I recently completed a large-scale remodel on our home. The remodel included a complete overhaul of the exterior of the house as well as the addition of a new room and bathroom on the rear of the house. I hired a general contractor to manage and execute the project with the caveat that he let me do my own electrical and drywall work. He agreed but told me he could probably do it for a lot less than I could. I didn’t really believe him because I had seen his quote and I knew I could get the materials for a lot less and that I wasn’t going to charge myself labor.
However, as the project progressed, I began to realize that when my contractor said he could do it for less, he wasn’t talking about dollars.
You see, the hours I was going to spend on the portion that I could do myself was going to add up quickly, and as a dad, foster dad, husband, and director of marketing the number of hours available to devote to that work were going to be valuable and limited. The result is that my project would suffer, my children would suffer, my work would suffer, and my marriage would suffer.
When it was put in those terms, the extra $7,000 I would spend with my contractor taking care of those parts started to look like a really good deal!
And so, I agreed to relinquish those parts of the project to him– and that– has made all the difference!
We live in a world of dollars and cents where we associate value almost exclusively in monetary terms. There is a very real cost, however, in life that is overlooked in favor of saving a few bucks, and that is the opportunity cost.
Opportunity cost shouldn’t be a new term to anyone. It’s talked about in all the good business schools and majored on by life and business coaches regularly. However, what isn’t always talked about is how to measure opportunity cost effectively and then how to apply those measurements in real-world scenarios. The reasons for this are varied because the truth is that opportunity is unique and different for everyone and every business, however, there are a few fundamentals that, if considered regularly, can help people avoid losing an opportunity because of high opportunity costs.
Quick to Listen, Slow to Screw It Up
Opportunity cost is always the highest when we are functioning in a reactive mode.
One of the first things we have to do to minimize opportunity cost is slow down and carefully evaluate the challenge we are facing and prioritize the response to that challenge. This means that we invest energy and time into measuring out the right response as opposed to overreacting with the wrong response and then spending hours or days cleaning up the mess we caused by not thinking it through first.
Spend More Money Up Front So You Can Spend Less Overall
Everyone is interested in saving money. A dollar saved on the front end can be two dollars spent a few months later to fix what the cheaper guy didn’t know how to do. It’s one of my biggest everyday frustrations as a customer as well as a marketing director.
How can we know that the deal we are getting is really a deal?
I learned this personally through my poor choice in tires. I used to be the guy that walked into the tire shop and asked for the cheapest tires because that was all I could afford (or at least that’s what I thought). These cheaper tires have issues that have nothing to do with screws or nails in the road. Weak sidewalls, separations, and imbalances resulted in having to buy a new set of tires, realignment, or (in the worst case) a blow out that damaged the rear quarter panel of the family minivan. All of these issues not only resulted in monetary losses but also resulted in huge opportunity costs every time I had to go to the tire or body shop. When I finally realized that the cheap tires were actually not cheap at all, I switched to a more expensive brand and my overall cost was dramatically reduced.
Tires are a pretty cut and dry example, but the same can be said for commercial contractors and distributors. The cheapest ones aren’t always the cheapest ones.
Know Your Value!
One of the numbers I know without a doubt is what my hourly rate is for my company. Every time I think “I can do that myself and save the company some money” I think about how long it will take me and what it will REALLY cost my company versus just hiring a vendor to get it done. Armed with that information, there are times when it still makes sense to just do it myself, however, there are other times when hiring the vendor to help is clearly a better option for my company.
Of course, that’s a payroll number. The tricker value to determine is your value after 5 pm.
Someone once told me that your family doesn’t miss you at 5 in the morning, but they sure miss you at 5 in the evening. Understanding what your personal value beyond your 9-5 hourly rate is critical when it comes to making decisions about what the opportunity costs might be for a particular challenge or project.
Once you’ve determined both your professional value and your personal value, it becomes much easier to determine what the real cost of a challenge or project might be and what the real value of hiring outside help is to answer that challenge or deliver that project.
You’re Worth More Than You Think
The lure of saving a buck is always going to be a tempting one. However, when we turn down a proposal for help from a qualified professional simply because we think we can do it ourselves for less, what we’re actually doing is saying we’re worth less than that company!
We need to adopt a mindset that says “we are worth more than a vendor” because I guarantee your friends and family know you are!
By all means, get the price right and negotiate with the vendor, but don’t ever turn down a proposal because you think you can do it cheaper! Turn down a proposal because you don’t have the money or because the challenge or project isn’t that important or because you think the vendor isn’t going to deliver but don’t ever turn down a proposal because you think you can do it yourself cheaper! you’re worth more than you think!
FSG has been helping businesses solve their biggest lighting and electrical challenges and lowering the opportunity cost for those businesses for more than 35 years! To learn more about FSG, visit www.fsgi.com