What gets missed in deciding whether to do it myself, don’t do it, or pay someone else to do it is the economic theory of Opportunity Costs.
Opportunity costs are about tradeoffs involving the currencies of time and money. Every day, you and those who buy from you are trading time and money to acquire what they need and want. Being able to calculate the difference between what you have to pay to acquire it and the anticipated value to be received is how you know what your best path forward is relative to doing it, not doing it, or paying someone else to get it done.
Overview
In economic terms, Opportunity Cost is what a person sacrifices in choosing one option over another. Opportunity costs are defined as the value of the “next best alternative.” The item that you don’t choose is the opportunity cost. It is a measure of the sacrifice we make when we are forced to make choices.
For your customers, the value of your product is primarily shaped by their perception of the price they will pay and the benefits they anticipate from their purchase. Those who think as economists on large purchases will also include other things that they must be willing to give up to buy from you in deciding to buy or not.
The other part of economic opportunity costs is the fact that price affects demand. Higher prices decrease the demand for any product or service. When the price of an item or service is high, individuals must consider that buying the item may prevent them from purchasing another, more valuable item. As a result, the opportunity cost of the item under consideration may be seen as too high. And this will result in less demand for that item at that price point.
For example, in addition to paying cash, a customer may have to spend time learning to use a product, pay to have an old product removed from their home or office, or temporarily close down their current operations while a product is being installed; or they might have to incur other expenses. Beyond the actual price they pay for the transfer of ownership, these additional costs can be very real or seen as opportunity costs.
Opportunity costs impact not only your customers’ decision to buy from you. It also consciously and unconsciously impacts how you spend your time and money. In the day-to-day operation of a business, opportunity costs are best seen when cash flow is tight. Particularly as it relates to taking the “do it yourself” approach to getting things done. Those who take this approach versus paying someone else to do it for them occur when they see themselves with the time and skill but not the money.
The challenge with doing it yourself is the frequent underestimation of the time and skill level required to do it successfully. More often than not, small business do it yourselfers spend more money “doing it myself” than they would have paid a professional to do the work. What gets missed in deciding to do it myself, don’t do it, or pay someone else to do it is the economic theory of opportunity costs.