Get All Access for $5/mo

'Opportunity Cost' Sounds Abstract But It Costs Your Business Real Money Clients who don't value your time keep you from those who do. There are polite ways to set them straight.

By Sam Madden Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

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.

Related: Don't Let Your Business Be Held Hostage by a Nightmare Client

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.

Related: Have a Client Who Is Not Paying? Sue.

Sam Madden

Co-founder of PocketSuite

Sam Madden is co-founder of PocketSuite, a mobile business management app helping self-employed professionals get paid. 

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Side Hustle

These Sisters Started a Side Hustle After a 'Light Bulb Moment' Led to a 'Versatile' Product. Now It's Done Over $45 Million in Sales.

Co-founders Lauren Stephens and Kaki McGrath, along with their mother Bonnie Dudley, turned everyday-wear brand Dudley Stephens into a multimillion-dollar success.

Science & Technology

Track Hurricanes and More Like a Pro for Life

Just $29.97 gets you lifetime access to this app.

Making a Change

Expand Your Global Reach With Babbel, on Sale for More Than 60% Off

Learn up to 14 languages for business or travel.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Side Hustle

New Research Reveals the Most Profitable Side Hustle — and You Could Make an Extra $15,000 a Year From Home

If you're ready to start a side hustle, it pays to consider which one will give you the greatest return.