How to Identify Your Opportunity Costs

Let’s take a moment to discuss a really dry term. I probably first heard it in Economics 101, and you’ve probably been tested on what it means in a similar classroom setting: opportunity costs.

*yawn*

Starting to get as bored as you were when you had to listen to a professor lecture on micro economic theory? Hang with me for a second, because I do feel like this is something important that we should brief on, particularly if you are trying to run a business with a limited amount of time at your disposal. (Hint: time is limited for all of us. Nobody gets more than 24 hours per day.)

An opportunity cost is essentially what is lost because you were too busy doing something else.

If we break it down into a simple example, it looks like this:

Jack and Susan are both good at peeling potatoes.

Jack can peel 2 potatoes per minute and Susan can peel 5 potatoes per minute.

Susan can peel potatoes more than twice as fast as Jack.

HOWEVER: Susan can season and cook the potatoes so that they are so mouth-wateringly delicious that the customers at their restaurant can’t wait until their next meal so they can come back and order more potatoes. Jack can cook the potatoes too, but they usually end up burnt or just not as good. It’s a process that takes time and skill that only Susan possesses.

Susan needs time to cook and season the potatoes, so even though she is better at peeling the potatoes than Jack, it makes more sense to have Jack do the peeling. The opportunity cost is what is lost if Susan were to waste her time on something less suitable for her talents.

Now let’s take this example and apply it to your life and your business:

What are the things that only YOU can do, or would really suffer if you didn’t do them? If you are running a handmade business, this could probably be answered with the design and much of the creation of your items, perhaps your blogging talents, or your personalized responses to customer questions. In your life, some of these things could be playing with your kids, taking your spouse out on a date, and consoling a friend with a problem.

What are the things you are currently doing, that someone else could be? This list will generally consist of things you may be good at, but would not suffer if someone else did them for you, like house-cleaning, product photography, sorting e-mail, writing ad copy, packaging, etc.

Now I want you to take your list of all the things YOU don’t have to be personally doing, and identify which of those things are taking up the majority of your time. Which of these things, to put it another way, are causing the greatest opportunity costs? What would you spend your time doing if you didn’t have to do those things?

You may be costing your business (and your life) some serious growth potential if you are spending too much time doing menial tasks that could easily be outsourced to someone else. Crunch your numbers, and if you can determine some real increase in business if you have more of your time freed up, budget to do just that.

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22 thoughts on “How to Identify Your Opportunity Costs

  1. elzbthc March 4, 2013 at 8:01 am Reply

    Great blog this morning. That applies ot all business enterprises. the sad thing is, a lot of small businesses don’t understand it and get in way over there heads. I sum it up this way, “If you can’t do it well, hire it out and do those things that you do best.”

    • MegansBeadedDesigns March 4, 2013 at 8:40 am Reply

      …and even if you can do those things well, they may be taking too much of your time, and you need that time to do the things that only YOU can do.

  2. madamesaslow March 4, 2013 at 10:21 am Reply

    Some day, some one else will clean my house! At least once a month, maybe even twice a month. It will be glorious.
    I frequently do this with the dishes. Even though I can wash dishes so much faster, I’ll ask my husband to do them while I cook or “tidy up” the house.

  3. kiihele March 4, 2013 at 11:18 am Reply

    A lot of good points. I anxiously awaiting for the time my little business gets so busy I have to outsource!

  4. Linda P March 4, 2013 at 3:49 pm Reply

    Good advise, but If I am the only person doing all of EVERYTHING, I don’t know what choice I have. Sometimes I get help from hubby:)

    • MegansBeadedDesigns March 4, 2013 at 5:44 pm Reply

      When you reach a point where you can crunch the numbers to figure out how much more you would be making if you could free up time by outsourcing something, then it’s time to outsource that thing. I personally haven’t even done this yet, I am just now considering outsourcing my product photography, as it takes up such a large bulk of my time, and I’m going to have massive amounts of products to add after a craft show this weekend.

  5. Heather Everson Design March 5, 2013 at 7:08 am Reply

    As of now the only thing I outsource is hiring a CPA to do all my personal and business taxes (except my sales tax, I can handle that one). If I didn’t I’d lose my mind! So far I’ve been able to juggle everything else but in the future if I decide to take it to the next level I know I’ll have to outsource more things! Thanks for the inspiring post Megan!

    • MegansBeadedDesigns March 5, 2013 at 8:45 am Reply

      I have to outsource all of my tax stuff. While I keep track of each sale that I will owe sales tax on in my state, I could never keep track of all of the different rates (each zip code gets their own! and it changes quarterly!) So I let my accountant do that part too. lol

  6. bitsofthepast March 5, 2013 at 9:35 am Reply

    Great wisdom! I am just getting really into making my business work, and I must be reminded that my kids and family come first, or I can get lost in the must do. What I could do, is have them help more around the house, or help me set up photos. Thank you for helping me to think more about this process!

    • MegansBeadedDesigns March 5, 2013 at 9:37 am Reply

      So glad I could help! Sounds like a great way to get your kids involved in your business!

  7. peko1012 March 5, 2013 at 1:05 pm Reply

    Great tip! I know I’m guilty of doing all of the tasks all of the time and never having time left to create the items in my shop, the reason I wanted to create a shop in the first place! Thanks for sharing :)

    • MegansBeadedDesigns March 5, 2013 at 4:33 pm Reply

      I think we’re all guilty of this from time to time, I know I am! Glad I could be of help. :-)

  8. Debbie Delgado March 5, 2013 at 8:00 pm Reply

    I wish I could outsource something, but money is really tight for me.

    • MegansBeadedDesigns March 5, 2013 at 8:02 pm Reply

      If you can’t afford it yet, then it’s not time to outsource. Outsource when, after you crunch the numbers, you figure out that outsourcing will end up making you MORE money because it will give you more time to do what’s the most profitable. I’m just now getting to that point, so don’t feel bad if you aren’t there yet.

  9. Barbara Lewis March 6, 2013 at 4:52 am Reply

    Megan, This is a wonderful article and so pertinent to what’s happening to me currently. Actually, my husband and I had a discussion about this over dinner last night. I have a friend who makes jaw-dropping jewelry (https://www.etsy.com/shop/PinkCrowStudio) She had mentioned in the past that she could help me by doing some product photography for me. It was yesterday that I realized how ridiculous it was that I wasn’t using her talent. I have so much inventory sitting in drawers, not making any money for me. In fact, they’re taking up way too much space. I’ve made an appointment with Carrie to talk “photography.”

    • MegansBeadedDesigns March 6, 2013 at 8:27 am Reply

      What an awesome opportunity Barbara! Looking forward to seeing your new pics!

  10. Lauren R. March 6, 2013 at 7:51 am Reply

    Fantastic post! Really made me think about what projects I could ‘outsource’ others (whether paid or not). Doing so would free up my time for things that could help grow our organization in many ways.

  11. Kanelstrand March 11, 2013 at 5:15 am Reply

    Very clever, I haven’t thought about opportunity costs really. I have rather thought that what needs to be done needs to be done and that’s it. Definitely food for thought and a very enlightening post. Thank you!

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