When we assess the price of an item or a service, we tend to focus on the price tag at the bottom of a proposal. What we often do not realize is that we are actually paying a much higher price for that item or service when we take into account the total cost of acquisition.
Let me give you an example:
I recently bought a set of summer wheels for my car. The local garage gave me a quote of $1,000 for the entire set, tires mounted, ready to be fitted. Secondly, I had the option of buying the wheel rim and tire separately for the total price of $850. Sounded like I was onto a bargain.
Well, not once I took into account the total cost of acquisition as the ‘bargain’ would have incurred additional costs:
- Additional labour costs: $110
- Sourcing from two dealers, organizing a third for installation and driving in between the outlets: 4hrs of my time
So, unless my time is worth less than $10 per hour, the ‘bargain’ actually would have been more expensive than casually driving my car into the garage.
How do my summer wheels relate to Business Aviation?
I believe, as an industry, we often do not take into consideration the total cost of acquisition when buying services required to run our operations. Therefore, next time you are assessing the price of a service you may want to consider some ‘hidden costs’ that you will incur:
Identifying options: Before buying anything, one needs to understand the buying options. In the opaque market that is Business Aviation, it is near impossible to find a source that provides all relevant options. Your team will spend time scanning the market, without a guarantee they will capture the entirety of what is available.
Negotiations: Once all relevant suppliers have been identified, you will negotiate with a sub-set of these. Second and third rounds of negotiations are common practice and again, valuable time is spent in this lengthy process.
Booking process: In Business Aviation, we tend to overlook the importance of a smooth booking process. Shopping around for handling, fuel & ancillary services on a day-to-day basis binds your operations team into a slow and labour-intensive undertaking, reducing the speed of scaling your business.
Missed savings opportunities: Operators tend to be hesitant to change suppliers as delivering the ultimate experience to the client in the cabin requires suppliers the operator can depend on. However, not changing to a competing supplier that provides the same level of quality at a cheaper price point means you are losing out on potential savings, impacting your competitiveness in the market.
So how can these costs be reduced?
These costs may seem ‘hidden’ but will drive up an operator’s overhead costs. A part of the P&L that may be tricky to dissect and reduce in a targeted way.
The good news is that these ‘hidden’ buying costs are highly synergetic. Spreading these overhead costs across a group of operators reduces the amount of time and capital spent on procuring services for your operation, rendering your operation leaner, more efficient and highly scalable. Relying on the experience of fellow operators can also help reduce the uncertainty surrounding a change of supplier.
That is why a GPO such as AVIAA can help you reduce costs above and beyond the simple price tag for a service.
As my time is valuable, needless to say, I drove my car to the local garage. Maybe it’s time to free up some of your team’s time so they can focus on what they do best – delivering the ultimate experience to your clients.