The Money on The Table

What is better: making a sale worth $5 or making one worth $5,000,000?

Got your answer?

If it’s $5 or $5,000,000 it’s wrong.  The correct answer is:

It depends on how much it costs you to fulfill the sale.

If it costs you $.25 to fulfill the $5 purchase and $6,000,000 to fulfill the $5,000,000 purchase then you should snap up the small money and run from the million dollar “opportunity.”

Logically, we know this.  It’s a “no duh” answer.  That’s how profit works: revenue – COGS = gross margin.

However, in practice, we tend to be blind to the cost of opportunities and fixate on the upside.  

An Example

To my chagrin, I’ve made this mistake many, many, many times.

For example, early this year we did a project in my agency where we updated a homepage design on a WordPress site, created a how-to-update SOP, and applied a style guide to the rest of the website.  We billed $3,000 for this- which to some would seem a lot for just implementing a single page design.  

It ended up costing $4,000- the equivalent of me giving a $1,000 gift to our client.  And it tied up our team working four times as long on it as I projected.

Perceiving the Yin

For any opportunity, there is a hidden shadow with accompanying costs.

Those costs might be: 

• Financial
• Time
• Energy
• Resources
• Opportunities
• Attention
• Or most often: a mix

The trick is understanding that the upside is known.  It’s a specific, concrete, desirable thing.  But the costs are often amorphous, estimated, and projected.

When looking at the whole, we more clearly see the yang than the yin.

The trap we fall into is that our perception skews to under-represent costs and fixate on gains.

Discriminate

The $1,000 loss on that project was an example of not fully understanding the shadow side of the opportunity.

The reason the costs ballooned was because in our sales conversation the client said that they wanted control over the elements in the design.  I saw an opportunity to create more value on their end and charge for it as an upsell.

That’s smart.

What was dumb was that the upsell I offered was for things that were uncertain.  I underestimated the risk and didn’t accurately project the time we would invest.

What would have been smart would have been to upsell with things where the cost was more certain:

• Execution of a system to produce value
• Guarantees and availability
• Maintenance
• Audits
• Advice

And if what we proposed didn’t line up perfectly with what they wanted- that’s okay.  It would have been better to lose that “opportunity” than to take it on at a cost to us.

Some money is better left sitting on the table.