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WHY LOWEST PRICE DOES NOT ALWAYS EQUAL THE LOWEST COST

Updated: Feb 13, 2023


Cost Versus Benefit

We used to run monthly surveys to find out about business owners that visited our site and to uncover what issues small businesses were facing now. I will be the first to admit many times I am the one who hits the X to close on a website when there are surveys, but we are thankful to those business owners who took the time to provide us with insight.


The Survey

I asked what would drive them as business owners to purchase business services. Since the survey was anonymous, we do not know the size or type of the business, but the answers helped us understand the drive behind most business service purchases.


The answers included:

  • I only purchase the lowest-priced services.

  • I look to hire those that have credentials, experience and background.

  • I look to hire those that have client references on their website.

  • I only hire those that are referred by people I know.

There was a mix of answers, with many selecting several options. Interestingly, those who only chose the lowest price didn't see the need to check any of the other answers, as the price was the only important criterion.


Price versus Value

Unfortunately, we have worked with business owners who opted for the lowest-priced option from a service provider but ended up paying more in the long run. Reasons for this included:

  • Substandard work

  • Lack of experience or background in the services offered by the business being hired.

  • The provider did not take the time to understand their business or their requirements.

They didn't end up with the lowest cost because they had to hire ourselves or others to fix the issues from the first service provider. In most cases, you have to start from scratch because it is sometimes more expensive to try to fix a "mess" versus doing it right from the beginning.

There is a good reason for the saying, "You get what you pay for".

When discussing your business and livelihood, looking for the least cost option will likely not provide you with the solution you need. Those with credentials, background, experience and references cost more. You only have one business and have invested your time, sweat and money. As business owners, we all have to be cognizant of spending our money wisely on those items with the highest return. Choosing based only on the lowest-priced option for services may not be the least-cost option for you in the long run.


Some of the worst travesties are those that purchased marketing services, SEO, and websites from someone who sent them an email or called them on the phone with a promise of a low-cost option. We have clients who have hired accountants without professional designations, bookkeepers with little to no experience, and lawyers who are not experienced in the type of law required. In all the cases listed, they opted for the lowest price route instead of hiring professionals who charge based on their experience. In the long run, this was the most expensive route.


Lowest Price Being the Highest Cost

Here are a few examples from our clients who first opted for lower-cost solutions from various business service providers.

  • Hiring someone without a professional designation to compile your financial statements or file your taxes. A CPA or LPA has a license, and if they do something incorrectly, there are repercussions for the accountant. When not hiring a professional accountant, there is no recourse, and the client is on the hook.

    1. In the case of one client, the taxes were miscalculated, and the client ended up owing fines and interest.

    2. In another case, the accountant stole funds to be paid to the CRA for HST and payroll.

  • Hiring a lawyer who is not a Corporate or Employment lawyer to develop an employment contract. The client got a contract that was "canned" from a lawyer that was a friend.

    1. The employee left and took their customer's contact information. The client lets their employees put their data on their personal devices. Since there was no employment contract in place that had a clause concerning this data and the client didn't provide corporate devices, there was little repercussion for the client. The employee went to their competitor, contacted their customers, and ended taking business from them.

  • Allowing someone without background or experience to do your bookkeeping in your business as it is "just data entry".

    1. The client had to pay the accountant at accountant rates at the end of the year to clean up their books so statements could be generated and their taxes filed. A professional bookkeeper for a few hours a week would have cost them less, and in many cases, a good bookkeeper can keep the cost of accounting fees down.

  • The client hired a web developer without checking references or looking at any of their past work.

    1. The website did not present a professional image, its bounce rate was over 80%, and the only keyword that came up on Google on page one was the business name. They sold them a website they developed on a template that was sold as a custom site, so their site looked like many of their other clients and could have performed better.

  • A client paid a student working on their MBA to write their business plan to obtain $2M from one of the big five banks in Canada. They were denied financing as the plan did not contain the basic requirements for a business plan, and the financials did not make sense. The bank, in turn, referred them to us, as they had approved business plans written by us in the past.

    1. The client ended up paying twice for a business plan. After we wrote the business plan, the client got approved for the $2M for their business.

Buying Decisions Based on Price Alone

The clients above chose the lowest price alternative for their business in all cases. Most had to hire experienced professionals to come in and fix the issues that "the low-cost solution" caused. That choice ended up costing them more money in the long run.


If you are looking for someone to help you with your business and are making the decision based solely on price, there is a good chance you will spend more in the long run.


If you were going to a doctor about your health, one would assume you were choosing the professional with the proper credentials, experience, and background versus price. The same should be valid for your business. Most business owners who answered our survey selected professionals with experience, client references, and credentials. Still, quite a few chose the "lowest price option" as their decision criteria.

There is usually a reason that someone is the "lowest price option." Most professionals in the service industry will charge prices based on expertise, experience and specialization. If one assumes you do not want a low-cost surgeon operating on your heart or an inexpensive auto mechanic working on your $200K sports car. In that case, you should not want a low-priced professional making a mess of your business.


Summary

In most instances, we usually purchase services from others because we lack the expertise within our business to perform the function. For example, suppose you require a tax expert. In that case, you will pay more for that expertise than a regular accountant, as this is a specialized skill. You should find the average rate for the profession you want to engage in based on the required experience level.


You should perform due diligence to determine if the person you hire has what is needed to perform the task. This due diligence can include the proper schooling, accreditation, experience, or expertise required to achieve the service you are hiring them to complete. Once you are ready to choose someone, you should look for what their clients say about them if that information is available. If client testimonials are not available, ask for client references. Reputable businesses expect clients to perform this kind of investigation.

If someone contacts us and asks for a price without speaking to us to understand our methods, experience, or work with other clients. In that case, we will tell them that we are not the business consulting or coaching firm for them.



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