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Is Going Cheaper the Better Option?

Recently, I was talking to a business person and the topic came up about the cost of marketing. The comment that came back was the options presented were too expensive. This made me think of many aphorisms about spending money. “Take care of the pennies and the dollars will follow” in some instances that works. One of my previous clients is an example of this, he only used collection techniques on customers who owed several thousand dollars. The client was wondering why he was having cash flow problems and when we sat down and went through who owed them what, it transpired that the sum of all the people who owed them less than $500 amounted to a lot more than that of all the large amounts. A change in the focus on collections to include all amounts both large and small very quickly smoothed out the cash flow problems.

However, there are other aphorisms such as “You get what you pay for” and “Penny wise, pound foolish” that suggest by saving your pennies now it will cost you more in the long-term and/or you won’t get the results you wanted. Consider this example from my own past. I approached a local law firm for help negotiating a contract to deliver services in Mexico. The person I approached was a senior partner who charged significant hourly rates. In an attempt to lower my costs, he assigned my project to a junior person in the firm whose hourly rates were considerably lower. This person was very competent but inexperienced in negotiating international contracts and as a result everything took considerably longer due to the lack of experience. Due to the length of extra time it took to negotiate the contract, major changes took place in the company we were negotiating with, the person with whom we were negotiating with was transferred and the new person refused to sign the contract. Being someone who always tries to learn when things fail, I took a look at what caused the failure. I took two major lessons from this review. The first was that if I had used the senior partner instead of the junior, the contract would have been concluded in less time and I would not have lost the contract. The second lesson was that I actually did not save money when you added up the extra hours that I paid for at a lower rate, and I would have spent less paying for the senior partner given the shorter hours.

The lessons from my past and those of my clients has reinforced my current belief that decisions should be based, not on the cheapest option, but on the competency of the person you are hiring, the value they bring. Particularly with professionals such as lawyers, accountants, and consultants you get what you pay for and you should be willing to pay extra for experience and competency. Going cheap often actually results in costing you more in the long run.

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