business concepts for coaches
online course from coachville.com
free for members
Business Concept #14
Basically, opportunity cost means that if you're doing one
thing, you're losing out on whatever opportunities might come
from doing another thing. Even if you're doing quite well
with that first thing!
Why the concept of
opportunity cost matters...
Opportunity cost, originally an accounting term that was used to
measure how much opportunity was being lost because capital was
invested in the current X instead of a potentially more
lucrative Y, is now a popular term in universal use.
Opportunity cost is a powerful way to ensure your clients are
focusing on the highest and best use of their time.
Instead of measuring against standard benchmarks of revenue,
profitability, growth or even happiness, you challenge the
client to look beyond their current job/business/goal and to
identify even better ones. And, there is always a better
goal out there, just waiting to be discovered.
Here's how to use this
concept with a client...
It's easy. Just ask your client this question:
"Hey Bob! We both know you're very successful in your
current business but let me ask you a theoretical question,
'How much more profit are you missing because you're so fully
engaged in earning a profit from your current product line?'
Most clients will respond with something like "Huh, are you
nuts?" so be prepared for this. One of the ways to
add value to our clients is to expand their thinking in ways
that they cannot themselves, even if they are already successful
in what they are focused on. Asking this question is a way
to stretch their thinking beyond their current levels of success
and if nothing else, it helps the client to validate that what
they ARE focused on is truly the best thing to focus on.
This matters, because the pace and variety of opportunities is
constantly changing. And, a General Electric Corporation
has proven with its creative destructionism campaign, just
because something is working well doesn't mean you shouldn't
break it. Opportunity cost is a tool of creative
destructionism and a tool that should be in every coach's
toolbox, no matter what market you are serving.
More on the concept...
There are MANY more opportunities
available to people today -- both in business and in their
personal life. In the old days, there weren't as many
opportunities so folks were loath to give up X to take a chance
on Y. But today, with so many more opportunities and demands on
our time, it's very important to always be aware of how much
we're losing out on (our opportunity cost) even if we're
incredibly successful/happy/profitable in what we're current
engaged in. The fast cycling of new/better opportunities
continues to increase.
Let's say you've got a client who is a trainer and who earns a
healthy $100,000 a year in speaking fees. But let's also say
that this client is also a gifted writer with several undone
books, and the reason the books aren't done is because the
client can't get into the 'mood' to finish them. And let's
guess that over the next 3 years, these books would likely bring
in $1,000,000 in royalties to the client. Given that, one
could say that this client's opportunity cost is at LEAST
$700,000. ($1mm less three years of speaking fees of
$300,000.). So, even though the client is very successful
as a speaker, he's actually losing $700,000 worth of opportunity
because he's too busy stuck in his current opportunity.
You would say that his opportunity cost is $700,000.
Meaning, lost opportunity.
Let's say you've got a client who is a coach and who turns down
clients who can't or won't pay the coach's full fee. And
the coach isn't flexible, and the coach has some empty slots.
Now, there are many reasons to not take on clients who
can't/won't pay the full fee, but let's just say the coach
turned down someone who was very well connected, could send a
lot of high-end referrals, but who just couldn't handle the fee
due to a difficult financial time.
And let's say that this lost client could have sent 10 clients
over the next several years, valued at $5000 per year per
client, so $50,000. So those empty coaching slots are
costing the coach, in effect, $50,000 a year because she won't
take on a discounted client. The opportunity lost is
$50,000 a year. That's expensive.
More ways to use with a
1. When you see a client who is resisting making a change that
seems pretty beneficial to you, ask them something like:
"Let's look 5 years out. Can you guess how much
revenue you'll be losing over the next 5 years because you are
refusing to make this one simple change now?"
2. When you find a client who is too busy to take advantage of
new business opportunities, help the client to measure/quantify
how much they are losing -- financially and otherwise -- because
they refuse to change. This process usually gets their
attention and if the opportunity cost is quite high, they often
are motivated to change.
Remember, the basic idea here is to
start talking about lost, missing or delayed opportunities as
COSTS. Now, in the accounting sense, you're not going to
see a line item under expenses called Opportunity Cost.
Because if you did, every company in the world would be running
at a loss -- that's how many opportunities are passing people
by. But by calling these lost opportunities a cost, it can
help get your client's attention.
The Biz Concepts for Coaches ecourse begins in November 2001 and
is available exclusively, and is free, for CoachVille members.
To access this course and scores of other programs, tools and
resources, including the new, free CoachVille Referral Service,
visit CoachVille at http://www.coachville.com.
Lifetime membership is only $79.
copyright 2001 by coachville.com. all rights reserved.
limited distribution with license.