'Opportunity Cost' Sounds Abstract But It Costs Your Business Real Money
You may not recognize it, but opportunity cost affects your business every single day. Opportunity cost is essentially what you give up (the benefits of the next best alternative) when you make a choice. To understand how to keep your opportunity costs low, let’s first meet John.
John is a new client. You and John spent about an hour back-and-forth discussing his exact needs as a client and then figuring out a date that works for both of your schedules to fill said needs. Fast forward to today - you’ve got John’s job on your calendar this afternoon. You start heading over to John’s house. Suddenly you get a call. John has to cancel last minute and he’s not sure about rescheduling. He’ll “get back to you.”
Related: Fire Your Bad Clients
Immediately, you get a pit in your stomach. That feeling is not simply about losing out on a piece of business. It’s about the time you spent planning the job, the afternoon you blocked off for the job, and all the other clients you turned down in preparation for the job.
If only you had known that John wasn’t a reliable client, you wouldn’t have invested all that time with him. You would have gone with another client – another choice. Unfortunately, no one can know these things beforehand, especially when it comes to new clients. You can, however, protect yourself with 3 simple steps in order to reduce your ultimate opportunity costs.
1. Institute a fair cancellation policy
You know your time is money, but most clients don’t understand this. Communicate to your clients a fair cancellation policy. Your customers need to know that your time is serious, and instituting a cancellation policy gets this message across. John would’ve thought twice to cancel on you if he knew there was an actual cost for him to bear in doing so.
2. Reserve your client’s payment information ahead of time
You need to enforce your cancelation policy, and you need your client’s payment information to do so. However, it can be a big "ask'' for your clients to blindly hand over their credit card to a brand new business. Increase your client’s comfort level by using a trusted third party when collecting their payment details. That way, your client is happy to hand over their payment information and you both can sleep well at night.
3. Stop invoicing
Invoicing leaves you vulnerable to late payments. Clients just get lazy when it comes to paying bills – no one enjoys writing checks, so it’s easy to push it off. And worst case, clients can totally forget about paying altogether! Every dollar in your pocket can be used to reinvest in your business, so the sooner you have that hard-earned cash, the better. Keep customer payment information on file to eliminate the need for invoicing altogether and guarantee timely payment. For unreliable customers like John, you of course want to make sure they pay when they cancel, but more importantly make sure they pay when the job is complete.