Other than cryptic graphs reflecting supply and demand, you might not remember much else about your college economics class. That’s OK, though, because understanding supply and demand is crucial, and it might be the reason you’ve become a successful entrepreneur.
But in order to ensure your future prosperity, there’s one other concept you need to grasp: opportunity cost. Understanding opportunity cost will free up your valuable time and reinforce delegation and outsourcing as viable parts of your entrepreneurial tool belt.
Do you recall the opportunity cost chapter of your economics textbook? Have no fear; here’s a brief refresher:
What Is Opportunity Cost, and Why Should I Care?
Opportunity cost is a driving principle behind the cliché “time is money.” It’s the value of the best alternative you forgo when you make a choice.
If you choose to stay in the office until 10 p.m., the opportunity cost might be the family dinner you missed. If you spend the morning mowing the lawn, the opportunity cost is the work you could have gotten done during that time.
As an entrepreneur, if you choose to do minor tasks yourself, the opportunity cost is the time you could have spent focusing on big-picture tasks such as building your business.
This is why delegation and outsourcing are options that every entrepreneur needs to embrace. I know you want to have a say in every decision and process, but as your company continues to grow, this simply isn’t a sustainable way to lead.
You Can’t Do It All.
Too many entrepreneurs try to do everything, but living like this turns people into overworked control freaks. It’s much smarter to focus only on tasks that are central to your leadership role and financially beneficial to your company.
Realizing this was a major breakthrough for me. I stopped chasing my tail and was able to focus on bringing in new clients, closing more deals, and keeping current clients satisfied. All of these things bolstered my company’s bottom line.
If you find yourself devoting long hours to tasks that don’t bring in much money while neglecting your most important and lucrative activities, it’s definitely time to delegate or outsource.
How Much Is Your Time Worth?
Determining an hourly rate for your time will make your delegation decisions much, much easier. Years ago, a mentor told me his approach to finding his hourly rate was to determine how much he wanted to make each year and working backward from there.
For argument’s sake, let’s say your time is worth $250 an hour. If you find yourself confronted with busywork that will take an hour but could be delegated for $60, doing so will net you a profit of $190 and free you up to focus on bigger, more important things.
This formula can be applied to your personal life, too. For example, my busy schedule wasn’t providing me with enough time to cook, and I was spending anywhere from $500 to $1,000 per month having meals delivered to my home and office. After crunching these numbers, I offered to reduce my flatmate’s rent if she agreed to cook for me. She took me up on this offer, and delegating the task to her resulted in great home-cooked meals that cost me just $160 a month.
Delegating comes down to one question: Could I be spending my time more wisely? You need to always be aware of the best use of your time, and make opportunity cost a central part of every decision you make.
Mark Hayes is the founder of Tiger Tiger, a digital marketing agency based in Auckland, New Zealand. Mark is the author of “The Ultimate Growth Hacking Sourcebook”, a recently released 30,000-word bible for the growth-hacking community.