The opportunity cost of investing in new business

April 5, 2011

In-depth, Public relations

When you have a tough decision to make, how do you decide which door to choose? (Image from












This is the third post in an in-depth series on selling in the communications consulting world.

I’ve  been thinking about opportunity cost lately. And by thinking about it, I mean looking the term up. Because I only halfway know what it means. You’re talking to the guy who “said a little prayer” the day he passed Macroeconomics class and swore never to take an econ lecture again.

So what does opportunity cost mean anyway? Wikipedia defines opportunity cost as: The cost related to the second best choice available to someone who has picked among several mutually exclusive choices. Need some more concrete examples? Yeah, I did too.

  • From Wikipedia: A person has $15 and can buy a shirt or CD. If she buys the shirt, the opportunity cost is the CD. And if she buys the CD, the opportunity cost is the shirt.
  • From me: Kelly Kapowski can date Zack Morris or A.C. Slater. If she dates Zack, the opportunity cost is Slater. Plus she gets an awesome, late 1980s cell phone. But if she dates Slater, the opportunity cost is Zack. Although the tank tops and hair gel are an added bonus.

Now you’re tracking with me, right? So why the opportunity cost talk? Because I see it come up with new business decisions all the time and I think it’s one of the hardest decisions an agency or any consulting organization has to make.

Case in point:

  • Your agency has a chance to meet with an exciting new prospect. The initial outreach goes awesome blossom and the prospect asks for a capabilities presentation.
  • So you go back and spend the time to put together the presentation. It takes you several hours, but you’re rocking the new agency Powerpoint template and you got some great measurement slides from your colleagues.
  • The prospect is intrigued by your agency’s capabilities, but needs some industry profile information to sell it in to leadership.
  • So you go back and conduct an online audit. After all the research, approvals and refining, you’ve spent a couple of days worth of time on the project. But it’s some of your best work. You send it along to the prospect and ask if you can set up a time to present the data to he/she and team.
  • You agree on the time, make the presentation and the prospect is head nodding the whole time. You both leave happy and promise to follow up on details soon.
  • When you follow up, the prospect asks for a budget estimate and services you can provide. You were anticipating this and have a contract ready to go. You send it over, he/she reviews it, you discuss changes. Wash, rinse, repeat cycle.

Seems like a lot of bullets. And the list could go on and on. But that’s the opportunity cost of doing new business, right? It’s the potential relationship, work and money that comes out of a new client vs the money you would save by not putting in the time each of the steps above — and probably several I forgot — take to complete.

So which one is more costly to your business? I’ve heard this debate 45,722 times since I started working on the agency side and the most common resolution is “it depends.” And I’ve seen a lot of my peers who I really respect say they don’t like to do communications conversations without charging a fee.  But I’m going to disagree with both of those POVs.

The process of bringing a new client on can be frustrating at times. Heck, typing that list of bullets above was frustrating. But at the end of the day, the relationships you build through the new business process and the goodwill they generate for your brand are what people forget to factor into that opportunity cost discussion.

If I’m Wikipedia, I’m getting the shirt or the CD, plain and simple. If I’m Kelly Kapowski, I’m dating Zack or Slater. And either way I’m still ditching both of them for that college guy, Jeff, who works at The Max.

But if I’m an agency trying to determine the opportunity cost of investing in new business, it just isn’t that plain and simple. There’s a human element you have to consider. And for me, the cost of missing that relationship opportunity is one I’m almost never going to be willing to pay.

he cost related to the second best choice available to someone who has picked among several mutually exclusive choices.

Related posts:

, , , , , , ,