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What single characteristic do successful companies share? The ability to allocate resources effectively.

Effective resource allocation maximizes return and minimizes waste. Yet allocating resources effectively is harder than it looks. There are a lot of motivations to overspend in certain areas and underspend in others. Here are five areas in which companies overspend, and five areas in which companies often underspend.

Overspend

Hosting. Lots of companies purchase more hosting than they need based on the expectation that they'll need it. This is justified as planning to scale. Unfortunately, having a plan in place to scale is different than paying for scale you don't have.

Office space. Having a nice place to work is important for a business and its employees, but a swanky, oversize office usually comes at a painful expense.

Technology. Technology is crucial to companies today, especially if yours is active on the internet. But that doesn't mean that technology isn't a big source of overspending. From software licenses to hardware/gadgets, companies often buy what they don't need, in many cases because they overestimate the return technology can provide.

Marketing. If you build it they will probably not come. Which is why most businesses need to invest in marketing. But many businesses waste lots of money on ineffective campaigns because they don't focus on monitoring performance and scaling the campaigns that deliver.
 
Business consultants. Is there a place for business consultants? Absolutely. Yet a lot of companies hire them before they're really needed, and with all the wrong expectations about what they can realistically deliver.

Underspend

Copywriting. Bad copy can literally kill a business. But how many businesses spend the money to hire a good copywriter? In my experience, the number is often very small when dealing with small to mid-sized companies.

Legal. Nobody likes lawyers (except maybe lawyers) but the reality is that many businesses do business without the guidance of competent legal counsel. This is penny wise, pound foolish. The costs of resolving a business dispute in which there is no legal agreement (or a poorly-written legal agreement) are exponentially higher than the costs of retaining a lawyer to look out for your interests before disaster strikes.

Marketing.
Some companies spend too much on marketing, but an equal number are under the illusion that their products and services will sell themselves and consequently don't budget to spend enough.

Design and development. If there's one place many businesses try save money, it's on design and development work. Thanks to low barriers to entry, outsourcing and fierce competition due to the economy, it's relatively easy to find someone who will agree to design a website or develop a web application at a price that seems too good to be true. But that's usually because it is.

Customer service.
Providing customer service isn't always cheap. Despite the fact that many businesses would boost sales and customer satisfaction by offering telephone customer service, for instance, many businesses shy away from making the investment.

Photo credit: Don Hankins via Flickr.

Patricio Robles

Published 19 February, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2393 more posts from this author

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Clerkendweller

I liked "Marketing" appearing in both overspend and underspend.  But what about "Security" (confidentiality, availability, integrity, compliance) in underspend?  Probably "Privacy" too?

For example, your design agency goes bust, who owns the domain name?  Who was paying the hosting contract?  Who has the site's code and data?  Who owns it?

over 6 years ago

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Alexa Steele

Thank you so much for recognizing copywriting as an important and integral part of a successful business model. One that is too often overlooked.

over 6 years ago

Neil Warren

Neil Warren, Publisher at 2N Media Ltd - ModernSelling.com

Why have you got "Customer Service" restricted to the "telephone" Dan?

If we're talking about companies that sell, via their websites and social media interactions, what happened to the sales and customer service people who can deal with such customers and prospects, in the medium of their choice?

I see that the likes of Dr Pepper, Cheestrings & Lady Gaga have started to pay our children to do this for them (see our main forum) - so the need is clearly there.

over 6 years ago

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Paul Donno

Some excellent points, but you forgot that a good Accountant will help your business grow, especially if they are involved on a regular basis.

over 6 years ago

Neil Warren

Neil Warren, Publisher at 2N Media Ltd - ModernSelling.com

Don't accountants steer a ship by looking over the back of it, at the wake, though Paul?

Don't you need someone who talks to customers, and prospects, finding out what they need and want, and feeding that information back to the captain, to get a decent decision on which way to steer?

over 6 years ago

Neil Warren

Neil Warren, Publisher at 2N Media Ltd - ModernSelling.com

Sorry...

Why have you got "Customer Service" restricted to the "telephone" Dan?

should have been

Why have you got "Customer Service" restricted to the "telephone" Patricio?

(might have guessed - another excellent article - sorry Monsieur)

over 6 years ago

Catherine Toole

Catherine Toole, ceo at Sticky Content

I loved seeing both copywriting and customer service in the list of top 5 underspends. I just wanted to agree with Neil and make the point that it's very often poor web text that leads to the kind of infuriating customer service experience that is online help. The good news is that at Sticky Content we've seen a big growth in the last 12 months in clients investing in the customer service copy basics - such as improving transactional emails; delivery and returns info and FAQs. A small investment for a big return. And ps before we write a word, we talk to the call centre staff who can usually tell you off the top of their heads what information is missing from your website.

over 6 years ago

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mark

This post right here got me more focused on taking care of business 

I thank you for the information.

over 6 years ago

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Pete

Speaking of overspending on software licenses...luckily there are tools such as License Statistics that can optimize usage and cut costs significantly.

about 6 years ago

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Ray

Its unfortunate that "Customer service" appear on underspend. what most organisations fail to realise is that customer service is the face of the business regardless of the medium through which it is being delivered. U don't joke around with the hand that pay your bills do you? but unfortunately a lot of businesses do.

over 5 years ago

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