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The Opportunity in Opportunity Cost

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The Opportunity in Opportunity Cost

This week I saw yet another article advising small business owners to outsource various aspects of their business. What disappointed me about the article was the list of criteria that we should use:

 

  • is it something I love doing?
  • is this a task that only I can do?
  • by not outsourcing, am I sacrificing quality?
  • by not outsourcing, is it taking time away from tasks only I can do?

What bothers me about this list is what is missing: there is no mention of money. For small business owners, time and money are very dear resources. We do things we hate because we don't have the money. We spend too much time figuring stuff out because we don't have the money. Our business suffers because our time is divided but we don't have the money to buy our way out. Our most critical questions about investing in any product or service is:

 

  • if I spend money on this, will I make more money than I spend?
  • is this the best way to spend that money?

opportunity costWe need to figure out the opportunity cost of the expenditure: if you choose to spend your money this way, will you make more profit than if you made no investment? If you have multiple possibilities, is this the one with the best outcome? That can be a tough analysis if you have to do it all yourself:  

 

  • how much time will we really free up?
  • can we actually use that time to make more money?
  • wIll the extra income exceed the investment?

But we don't have time for detailed analysis, so we "wing it" and make a gut decision -- usually negative because we never believe what salespeople tell us, and because we hate spending money more than we hate doing work. Even worse, we hate wasting money on things that don't provide real value.

 

On the Flip Side

 

Now turn the tables -- you are the vendor, not the purchaser. When you pitch to your prospects, do you help them with their analysis, or do you leave it to their gut? If you only talk about freeing up time or doing things they don't like to do, you might interest them a bit, but if you show how their investment will help them make more money, you will sway things in your favour. 

 

Sure, but where are we going to find the time to do their analysis? You don't. Put your marketing hat on and tell a story. It could be about another of your customer's sucesses, or it could be a dream scenario of their implementation. Figure out how you can help them make more money, and tell that story.

 

Just remember to include the money. A great story might leave them feeling good about what you can do for them, but you need to make sure they feel it will be financially good for them. When the discussion gets to price, you don't want them mentally switching to cost-benefit analysis mode. They need to believe it will cost them more to do nothing.

 

Don't let them pass up a good opportunity to do business with you.

 

Mike Sullivan is the founder of Analytics Edge, providing simple Excel-based report automation products for individuals and small businesses.
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