How Opportunity Cost Can Affect Your Home Business

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In order to properly plan and weigh your options, you should always consider opportunity cost as you make business decisions. So what exactly is opportunity cost? It’s an economics concept that says there is a cost to choosing one option over another. For example, imagine that your home office needed a new computer, printer, desk and scanner, yet you only had the funds for one of these items. Ultimately, you decide that the scanner is most important to your office, followed by the computer, desk and then the printer. After buying the scanner, the opportunity cost would be all the benefits and capabilities you would’ve received had you bought the computer instead.

It’s important to note that opportunity cost only applies to your second choice option, which in this case is the computer, and is not the sum of all the options you didn’t choose. Remember, you only had the funds to buy one of the options. So you can’t add up all the things you could have done with the computer, desk and printer, because it was never an option to buy all four of the items. In this case, the computer was your second option, so that’s where your opportunity cost lies.

Opportunity cost isn’t limited only to material measurements. In the example above, most of the opportunity cost would be work-related functions that you could have performed with the computer. But imagine a non-work scenario, such as choosing between three different films at a theater. You have four options: Gone With the Wind, Casablanca, Citizen Cane or Terminator 2. After mulling it over, you rank the options as follows: Terminator 2, Casablanca, Citizen Cane and Gone With the Wind. So your opportunity cost will be all the things you would’ve received had you watched Casablanca. This might include personal enjoyment, romantic inspiration and a greater appreciation for World War II history. Again, note that the opportunity cost applies only to your second option and doesn’t include Gone With the Wind and Citizen Cane.

As seen in the film example above, opportunity cost can be applied to anything of value to you. It allows you to effectively weigh options and understand the ramifications of your decisions. As you progress with your home business, use this strategy to gauge the cost of your decisions. Every course of action carries opportunity cost, giving you an accurate assessment of the future.

J.F. Crook is an experienced online marketer, website owner and consultant. Current projects include Professional Marketing International and Visionary Strategies.


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