Ever hear of opportunity cost? Maybe you have, but you’re not clear on what exactly people mean when they say it. Simply put, it’s the money that someone could be making (or some other goal achieving) doing something else. This came up for me today because I’m getting some painting bids for a house…and some bids are like twice as much as the others. Why is that? The paint costs the same. The workers charge about the same. So what’s the difference? The difference is in the opportunity cost for each of the painting contractors. The painting contractors are saying – I can do this job for $10,000 – and if you don’t hire me, that’s fine, because I have other people who will pay me the $10K. Now some other contractor bidding the same job is bidding, say, $5K – half as much. I would be willing to bet that their costs are largely similar. But the $5K contractor has much lower opportunity cost – for whatever reason, he doesn’t have other jobs to do. He’s not walking away from more money – more opportunity – by taking your job. But this $10K contractor – for whatever reason, he’s more in demand. He commands a higher price, so he charges that price. And it’s not that he’s greedy, or he’s ripping you off, it’s that he owes it to himself – and to his family, his retirement, his employees – to charge what he can get. And the same thing goes with REALTORS. I get this a lot – some other agent will do it for 1% or whatever. I can’t do that. I can’t do that because there are people who will pay me 2x or 3x – and I owe it to myself, my retirement, my wife and kids – and even to the client – to charge what the market will bear. Because by short changing myself, I’ll end up shortchanging everyone. And nobody likes to be short changed!
Opportunity Cost, Explained
The Single Best Marketing Tactic Ever Invented
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