1150 (1000+500*.3) and reinvest $350 (500*.7). If you make $2000, you'd keep $1300 and reinvest $700. At $5000, you keep $2200 and reinvest $2800. Over time, reinvestment would snowball and become the main focus of your business spending, but you still see a steady increase in your monthly personal income.

    *or whatever percent you like.

    This way you get to take care of your living expenses and enjoy some of those profits rolling in- but once your needs are met, most of the money goes back into the business. Obviously specific numbers and percentages would vary depending on your situation and goals.
     
    Tao and Ryuzaki like this.