The Opportunity Cost Of Your Time

I believe your time as the business owner is enormously valuable.

And how well you use your time – which we will look at in Pillar 2 Your Inner Game – has a major impact on how well your business performs.

It seems crazy to me but the main measure of business performance – your profit – takes no account of your time and whether you spend ten hours a week in your business or seventy, eighty or even one hundred hours each week.

I want you to put a value on the time your business consumes.

This way you can compare this time value with your salary, benefits and your share of the remaining profit left in the business.

There are two ways to estimate the value or cost of your time:

  • The earnings you have given up which somebody else would be happy to pay you – this is your true opportunity cost, or
  • How much you would have to pay other people to do what you do in your business.

The first method doesn’t take into account quality of life issues.

You could have the situation where a star brain surgeon, who can earn a fortune in private practice decides the stress was too much and gave it all up … to become an artist. Even though successful as an artist, he earns less than 20% of his potential income as a surgeon.

But he’s happy and wouldn’t go back.

The second method recognises the time, effort and quality of the work you do and estimates a value – what you would have to pay someone else to get the same results.

You may spend 10 hours a week doing your own bookkeeping but you may be able to find someone to do it in half the time and who only wants 20 pounds an hour.

We’ll look at how to calculate a value of your work in a few minutes because first I want to talk about the money you have invested in your business,

Return to P1M2 What Is Profit

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