The Total Cost of Switching Vendors

By Mike Maddaloni on Thursday, July 02, 2009 at 09:24 AM with 0 comments

You get those offers in the mail all the time - open a new bank account with us and get X dollars, where can be anything from US$50 to US$150. As enticing of an offer it is - who doesn't want free money - it does not take into consideration the total costs of switching over to this new bank.

Allow me to introduce what I call TCS - the total cost of switching.

Taking the bank example above, some of the activities involved in switching bank accounts include the time to actually open the new account, balancing 2 accounts until you close the original account, switching auto deposits and debits to the new account (if switching a payroll check, add the hassle of getting a paper check in the middle of the switch), the cost of new checks, and learning the processes of a new bank. And these are just a few things that come to mind. When you consider paying somebody to perform these tasks, their salary negates any "free money" from the bank.

Of those, learning the processes has the longest lasting impact. When things work, everything is OK. When it is not, the first time going through the process is truly a leaning experience. Unfortunately this is nothing you can find out for yourself until it happens to you or your business personally.

Poor Service Always a Catalyst to Switch

One factor that outweighs switching cost is poor service. The opportunity cost of dealing with poor service from a vendor is huge, especially if their products or services are in turn offered to your clients or customers. This is something that has unfortunately happened to me one time too many! It not only cost me time in the interim dealing with the vendor but setting up with a new vendor, accommodating my client and not to mention stewing over it.

Plan Ahead with Backup Vendors

If you do need to switch, it is good to already have a vendor lined up and some form of working relationship with them. Even a list of names and emails is better than nothing, and names and mobile numbers are the best. Depending on the service, doing some amount of business with them will help mitigate risk. The cost of spreading business around may be more upfront, but it can help preserve client relationships and revenues - not to mention brain cells - in the long term.

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