Lately I’ve been thinking about the concept of “opportunity cost,” which is probably familiar to any of you readers who have taken a course in microeconomics. Simply put, “opportunity cost” is what benefits or profits you forgo to pursue a specific opportunity. When you analyze opportunity cost you also think about if what you must spend could be more advantageously spent somewhere else.
Understanding the idea of opportunity cost in the context of a handmade business can be very helpful for strategic decision making and long term planning, because it helps you understand what you resources are putting in to your business, what you are giving up when you pursue a new opportunity and what you get back from that opportunity.
Recently I’ve been going to many Meet Up groups to expand my network of creative entrepreneurs who are focused on building technology businesses. In New York City I could easily go to two or more interesting groups a night, every night of the week. After several months of keeping up a hectic pace I realized that I was neglecting tasks I really needed to do to advance my career, such as arrange one-on-one meetings with like-minded people, update my website and resume, and finish various freelance projects. I realized that what I was giving up to go to these Meet Up groups was more than the benefit I was receiving from them. I needed rebalance my schedule.
As a handmade business owner there are always lots of ways to spend your time and money – networking and professional development groups, conferences, classes, fairs, as well as the infinite opportunities and distractions offered by social media. How do you prioritize? Thinking about opportunity cost is one key way to assess whether you should take on a new project or head in a different direction.
What costs do you think about and how do you estimate them? Try to brainstorm every expense associated with an opportunity, as well as the time it will take you. For example, I recently participated in the LA Zine Fest, which was a one-day gathering of independent publishers. I knew that the opportunity cost was high – a weekend of my time, plus the actual costs of a trip to Los Angeles from New York (including a flight and car rental). I knew it was primarily a social, not a business opportunity- though it would also give me a chance to promote my book to a new audience. I assessed the opportunity cost and decided that while I would lose money traveling to LA, a weekend there in the middle of the winter (which is cold and snowy on the east coast) was worth my time and money. However, I have to pick and choose opportunities like this carefully, or else the cost of my time and participation would be too high in relation to my goal of building a stable financial future.
How do you assess opportunities and decide whether a particular opportunity is worth what you will have to give up to participate?