Wednesday, June 6, 2012

Don't Confuse One-Time Costs With Recurring Costs

I am fortunate to consult for a successful law firm. They carried one monthly expense which made me absolutely crazy -- they were paying rent on storage space for old files. Every month they paid roughly $1,000 just to store hundreds of boxes of paper. When I spoke with all the partners in the firm, they just shrugged their shoulders and said "we've always done it that way."

So I did some research. It turned out that a local company was happy to come pickup all the files, scan them, organize them, destroy the paper copies and then provide them digitally for about $10,000.

Based on my math, that's a bargain! Spend $10,000 today to save $12,000 every year from here until the end of time? Sign me up! I'll take that deal every day of the week. Anything you can do to reduce your costs will always boost your profits

At the heart of the issue is understanding the difference between a one-time cost and a recurring cost. The difference is pretty obvious, the one-time hurts your wallet today while the recurring cost hurts periodically over time. Logically, a one-time cost that eliminates a recurring cost should always be higher than the recurring cost. However, as long as you can re-coop that one-time cost within a reasonable amount of time after you've eliminated the recurring cost, then it pays for itself.

Be smart about your money. Recurring costs are a necessary evil but every time you can eliminate one, then jump on the opportunity. Your profits will grow accordingly.









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