This entry is part 4 of 11 in the series Business Pit Stop


Auto racing is expensive. The top teams in F1 spend roughly half a billion dollars each year. Engine development, R&D and top-tier drivers are important. Teams don’t risk their investment by saving $10 on an engine part or on cheaper brake pads.

Quality costs money. You don’t want to lose the race because you were too cheap to use quality parts or hire the right designers, engineers or mechanics. While it’s important to manage costs and operate profitably, look at the big picture for your business when you evaluate an expenditure.

• Prepare a budget. Too many businesses work week to week based on cash flow. Managing cash flow is important, but prepare an annual budget so you have a roadmap to work from.

• When you are cheap and take shortcuts, you’ll produce cheap products and services. If you decide to save money and pay your sister’s husband to do your website rather than hire a professional, guess what? Your website will suck, but it will be cheap!

• Pay good people what they are worth and hire quality vendors and partners.

• Don’t arbitrarily cap sales commissions and earnings. Top salespeople who bring in more profitable revenue should be paid proportionately, even if that means they earn more than you do.

• Be smart about compensation plans. If there are diminishing returns then you risk sales people sandbagging orders until the next cycle kicks in and they get paid for the revenue. If the plan is profitable for the salesperson and the company then everyone wins.

• If you set up bonus plans for your employees, make sure to set clear goals and pay out when they are achieved. Don’t look for ways not to pay, or set ambiguous criteria. You’re better off without bonus plans than you are having them and never following through.

• The cheapest solution may not always be the lowest overall cost. If products or services fail, or you end up processing more customer complaints or returns, then the work you redo eats up what you initially saved on price. 

Manage your budget wisely. Watch finances closely and save where you can, but remember to keep in mind the entire organization and customers when evaluating the overall cost of your decisions.

Next up: Chapter Four– Check Your Talent

Lindsley Medlin

Pitlane Strategies LLC

Copyright © 2018 by Lindsley D. Medlin, Jr.

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  1. Infosion

    Good picture to sum it up 🙂
    Thanks for the advices and reminders. Good Quality always has its price. I guess you should allways think twice about making any cuts/changes in a running business – and especially the potential consequences of it.