Read this before you make your next big Business decision

estimated read time: 3m 0s 

Recently I began reading a book by a famous entrepreneur and motivational speaker Patrick Bet-David, titled Your Next Five moves. And in one of the chapters, he spoke about embracing math and using what he called the Investment Time Return formula or ITR (for short) and I would like to tell you more about this simple and easy formula. Let’s dive in!  

What is the Investment Time Return (ITR)?

Is it formula that takes three important factors when making important business financial decisions, providing you the opportunity to carefully analyze and think several moves ahead. The best part, it doesn’t require any high-level math knowledge. The three elements as you can probably guess are: Investment, time, and return.  Investment looks at how much it will cost you or save you, Time looks how much time it will take you and save you, and lastly Return provides you the opportunity to calculate the return on the money and time involved in the decision.

How does Investment Time and Return (ITR) work?

For the investment Time Return formula to work affective you must first come up with three different proposals for dealing with a particular issue you are facing, each with a different price tag of course. The next thing that you will do is figure out the time frame you have, then you can ask yourself this one question “is it worth spending twice the money to get the project done in half the time”. Once you have calculated the cost and the time you will lastly want to figure out the return.

Here is an example for you, let us say that you have a project that will cost you 200,000 and will take a year to complete to lower your risk of losing clients by 8%. And let's say you are currently riding at around 25,000 orders a year.  25,000 orders times 8% equals 2,000 orders. let's say for the sake of this example each order is worth 150, the total return would be 300,000. Of course, you don't have to be a math whiz to understand that, that investment is worth it.

But Patrick suggests that you must dig “a little deeper into the numbers”. he suggests that you make a list of blind spots or things that you think could go wrong with that decision. For example, in this situation worst case scenario is that you are going to lose 200,000, the real question now though is can you live with that, and will it impact your business to the point where you will have to close shop? Patrick goes on to say that your decision should be based on knowing your all-in risks instead of winging it or simply running off best case numbers.

Let's go through a slightly different scenario that can occur with our $200,000 investment, let’s say in this scenario that this investment only saved us 4% of orders, we would still be looking at a bump of revenue. Patrick mentions in the book that the best practice to figure out the break-even of any project before committing to it.  

Final thoughts and statements

As you can see with the ITR formula there isn’t any high-level math involved, all you need is to thoroughly think through your investment using the ITR formula, then use some super easy math (as was shown in the examples above). After reading about this formula in Patrick’s book, I definitely agree that it is a critical skill that you should master and use time and time again. For your information, I’m not being sponsored by Patrick Bet-David. I simply found his book and the section about the ITR formula to be very interesting and wanted to share it with you. I hope you may find use with it in your business endeavours.

Photo by Tima Miroshnichenko