5 ways understanding opportunity cost will help your business grow

Today I’m going to talk about why most people (even 8-10 figure businesses that I’ve worked with) fail to understand opportunity cost.

Everything you build has a cost, and not just the price.

Time spent building X could also be spent building Y. Spending more time building X means less time to build Z.

Most people are so focused on cutting costs, or cutting corners, that they forget the impact their decisions will have on their business long-term.

How to understanding opportunity cost

Here’s a question for you

2 people are given the same work. They all quote accordingly

• Person A: $10,000 per week, finished in 1 week

• Person B: $1,000 per week, finished in 10 weeks

Which person is the most cost effective? A, B or C?

(Assuming everyone delivers the same quality of work)

Both charge $10,000 for the work. The work is exactly the same, all that differs is how long they take to do it.

It feels like they should be the same but it’s not.

Person A is the always the best choice.

Here’s why

1. Faster results

There’s a 9 week gap between Person A and Person B’s delivery. That’s a lot of time that the results could be live and gaining momentum.

Let’s say your average sales is $3,000 per week. You’re adding a feature that will double sales to $6,000 per week. Do you want the benefit from that in 1 week, or 10 weeks?

In the 9 weeks between Person A and Person B finishing the same job, Person A’s work has made $27,000, paying for itself nearly 3x over.

It would be stupid to not invest in Person A.

2. Results compound

You can utilise Person A again after 1 week to work on the next project.

If Person A ships features 10x faster than Person B, then that means they can deliver results 10x faster too. Person A working for a year is the same as Person B working for ten years.

Person A can see results faster (whether good or bad) and act on them.

3. Don’t waste time on the wrong things

Everyone makes mistakes.

Sometimes your project doesn’t get the results you wanted.

When this happens, would you prefer Person A or Person B?

Getting no return on your investment is never good, but with Person A you’re back building the next thing much faster.

4. Acting on trends when it benefits you

Trends don’t last long, but when they appear they can be hugely beneficial for your business if you catch them in time.

Time to deployment is essential.

If you’re working with Person B they could easily miss the peak of the trend. And if you’re late to a trend you might as well not show up at all.

5. Get ahead of your competitors

Now you’ve got the right mindset, let’s take a look at your competitors.

Are they thinking about opportunities in the same way.

If they want to save money more than they want to build momentum, you have the advantage.

If they hire Person B and you hire Person A, you have the advantage.

And once you’re ahead it’s much easier to stay ahead.

One mistake doesn’t put you on edge, wondering if you’ll survive.

Conclusion

Businesses who understand the cost of missed opportunities, and who understand that saving time is far more important than saving money will grow exponentially faster than ones who don’t.

So how can you take advantage of this?

1. Try to change how you think about money. Don’t pick the cheapest rates exclusively, but instead go for the ones that deliver the results you’re looking for in the shortest timeframe

2. Every opportunity taken is another turned away. Make sure you’re putting your focus on what’s most likely to have the biggest positive impact on your business.

3. It’s impossible to make decisions without understanding expected results. Make sure you do your research beforehand to understand what you’re getting at the end.