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What is your Opportunity Cost?

11 May

Wikipedia defines opportunity cost as: “the cost related to the next-best choice available to someone who has picked among several mutually exclusive choices.” You should determine your opportunity cost. Here are some examples to illustrate the point.

I pay a landscaping service $130/month to keep my lawn and gardens looking good. I do not know what tools they use. I do not know how many hours they spend at my home. I do not supervise them. I do know that I can work a few hours and make enough money to pay the landscaper. If I were to perform landscaping myself, I would spend more than five hours/month in my backyard and turn my back on much more than $130 of billable time because I did not want to pay a professional landscaper $130. Even if I did this work on a weekend, I treasure my time and feel the money is well spent.

A lawyer customer asked me to do a small project. I said it was probably a $220 project that I could wrap up in one morning. He chose to do it himself. He bills his customers $225/hour and I later learned he spent four hours on this project. He could have billed his customers $900 for his time and made $680 net after paying me for my time.

Let’s visit my friend, Daphne the Dancer. Daphne wants to send out fliers announcing her grand opening. She orders 1,000 fliers, buys a list of 1,000 names, prints them on labels and starts stuffing envelopes. She says to me: “is this a smart use of my time”?

I reply: “probably not. Let’s look at your opportunity cost. I am assigning your value to Daphne Dance Company at $100/hour. That’s what you are worth, as the President and dance instructor there. If you spend six hours stuffing these envelopes, you will incur a cost of $600.”

“You have another option. Hire the neighbor’s high school daughter to stuff envelopes. You can pay her $10/hour. She will get this done in six hours and free you up to answer the phone or do other things. You can pay her $60 for the work that would cost your business $600 if you personally did it. Daphne, you already know the answer to that one.” From https://markgermanos.wordpress.com/opportunity-cost/.

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Mark Anthony Germanos is the President of Cameron Park Computer Services, a premier Sacramento IT company providing IT services, IT solutions and IT support. Cameron Park Computer Services, at http://www.cameronparkcomputer.com/you_will_save_money_with_the_cloud.html, moves clients to the Cloud. “The Cloud is among the best IT solutions we’ve ever offered,” says Germanos, “I’ve been in the IT service and IT support business since 1992. When you run your business in the Cloud, your data is always available, available from anywhere and the cost is usually less. Does your IT company offer IT services, IT support and CloudU certified staff that can provide today’s IT solutions at affordable prices”? www.cameronparkcomputer.com does.

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