Opportunity Cost Can Cost You 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.”

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 cancellation 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.

4 Steps to Earn More

The one color that resonates with all self-employed professionals is the color green — everyone likes making money. I’m not here to preach about how to get new business, because these days it seems like there’s a new lead-generation tool popping up every week. My focus is holding onto the green you do make, so you can reinvest your dollars into your business.

1. Stop Invoicing

“So, I’ll PayPal you later?”

“Where can I mail the check?”

 “Can I just get you next time?”

The above three phrases are among the worst words that come out of a client’s mouth. A dual emotional reaction comes over you, the professional.

Frustrated you has the urge to shout,“I want to get paid now – I deliver a service, you pay me…that’s how this works!” Fearful you worries, “Oh, my god, what if I never hear from this person ever again?”

Invoicing is time-consuming but never guarantees payment. Don’t be fooled by techniques such as PayPal or mobile transfers (i.e., “modern day” invoicing). These processes still suck your clients into being lazy and keep you up at night wondering when/if your payment is coming. Not to mention, from an opportunity cost perspective you’re actually losing money while you wait for payment.

As soon as a job is complete, don’t “follow up” for payment. Have your client’s payment details on file. As soon as you complete a job, start processing that customer’s payment as you walk to your next appointment. You’ll save time, you’ll sleep better at night and, frankly, it will even make your clients’ lives more convenient (no check writing, no cash withdrawals, no reminders).

2. Set a Cancellation Policy

It seems nobody feels bad telling you, “Sorry this is so last minute, but something more important came up.”

Every business owner I’ve ever met has been canceled on (some much more than others). The cure is to make your job more important than anything else.

Put a cancellation policy in place for your appointments. Make your clients aware that your time is important because, let’s be fair here, it is! If you get a cancellation text when you’re 20 miles outside the city, en route to your client, that’s a lot of time and gas wasted.

Institute and enforce cancellation and no-show fees to all clients. Collect their credit card information upfront, with a clear “For Protection Only” message. Good clients understand that this is fair.

3. No More Paying for Leads

All the lead generators out there want you to believe that you need to pay to get business. The truth is, if you do good work, you shouldn’t have to pay to get more work.

For the most part, individuals going to sites like Thumbtack and Handy are looking for the lowest price possible. Converting those types of clients into recurring, full-paying customers is tough, not to mention that the return-on-investment math never quite adds up for paid leads. On average, only about 16 percent of those paid leads convert to actual business. Worst case, you just get taken for a ride with lead-gen tools.

Go for the high-quality leads. Set yourself up on Yelp. It’s free! Ask clients to write reviews after you do your work. Follow up with them if they forget. Make business cards (less than $10 for 100!) to increase your chances of going viral amongst your clients’ friends. Join your local BNI chapter to have others do your marketing for you!

Finally, build your online presence on Facebook, Twitter, LinkedIn, etc. Display your personality (clients love this) and build your own brand.

4. Become ‘bookable‘ Everywhere

If you call a restaurant to make a reservation and they don’t answer, do you just wait around for them to return your voicemail? No, you’re on to the next best option. (This analogy might not resonate anymore now with OpenTable, but that’s part of my point…Bear with me.)

The same behavior, unfortunately, goes for many clients in search of service professionals. Unless you have an ongoing relationship with a client, missing a client’s call or delaying an email response can be a death wish. Customers typically move on to the next best option when they are not immediately satisfied.

You want to make sure that every client who wants to book you can book you, immediately. To help them, display your schedule on your website, your Facebook page, even on your email signature. Allow your clients to schedule appointments at the drop of a hat, on their time, so they are satisfied and you keep busy.

Don’t have any excuses for losing out on potential revenue.