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A Few Thoughts on Using a
Distribution Company
Transaction
Costs
An economist won a Nobel Prize for his work in
trying to understand why firms exist in the first place. His conclusion was
that having everyone under one roof in the firm lowers transaction costs. You
do not have to enter into specific contracts with your staff once you hire them
and if you ask someone to do something, he or she will do what you ask without
presenting an invoice afterward. When you are using a distribution company, you
are operating at arm’s length. If you ask our staff to perform a service, they
will charge for their time and any outlay of expenses. These transactions must
be billed and accounted for. Most new customers have never considered what it
costs to perform specific tasks. I remember when I was new at delegating how
shocked I was that when I asked my assistant to get me a cup of coffee, the
actual cost was not $1.56, but $5.00 or more. I had to pay for her to take the
elevator to the street, go to the food concourse with the coffee bar, wait in
line, prepare my coffee, and then bring it back. When you ask our staff to
perform a service, the meter will be running.
Underestimating What is Involved to Perform a Task
Customers frequently underestimated what it takes
to perform a task. A typical assumption is that something will only take “a
minute or two” or will only take “about 15 minutes.” These are frequently poor
guesses that do not reflect reality. Our staff time their work and bill for
what the project actually takes, not what someone thinks it will take to do.
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