Everyone knows how important calculating ROI is for any business. But what about COI, or the cost of inaction? What if doing nothing isn’t the safest move but is actually harming your business in the long run?
First things first
Let’s start by talking about ROI. Calculating your return on investment is crucial for any business and should always be done when scaling up, starting afresh or when you want to shake things up. But ROI doesn’t deal with all eventualities, and so doesn’t answer every question you need when making an important decision. ROI in fact becomes irrelevant if you haven’t worked out your COI beforehand.
COI is basically the sum of all the costs you have now and the costs you are going to accumulate in the future if you make no changes. That’s right. Instead of focusing on what return you could potentially make, you need to first concentrate on the losses if you do absolutely nothing. And COI isn’t just directly linked to cost, it also calculates the impact on employee morale and customer satisfaction.
Avoiding something because it’s risky or your team don’t have enough time and energy often comes with a cost. Not calculating the COI means you can’t truly know the risk and harm you creating for your business when avoiding change. Working out your COI is a crucial step to understand if the ROI is even worth it and doing nothing is actually fine. But inaction without any thought to the consequences could see your business hit a brick wall.
Let’s face it, us humans don’t like anything risky. We love nothing more than our ‘safe zone’ where things are squishy and comfortable. We hold off on big decisions because it could go wrong, and the bigger the risk the harder the decision is to act. Sometimes playing it safe is the wisest thing to do but it should never be our go to because it isn’t good for business. In fact, companies thrive on calculated risk taking because it either helps them to grow or avoids them shrinking when they aren’t keeping up with the times.
In the business world, a company has to keep up with the marketplace if it wants to stay relevant and keep that profit margin healthy. And nothing puts off a customer more than knowing that your company has seen better days or resembles the business version of stale bread. You’ll soon start to see your customers seeking out your competitors who have moved on while you go around in circles. Inaction could see you damaging your brand, losing out on profit and new custom.
A good example is investing in a new website. Many companies aren’t sure whether its worth the ROI, but what they need to calculate first is the COI – or the cost of not updating their website. Say your main competitor has just published a brand new site where your customers can find what they need much more quickly and enjoy the experience more. Your website on the other hand isn’t mobile friendly and looks like it was last updated in 2008. Your customers will notice and will bounce off to the shinier website that’s easier to navigate. Your COI should now be flashing red because leaving your website as it is will cost more than updating it.
Another example is manufacturing. Say you invented a product, you got a patent and protected it for 10 years and now you run your industry like a King (or Queen) of old. It’s too easy to sit back and relax for those 10 years and think everything is hunky dory. When in fact your competitors are busily preparing prototypes that are more advanced and are in waiting until they can release it onto the market. As soon as your patent breaks, you’ll find yourself at the back of the queue if you haven’t calculated the COI and the risk involved in not updating your product.
To act or not to act
For any business, inaction is the first choice because it takes no effort and is safe. The easiest thing to do is often to do nothing. But next time you avoid scaling up, bringing in new resources or investing in your sales and marketing – think about what it would cost you and your business if you didn’t do it. Your base should always be what will do more harm and not how much you need to invest.
And nobody should make an impulsive business decision without understanding the risks involved. But there is a middle ground between reacting too quickly and not at all. Calculating the COI and then the ROI will mean you can strike when the iron is hot, so you don’t lose out on an opportunity or see your customers seek greener pastures.
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