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Decision Matrix

When I was getting started as a real estate investor, I didn't have a lot of money.

Being fresh out of college, my job wasn't the type that threw off a ton of extra cash each month, but I somehow managed to save up a few thousand dollars before I took the plunge.

In those early days, every penny was precious. If I wanted to make something out of the money I'd saved, I knew it was CRUCIAL for me to earn an actual return on each dollar I spent. If I failed at this task, the money would be gone and I'd be left with nothing… and this kind of scenario was simply unacceptable.

Knowing that this seed capital was the lifeblood of my future financial freedom, it's not surprising that I struggled quite a bit with every decision that required spending money.

Every day, someone would tell me about some new product, service, gadget or subscription that I would be STUPID to go without. While each one of these “opportunities” may have been legitimately awesome and helpful in and of themselves, the reality was – I had to be careful with my money. Buying up every little thing that caught my eye simply wasn't an option, and when every red cent matters (as it did for me), I had to start saying “No” to a lot of good stuff.

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If you're running any kind of real estate business – you probably know many online services are competing for your money. I just took a look at my own business, and these are just a handful of the things I'm currently subscribed to (or have seriously considered subscribing) to:

Don't get me wrong… these are all valuable things in their own right, but it doesn't take a math whiz to recognize that these costs add up, FAST. Each one may not be a huge expense as a standalone item, but when you put it all together, it can get really expensive!

And let's not forget, these are just the subscriptions (i.e., guaranteed expenses) that could be coming out of my pocket each month. These don't even include the variable (and much larger) costs of running a business… computers, equipment, postage, contract work, direct mail, marketing, utilities, etc.

You'll start drowning quickly if your operation isn't pulling in some serious coin each month. Especially in the beginning, you need to decide which services are a MUST for your business and which ones you can bypass.

Measuring Value

When it comes to software, products, services, and other paid subscriptions, measuring the value of what you pay for is usually anything but straightforward.

Some people might ask themselves,

Which subscriptions will pay for themselves and/or carry their own weight in value?

As much as I'd LOVE a simple 2 + 2 = 4 formula to answer this kind of question – it's never that simple.

In order to see the ultimate value of anything, we can't just look at the thing itself and know exactly what kind of income it can generate for us, because these things rarely generate income directly. We need to consider what each thing brings to the table and what part they can contribute to a highly profitable business when we use them to their full potential.

To illustrate my point, let's look at PEPPERONI as an example.

pizza

Pepperoni by itself is NOT something I get excited about. However… pepperoni is also a key ingredient required to make my favorite pizza.

I'm a pizza fanatic – and for me, pizza is never quite the same without pepperoni.

In a sense… the pepperoni is like a “paid subscription,” and the pizza is like a “profitable business”. I don't get excited about the ingredient by itself (i.e. – the subscription), but since I know what it does for the meal as a whole (i.e., the business), I know what an important component it is for the end product (and something would be unmistakably missing without it).

In the same way – a paid subscription may not technically produce income in a direct, tangible way. Still, it may offer significant convenience, streamline a time-consuming process, automate menial tasks cost-effectively, or consume less mental energy by solving an issue that would otherwise chew up a TON of time and brainpower.

The Decision Matrix

It's not always easy to make a complex decision with no clear answer, so whenever I'm at a fork in the road and I can't decide whether the answer should be “yes” or “no,” my best attempt at making these decisions a bit more straightforward is to use a Decision Matrix.

When I have a clearly defined problem, and I'm presented with a potential solution to solve that problem (e.g. – a paid subscription, product or service), I start by looking at both the problem and solution, and I grade them with five distinct measurements on a scale of 1 – 5.

Here's how it works…

Severity of the Problem

  • 1 – This isn't a problem at all.
  • 2 – This is a minor annoyance.
  • 3 – This is an ongoing irritation, but I can deal with it.
  • 4 – This a fairly big issue and it bothers me a lot.
  • 5 – This is a serious problem. I'm not sure how I've survived this long.

Frequency of the Problem

  • 1 – I rarely encounter this problem.
  • 2 – I encounter this problem at least once a year.
  • 3 – I encounter this problem at least once a month.
  • 4 – I encounter this problem at least once a week.
  • 5 – I encounter this problem every day of my miserable life.

How Time-Consuming the Problem Is

  • 1 – When this issue comes up, it consumes less than a minute of my time.
  • 2 – When this issue comes up, it consumes less than 20 minutes of my time.
  • 3 – When this issue comes up, it consumes less than an hour of my time.
  • 4 – When this issue comes up, it consumes several hours of my time.
  • 5 – When this issue comes up, it consumes several days of my time.

Importance of the Solution

  • 1 – This wouldn't meet any significant needs in my business. If I paid for this, it would just be for fun.
  • 2 – This might scratch a minor itch, but I could survive fine without it.
  • 3 – This could solve a notable problem, but I can still get by without it.
  • 4 – This would solve a big problem. My life would be a lot easier if I had this.
  • 5 – This would eliminate one of my biggest problems. How have I survived without this?

Budget Available to Pay for a Solution

  • 1 – I have no money available. I'd have to go into debt to pay for it.
  • 2 – I could probably find the money to cover it, but barely.
  • 3 – I can afford it, but it might cut into my budget.
  • 4 – I have room for this in my budget.
  • 5 – The cost is nominal and would not affect my budget.

With this grading criteria, I can simply answer all five questions and use the final score to indicate what I should do clearly.

Granted, this isn't always a fool-proof method (some things still deserve more time and careful consideration), but even if it doesn't point out an abundantly clear answer, it will at least point me in the right direction. For example…

  • If the sum of my numbers adds up to anything higher than 20, the answer should be an easy – “YES!”
  • If the numbers add up to anything between 15 – 19, the answer is “Probably”, with careful consideration paid to which areas scored particularly low and what consequences and implications they might have.
  • If the numbers add up to anything between 10 – 14, this starts falling into the “Questionable” territory. This is when I have to take a long, hard look at which answers scored high and which ones scored low. Sometimes the final answer will be, “Not yet”, other times it will be, “Let's give it a trial period, but only if we can cancel if it's not working.”
  • If the numbers add up to anything lower than 10, it usually falls into the “Probably not” category.
  • If the sum comes out to less than 5, it's an easy “No”.

The Matrix In Action

Let's take a look at a few subscriptions I've looked at in the past, and how this system gave me an easy answer (note: these numbers pertain to my business and my situation – my answers shouldn't necessarily be the same as your answers).

DataTree

Problem: “I need access to an easy-to-use, reasonably priced, nationwide database to help me conduct property research.”

  • Severity of Problem: 4
  • Frequency of Problem: 5
  • How Time Consuming the Problem Is: 3
  • Importance of Solution: 4
  • Budget Available to Pay for Solution: 5

Solution: This adds up to 21, so the answer is an easy YES.

Lead Propeller

Problem: “I need to create a selling website that is fully functional, looks great, is easy-to-use, and won't cause headaches.”

  • Severity of Problem: 4
  • Frequency of Problem: 4
  • How Time Consuming the Problem Is: 3
  • Importance of Solution: 3
  • Budget Available to Pay for Solution: 4

Solution: This adds up to 18, so the answer is Probably, but I'll have to look carefully at the areas that scored lower. If they aren't significant deterrents from moving forward, then the answer will be YES.

RocketLawyer

Problem: “I need an easy way to create state-specific contracts, deeds and seller financing documents on-demand.”

  • Severity of Problem: 3
  • Frequency of Problem: 3
  • How Time Consuming the Problem Is: 4
  • Importance of Solution: 3
  • Budget Available to Pay for Solution: 4

Solution: This adds up to 17, so the answer is probably, but I'll have to look carefully at the areas that scored lower. If they aren't significant deterrents from moving forward, then the answer will be YES.

Making the Matrix Work

In order for this matrix to work properly, there are a couple of things you need to have nailed down.

1. Understand the Problem.

For example, if you tell me…

“I need to sell more stuff.”

…this is NOT a clearly defined problem:

However, if you tell me…

“I need a well-designed, easy-to-use website that will help me establish credibility for my company, build a bigger audience and give my customers easy access to the information they need to make a buying decision.”

…now THAT is a statement from someone who knows what they need – and when someone knows what they need, they'll be MUCH better equipped to know when a proposed solution is (or isn't) going to fit the bill. If you don't know what you're looking for in the first place, you probably shouldn't be spending money yet.

2. Understand the Solution.

In order to make a proper decision, you also need to be as educated as possible about whatever you're buying.

So you think you've found a good subscription service to pay for? Ask yourself some of these questions…

  • What specific problem(s) is this going to solve for me?
  • Am I sure this will solve my problem(s)? What makes me so confident?
  • Are there any other ways I can eliminate any doubts BEFORE I pony up the cash?
  • Can I get my money back if this proposed solution turns out to be a total waste of my money?

The unfortunate truth is, most products and services cannot and will not deliver 100% of what we want. No salesperson or sales page is ever going to willingly admit this, but it's the truth.

Granted, this doesn't necessarily mean it's a bad deal. I can think of dozens of products and subscriptions I'm glad I paid for even though they weren't perfect. The objective is to simply close the gap of uncertainty before you buy it.

How can you close the gap? Most respectable companies will offer EITHER:

  • A money-back guarantee for a certain period of time.
  • A free trial for a short period of time, allowing you to get a good look at the proposed solution before you commit any money to it.

Again, the absence of these options doesn't necessarily make something a “bad deal” – but the presence of them should certainly make it easier for you to explore what's being offered and get started down the right track.

About the author

Seth Williams is the Founder of REtipster.com - an online community that offers real-world guidance for real estate investors.

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