Opportunity costs. This is one of the most important and challenging concepts to fully integrate into a small business. When you are a small-business owner, you are doing everything and usually, by yourself. It can be all too easy to get caught up in the weeds of your business.
Opportunity costs are defined as the loss of potential gain from other alternatives when one alternative is chosen.
For example, you have just started your own business and you want a website. You figure that you can save money by doing it yourself. After all, it is not that hard and there are YouTube videos to get you started. So, when it is all said and done, you spent 40 hours on your website.
What could you have done in that 40 hours instead?
If you spent this time during ‘office hours’, then perhaps you could have been following up with potential clients, attending a local networking event, having lunch with colleagues, reaching out to past clients and colleagues, or giving attention to your current clients/projects.
If you spent this time during your ‘free’ time, then perhaps you could have been exercising, spending time with family or friends, sleeping, reading a book, or sitting outside in the sun.
What would it have cost to hire someone to build a website for you?
Just because you ‘can’ do something, does not mean that you need to be the one to do it. As a small-business owner, your time and your well-being are two of the most valuable assets you have. Protect your time. Invest in staying healthy.
Great ways to understand how opportunity costs are playing a role in your business are:
- Keeping a time diary. Be meticulous about recording how you spend each minute of your workday.
- List your top three income-producing activities you wish to accomplish each day and start there.
- Be clear about your business model. What do you do? How do you make money?
- Current clients always come before potential clients. Are you doing everything you can to give exceptional service to your current clients? Their word-of-mouth referrals and online reviews are exponentially more effective than hours spent on social media, email campaigns, and tweaking your website.
How do you evaluate the opportunity costs in your business?