I think I’ve mentioned before that when you open a business the salesmen come out like sharks around a whaling boat. The trouble is while some of the things they try to sell are obviously ludicrous to everyone but them, there are some ideas that actually do make sense.
Take some of our recent “opportunities”, for example. Our multi-function inkjet printer is acting up, so when a salesperson from an office equipment company came in to sell us a laser printer I was willing to listen. We’ve been having a lot of flyers printed for marketing lately, and it’s getting a little pricey.
If we were to buy or lease a printer from them we could save between $20 and $60 a month just on our normal printing, and several hundred dollars on our flyer print runs. It seems like a no-brainer.
We’ve also been prodded by our landlord to refit our light fixtures with more efficient lighting, which could save us between $30 and $60 a month. The vendor even takes on the work and risk of securing rebates offered by our power utility.
The trouble with these proposals is that they cost money as well. With the printer we need to either sign up for a five year lease or shell out $1600. The lighting refit could cost from $800 to $1100. Both have a positive ROI, and pay for themselves within 2.5 years.
But we are a bit cash-starved. Yes, we could probably afford one or both options, but is it worth it to forgo other options just to open up $20 to $120 in cash flow per month? One way to decide is to look at the opportunity cost.
Every investment we make comes at the price of whatever else we’re not doing instead. Take the two proposals I’ve been talking about. Both produce a similar savings each month. But if we do one we probably can’t afford to do the other. In that case the better thing to do is to pick the one that has either a higher rate of return or a lower initial investment. In this example the lighting refit costs less up front, making it the better option perhaps.
But that’s only comparing those two options. What, for example, if we could instead invest that money in inventory? Our average ROI on a new game is about 10%, which is lower than the ROI of some of these projects. However, the turn-around time is also less. A 10% return in two months is potentially better than a 50% return over the space of a year.
Don’t let salespeople get you focused on just their product. Step back and take a look at what other options you might have. Run the numbers and compare. It may well be that you get better returns from ignoring the salesperson and putting out impluse-buy merchandise by your sales counter (we did, and turned $50 in candy into $120 in sales, or $70 profit–that beats either the lights and the printer, really, cost us much less, with lower initial risk).
It’s good to be able to choose between several good options. Just make sure you don’t focus too closely on only the options others want you to see. Look around you, and you may find even better options just waiting for you.
What are some effective ways you’ve found to help choose between two or more good choices? Drop a comment and render your opinion!