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What Is the Opportunity Cost of This Business?
By Tom Reilly, author of Value-Added Selling (McGraw-Hill, 2010)
Opportunity cost represents the indirect costs and missed opportunities when one chooses a course of action. Buyers often view the price difference between one seller and another as an opportunity cost and ask themselves, “What other ways could we spend or invest that money if we did not choose the more expensive alternative?” Those foregone alternatives are the opportunity costs of the more expensive alternative.
Sellers also face opportunity costs—the time and money invested in selling and servicing customers. Where else could you have invested that time? Where else could you have invested that inventory? The burden of slow-pay, high-aggravation, low-margin, and high-maintenance customers tax salespeople beyond competitive pressures. A good business person never accepts a piece of business at face value. He or she asks these types of questions:
- Where is the opportunity value in this business?
- What are the opportunity costs of this business?
- Is this the type of business upon which we can build a solid foundation?
- Should we take a pass on this and let the competition “choke” on it?
This thinking comes from experience and coaching. Experienced, knowledgeable, and perceptive sales veterans know to ask these questions. Well-coached salespeople are taught to ask these questions. Either way, their companies benefit from good business practices. Good salespeople are good business people.
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