Understanding the assignment

Can I ask you a question?

Do you know exactly how much it costs you to run your business?

Yes, you.

Do you know exactly how much it costs to run your household? You can give me a monthly figure with seasonal variation, a yearly figure, a daily average (if you are that way inclined), or you can work it out on a per capita basis. That will make for some interesting conversations with your teenagers when negotiating how much pocket money is enough pocket money, given the cost of things today. Maybe you could produce a graph on why they should be paying you instead.

But I digress.

Chances are you don’t know exactly how much it costs to run your household, but you could work it out.

And it would take a bit longer than you are comfortable with.

What with all of us being multi-banked and all the various direct debits we seem to accumulate over the years, paying for things on different cycles… on different cards… never remembering to cancel on time… and the fact that you are still using your old flatmate’s Netflix account… and oh what? I thought we had unsubscribed from Paramount Plus, or was that Apple TV? And is my Amazon Prime account a household expense, technically? And is the fact that we have two of those between us a sign of modern living or just wasteful?

It will not be as quick or easy as it should be to work out what it costs to run your household, but you absolutely can do it.

And you should.

Because then you can put that number against the income your household brings in and make some decisions around spending habits.

Those may be hard and realistic decisions around cutting down and watching the pennies or joyful decisions around actually allowing yourself that vacation, that new car, that extravagant thing. Whatever it is.

Or you can use the data to shame Timmy about being the most expensive member of the household given how much their gaming equipment costs and whatnot.

Or maybe you’ll spare Timmy. You are the adult here, so why don’t you use the data to make better decisions? Better decisions about the things you can’t, shouldn’t or won’t do… and the things that you will actually do… with a lot more conviction and gusto because information is power.

And maybe, if you get a taste for this: for the confidence you get when you manage your money with full visibility of how much and how long for and what is left and all that… you may go back to work and go… hey… colleagues… can I ask you a question?

Yes, you.

Do you know exactly how much it costs us to run this business?

Why of course we do, the CFO will say: it costs this much year on year.

This much on people.

This much on rent and laptops and this much on travel and this much on t-shirts and merch. And this much on snacks.

We know how much you cost and how much Timmy costs and how much his chair costs.

And you will say thank you CFO, that’s great.

Do we also know what it costs us to serve our customers? The breakdown between customer acquisition, product development, operational servicing and so on?

Do we know what it costs us to build what we sell, what it costs us to take it to market and convince people to buy it and then what it costs to deliver it to those customers so they can continue paying?

Not quite, is the answer.

But we can work it out, says the CFO.

It will take some time and we will need to capture and crunch some numbers that we don’t normally capture (largely because the people who should be giving us those numbers are suspicious that if they give us full access to the numbers we will turn off the taps and reduce their funding, which is a valid fear).

And maybe working it all out will take a bit longer than we are comfortable with.

And maybe we will find that we are spending laughably little on certain things that actually deserve more investment.

And maybe we will find out we spend outrageously much on things that don’t deserve that much investment at all.

So.

Ask the questions.

Take the time.

Work it out.

You may find that you are spending too little or too much in certain areas. You may find all sorts of interesting things about your money and the way your organisation relates to it.

Because, much like your household budget, what you spend needs to play nice with what you earn. Or hope to earn.

But if you are in the latter category, in the hoping to earn bucket, then you need to ask your CFO one more question. One last one. But it is, I promise you, the best one. And it’s also the hardest one. But it is the one that really matters.

And that is: if you take the following data points, what shape do they make?

And the data points are:

• The cost to build the thing we are selling;
• The number of people who may want to buy it;
• The rate at which they may decide to buy it;
• The amount of time it may take you to get them from ‘maybe’ to ‘OK then’;
• The price at which they may buy it.

You won’t have all those numbers to hand right now. Particularly the numbers around the rate of adoption and the viable price for a new service… those you won’t have until you’ve been in-market long enough to not be in the ‘hope to earn’ bucket any more. When you know the answer, you’ve either earned or died. So your choices are to either wing it (don’t do that… a lot of people do… but please don’t) or make some assumptions and then do the math.

That last part, by the way, is where we often fall short. That last part is the most important part.

If this, then that.

If all the people buy our product on day one, then we can price it like this.

If only half of the people buy it, it may need to cost a bit more.

If half the people take a day to think about it, it may need to cost a bit more still.

It starts getting uncomfortable the more you think about it, so most people let their optimism get the better of them.

And optimism is great. But it’s not enough.

So seriously, do the math… do this for my sake. It may take a bit longer than we are comfortable with, but please do the math for me.

If it costs you X hundred million to build your product, and your Target Addressable Market is 100 tier one banks, and the rate at which they may decide to buy it is two per year… and the amount of time it takes you to get them to say yes is two years… what does your service need to cost when they finally buy for you to A) survive the process, and B) still have enough runway to go on to repeat the process to sell to the next guy?

And how many people need to say yes (and how many years does this add up to) before you can be earning more than you spend?

Can I ask you a question?

Yes, you.

You do know that even if nobody asks the question, you need to know the answer for yourself, right?

Especially if nobody asks the question, if you are in business, knowing the answer is literally the assignment.

#LedaWrites

Leda Glyptis is FinTech Futures’ resident thought provocateur – she leads, writes on, lives and breathes transformation and digital disruption.

She is a recovering banker, lapsed academic and long-term resident of the banking ecosystem. 

Leda is also a published author – her first book, Bankers Like Us: Dispatches from an Industry in Transition, is available to order here.

All opinions are her own. You can’t have them – but you are welcome to debate and comment!

Follow Leda on X @LedaGlyptis and LinkedIn.