THE STAGGERING PRICE OF OPPORTUNITY COSTS. DON’T PAY MORE THAN YOU MUST!
January 31, 2012
Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen).
In other words, I didn’t do this and the result was that I wasn’t able to get that.
People are a bit confused by this entire concept of opportunity costs. They don’t understand that there can actually be a loss without doing anything. But there clearly can be. Let me explain.
A print shop buys a low end computer. The computer is slow and inefficient. The amount of work it can produce is considerably less than a better computer. The sales people know that production is down and shy away from selling products that rely on that computer. The opportunity costs equal all the money that is lost because people aren’t able to buy products dependent on that computer.
Another example is education. All the money that is lost when a professional decides not to seek further schooling. Year after year lost wages compound. The opportunity costs associated with not continuing education are enormous.
PAYING FOR KNOWLEDGE ALMOST ALWAYS IS MUCH CHEAPER!
In my field, it’s the cost of the work a company wasn’t able to secure because they didn’t invest in professional help. People figure that they’ll save money by not spending on a consultant. Usually, they make costly mistakes that a consultant would have helped them avoid. The cost of the error is often more expensive then the consultant’s fees. Frequently these errors are not tax deductible, while the fees of a consultant usually are.
DOING IT RIGHT THE FIRST TIME DECREASES EXPENSES, INSTILLS CONFIDENCE AND INCREASES REVENUE
It also takes a new business a long time to get organized. They might be confused about their product, proper pricing and their audience. You’d be surprised to know that many business owners actually are! Pricing products or services “right” is imperative. If prices are too high a business won’t have customers, to low they won’t make a profit. Pricing is a very difficult task and bringing in an expert is a good idea.
Entrepreneurs sometimes don’t understand the product, when this happens they can’t sell it. They not only have the opportunity costs ofthe first line of sales but all future lost sales as well. The opportunity costs in this case could be astronomical. Possibly even the difference between success or failure.
SO MANY COSTS
With all the fixed costs a business owner has to plan for and the variable expenses that always seem to crop up, it’s no wonder that people miss opportunity costs. These are hard to measure. They’re invisible and easily overlooked. And many people either ignore them or just assume they do not exist.
HERE’S A WAY TO LOOK A BIT MORE CLEARLY AT OPPORTUNITY COSTS.
When making a decision, ask yourself the following questions:
What is the ultimate goal that I am trying to reach?
What resources do I need to reach my goals?
What are my most viable resource options?
Choose 2 or 3 of the best from the most viable list.
What are the costs of each of the options available to me?
What can I gain from each of the options?
Which is going to bring me closer to my goal?
What are the opportunity costs of not choosing the others?
When acknowledging and understanding opportunity costs, in relation to the over arching goals, a business owner can frequentlycreate a strategy that incorporates a few of the viable options and get more of what they really want. Let’s face it, you can’t do everything at once, but you can work investments into a logical plan of action to reach even our loftiest goals.
WITH A FIRM UNDERSTANDING OF THE STAGGERING PRICE OF OPPORTUNITY COSTS, YOU WON’T PAY MORE THAT YOU HAVE TO.
Andrew Tjernlund - The Secrets that Made $10 Million on Amazon in 2015
January 15, 2016
Jack Canfield on Focus Forward
July 7, 2013
The Key Ingredient to Success - Are YOU Missing It?