NICOLE'S FIELD MAP ｜ PART 8｜OPPORTUNITY COST
The last article covered profit and market size. These build on each other layer by layer: once there's market demand, you work out how big the market is and how much profit room there is. Once that's clear, you arrive at this article: between market size and profit, what is my opportunity cost?
Opportunity cost is the value of the “next-best option” you give up when you make a choice. It comes from economics: markets have supply and demand, resources are scarce, scarcity forces choices, and every choice has a cost.
So opportunity cost is really about one thing: the price you pay. If I choose B, what's the price? If I choose C, what's the price then? Among these choices, find the best one for your market and your business, where the benefit outweighs the cost.
The worst case is going into a business without thinking at all, and only realizing in the post-mortem that you chose wrong.
Figure 1｜Opportunity cost: visible and invisible
Visible costs are things like the numbers on your books, or whether a new product sells after launch. Invisible costs are things like where your manpower, your time and your attention have gone. The latter often can't be measured on the books, yet they tend to have the biggest impact.
Anyone who's been a business owner has probably been through trial and error. For me, the most obvious one is that as I get older, my energy and my focus time are shrinking. I used to be able to do a lot in one go. Now I notice very clearly that the time between waking up and my attention starting to drop keeps getting shorter.
So I manage my time: during the stretch when my attention is at its best, I first finish the important things that need deep focus, or do my planning.
Another invisible cost is the limits of your own perspective. I often say that many people see certain jobs as “lower,” but that's only because of the values in their own environment. Move the same thing to a place where it's scarce, and its value is completely different. The more limited your view, the less you can see opportunities. Open up your view, and you'll gradually understand that everyone's choices are different. There's no good or bad, only whether that person can accept it.
I'm someone who's very willing to give. Trading my time or my skills is fine with me. If I can see your value, I don't mind if you pay me a bit less, or if I pay you a bit more; I'm willing to compromise or negotiate. But if along the way I sense that the other side takes my effort for granted, or it's a long-term one-way taking, I'll cut my losses as quickly as possible and politely step away.
It's the same from the buyer's side. When I used to choose suppliers, there were plenty of similar vendors. Why did we stay with one for years even after they raised prices? Because they knew what I cared about: quality control, delivery speed, and the understanding that anything unsatisfactory would be returned. They saved me a lot of communication costs and breaking-in time, so I'd rather give them a bit of room on price in exchange for the right quality.
But every six months to a year, I'd test the market again. Technology improves, so costs may have dropped, and suppliers won't necessarily tell you. Testing the market is also a way of testing whether that supplier is still worth working with.
As the vendor, when I work with clients, I also ask myself: if I put my team's resources into this company, beyond getting paid, will doing great work for them help our team? Some people say: just win the project first, and drop it if it doesn't work out. I'd ask, why waste that time? The same time could go to serving clients where both sides can see each other growing.
Figure 2｜Value exchange: both sides are weighing
Whether something works can't be generalized. But each generation is smarter than the last, and each generation of systems is better too: upload a photo and you can find the same item and compare prices instantly. With your sales pitch, the other person may know what you're about to act out before you even open your mouth.
A common example is using a cheap “loss leader” to draw people in. Aesthetic clinics do this a lot: get customers through the door with a low-priced treatment, then build the relationship and talk about what comes next. But today's customers are smart. They can go to ten clinics and get only the cheapest treatment at each one.
Does this still work? We can think about it: beyond this method, what other ways in customer relationship management can keep customers coming back? Why are ads getting more expensive and less effective? Also because people can tell at a glance what you're trying to do; it just depends on whether they happen to need it.
Money goes where it's meant to go: people who want cheap look for cheap, and people who want expertise look for expertise. So the real questions are: Where is our difference in the market? Where is our value? If you're going to put on a show, make it a good one that people want to watch to the end. If you're going to run a promotion, make it one where people can feel you genuinely want to give back.
I'd say: go back to the heart. Everyone can feel whether you truly care or not.
When people spend time together, we quietly notice each other's changes and effort. But customers are different. Customers have no obligation to notice you; they put themselves at the center. What they see at first glance, how they feel and their rational judgment will tell them whether it's worth it. That's the real value exchange.
So go back to your sales process: break down what your target customers care about into very fine details, and at every step, let them feel that you care about them and put them at the center.
You also need real appeal. Some brands keep saying how great they are, but customers can't feel it. Word of mouth, expertise and every small detail all decide whether customers feel you're different from others. In the end, running a brand comes back to: what makes me different from everyone else? Find your strengths, make the most of them, and let people know that for this, you're the one to go to.
A brand's value is built up step by step, in every moment of genuine care.
I often meet business owners who come to me for advice, see a brand that has been running for ten or twenty years, and say they want to be just like it. I tell them very directly: that's aiming too high, too fast. Every step that brand took was built up over time; word of mouth and trust both take time. What are you going to trade for those twenty years?
Aiming too high is one risk. Underestimating yourself is another. Not understanding enough when you choose is another. At its core, we're always weighing things in both directions: customers weigh whether their benefit outweighs their cost, and in business, we weigh whether our benefit outweighs our cost too.
Figure 3｜Three common risks when making choices
In the end it always comes back to value exchange. And that value isn't the value in your own mind; it's the value this market, this environment and these customers truly want. Study that question seriously and with care, and you'll usually find the answer.
Opportunity cost is the value of the next-best option you give up when you make a choice. Because resources are limited, every choice has a price.
Time, energy, attention, manpower, and the limits of your own perspective. They're hard to measure on the books, yet they often have the biggest impact.
Customers weigh whether their benefit outweighs their cost, and a brand weighs whether its own benefit outweighs its cost. Only when both sides feel it's worth it is it a value exchange.
Nicole Chen suggests starting from genuine care: break down what your target customers care about into fine details, make them feel cared for at every touchpoint, then find what makes you different and make the most of it.
Further reading
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