What Is Your Opportunity Cost?

Hey Brad, you're right. This is a big question more people need to ask themselves, in ANY business. Forgetting to take this into consideration is what costs business owners the most money. Hands down! And most don't even realize it!
Banks are probably the best example of a biz that actually takes this factor into consideration when lending money, for example. And I'd say they're pretty good at making a return on their investments.
Small biz owners need to treat their time as being, probably, more valuable than they are being paid by someone else.

Hi Brad

On point with this topic as usual.

This comes up for me a lot, especially when I have friends who constantly ask me for help with their new website or Internet activitiest. I've quickly learned to define my opportunity costs otherwise I'd be giving them lots of my 'opportunity' time to help them get their sites high up in Google, for what can only amount to pennies. When I tell them my true 'costs' it serves 2 purposes.

1. It helps me understand and constantly evaluate my opportunity costs
2. It educates them to the fact that even though we're friends there is still a cost involved and business is business. Now, they only approach me when they 'really' need help. Although they still insist on 'mates rates'.

ATB - Paul

Brad,

I never really thought about opportuity costs or opportunity cost loss. I always thought from just a pure fininancial cost. I never thought about how opportunity cost should be a part in my financial decision-making as well as other areas of my life.

To be sure I understand this correctly, as you make more money online(or offline) your opportunity cost would go up because you have the opportubity to make more. Am I seeing this correctly?

For me as a newbie I have sometimes forgotten to calculate certain costs (hidden costs) of doing business and I after researching opportunity costs, I would now consider that an opportunity loss.

- Rick

Well in pure definition the opportunity cost is anything you don't get when you make a deal.

The classic example is you want a new Car and you want a boat. You can only afford one so the opportunity cost is the other.

In business I see it a bit more difficult to define. If you have no opportunities there is no opportunity cost.

Most of us just don't think about what to do with our time when someone isn't paying for it. I spend it creating my own products, content etc. When someone hires me I am robbed of the opportunity to create content or a product.

This is a good video and makes an interesting point I didn't think of. I have broken down WordPress jobs I have done and figured out a "hourly rate" in case someone needed some quick updates. In fact, a local church needed some basic customization so I charged them accordingly.

I never even thought of adjusting for "opportunity cost". Any hour you dedicate to working for someone else is not just an hour of your day lost...

It is an hour of brainstormng your next great idea lost...
It is an hour of creating your own products lost...
It is an hour of networking lost...

You could easily keep that list growing. And in fact, I suggest people make a list of everything big that could happen in a dedicated working hour...that can help you actually visualize your "opportunity cost".

It's smarter for a designer to make and sell templates than work for hire. You can create products that pay you for a lifetime rather than sell your hours.

Hi Mark,
I am guessing it is all about perceived value when it comes to hiring yourself
out to others. I work as a consultant webmaster helping local businesses
with SEO and web design and it really depends on what value you can add
to their business based on their particular industry what I can charge and
how much time and effort is required to increase their revenues.

Might have to rethink my charging structure all the same. Great post, though.

As an SEO specialist you have a unique skill set. Your time spent focused on ranking your own sites may pay off more than mercenary work ;)

Hi Brad, Mark,

I am not sure the difference here. either way it is my time being used I think for sure as a consulting job they would be paying upwards of 2-5k a day if it was a coaching job it would be on a case by case basis.
Either way though it is my time compounded by their opportunity not mine.They are not hiring me to create a product for them they are hiring me for the specific need so I don't know if there is much of a difference all I need to do is record what I teach and it is a product:)
-WD

Hey All

What I have decided to do is "Group My Time" If someone wants to pay me per hour one on one its going to be a lot more than $100 now.... But Im going to be putting together a coaching membership that gets you direct access to me in the form of a webinars every week and that will be open to all my membership clients.. so I can have 10's of people firing questions at me , which in tern means people are learning a lot more in some ways than if they had one on one time.. I really see me integrating webinars into this model.. From my opportunity cost point of view If I have 100 clients paying me $47 - $97 ) per month ( a much better deal for them for 4-8 hours of my time a month ) my opportunity cost goes up to $750 - $1000 a hour...

Thanks for the post and the mention Brad ;)

Any time dude your calls inspire many of my posts.

Ooo this is such a great topic! I think about those sorts of things all the time! Even when it comes to household type things like landscaping my yard. I am constantly wondering if my time is better spent working on my blog or some such project and hiring someone to take care of it for me!

Great video!

Good point here. Hiring other vs do it yourself. What could YOU be doing with your time rather than painting the walls?

Very good point, Brad.

This is exactly why I have been spending more and more time working on my own projects, lately, and have been doing less freelancing (even though I get paid very well for that).
It's come to the point where I really don't feel very comfortable working for someone else's business anymore. Unless it's the kind of work I really enjoy and would even do for free.

Great point. I think this is a mistake that many amateurs (and some experienced) entrepreneurs make. I was making this mistake all too often until I wrapped my head around the idea of opportunity cost.

I think from the perspective of knowing you're worth as a business person, your opportunity cost can help you make a more confident request in terms of billing. For me, I used to feel bad if I asked for $1000 per day for my services. Now I will not work for anything less because I truly understand my personal opp. cost.

Thanks for the insight as usual :)