stevenclark.com.au

When you do any deal or buy any product or perform any amount of work for a client there are some extra costs that need to be factored into the equation. These are the transaction costs of negotiation, contract agreement and delivery of the service or product. Things don’t just miraculously happen, they’re made to happen; and, in a time-money sense, ignoring transaction costs can sink your business model.

One example might be when a firm approaches you to do contract work on their behalf. They send you a one-sided contract you’re supposed to just sign but instead you read it (transaction cost) and you amend certain parts (transaction cost) and you might even ask a lawyer for advice (transaction cost). In fact, every email and every conversation you have about that piece of work adds to the overhead of your ability to perform it at the requested cost. Once the contract is signed then you have to maintain that relationship through investments in time and money beyond just doing the work – what does a half hour phone call cost your business?

Another example might be your web interface for a shopping cart. Its not just about providing selection options and incorporating Paypal at the register. Every instant that a potential purchaser spends on cognitive load adds to their overall cost of doing business with you. If you make them repeat a part of the process unnecessarily then you’re increasing their transaction costs. It could be where you’re insisting on information that you don’t absolutely need – that’s a big mistake. If you don’t need it for the sale then don’t ask it from the consumer.

Transaction costs increase the total cost of doing business – petrol, internet connection, emails, restaurant bills, the time it takes to run to the post office and send a letter. Ignoring those extras can send your business to the wall and lose customers from your checkout.

This entry was posted on Monday, September 21st, 2009 at 9:21 am and is filed under business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.