Shoe leather cost is similar to opportunity cost. It refers to the cost of counteracting inflation by keeping less of your assets in cash. Your strategy would require more trips to the bank and more walking, and incur a cost in the wearing out of the leather in your shoes.
All joking aside, it’s an interesting idea. It highlights how there are all sorts of hidden costs to different strategies. There are hidden costs to using coupons, loyalty cards, frequent flyer miles, managing assets & investments, hiring resources and in general running a business. Let’s look at a few.
Cost of R&D
Years ago I wanted to open a mutual fund and did some research. Luckily a friend pointed me towards Vanguard, and I got on the index investing bandwagon early. I’ve had a lot of opportunities to buy stocks directly, but I’ve seen too many surprises in the market even in areas of tech stocks and business that I understand very well.
What’s more stock investing requires attention, research into fundamentals, and certainly a bit of luck. In my case my background is engineering, so finance is not my strong suit. In effect there is more cost hidden there, getting up to speed in a new discipline and the many hidden surprises and fine print.
By choosing an index fund strategy you track the market, are guaranteed to beat 90% of stocks and mutual funds over time, pay a very very small fee as those funds are not actively managed by a fund manager with costs and overhead. What’s more the shoe leather cost is very low. It’s a no brainer.
Cost in People Search
Whatever technologies you choose, you embark down a path with costs on all sides. Costs of hardware & software components, costs of licenses, and costs to find people with those skill sets. Deciding to use the latest wiz-bang technology as an early adopter that looks like it will provide you a lot of extra bang for your buck.
Consider carefully what the market adoption of that technology is, as you will inevitably have to find resources skilled in servicing those components down the line. Lean heavily toward widely adopted technologies and you’ll have an easier time finding skilled technologists in the future.
Not Your Core Business
Early on publishing our newsletter, we chose to host the newsletter software ourselves. The open-source solution was robust and full featured. However many of the features proved cumbersome to configure. Since we had the basic functionality working, we left the more complex switches alone. This solution was a free one since we already hosted a server for the website.
Eventually we switched to mailchimp.com to host the newsletter. Suddenly many hidden costs came to light. By hosting ourselves we were ending up in spam folders for a lot of users. So we were reducing our audience. Plus we could not track who was reading the newsletter, which issues were popular, or what sections. That analytical data provide invaluable. What’s more mailchimp integrates and automates a lot of other functions that were done manually before. Freeing up time!
To Sum Up
Whenever you are spending inordinate time on something that is not your core business, chances are the shoe leather cost is high, and outsourcing that to a provider who specializes in that become a great cost saver.