Having a business is all about making decisions. In our old life, you probably had a job and didn’t have to make too many decisions about things outside our job description. As a business owner, everything is in your job description. You can move it (we call that delegating) from your job but you still have to monitor it or we call that abdicating and that can cost you big.
As a business owner we have to figure out what things cost and what they provide as a result of that cost. It’s pretty easy when you talk about things like software or computers or cars. Hard expenses that have to produce or we cut them. If you spend $1 on advertising and it returns $10 in profit, that’s an easy decision. Money is a good tool to use to measure cost on most things.
But what if it isn’t a good tool? What if money doesn’t tell the whole story? What if it’s more about time?
Opportunity cost is a way to measure the value of your time.
Let’s take an example from my life. I hate to cut the grass. When I had 3 boys at home I used the lawn as a tool to teach them things to do with the yard, the lawn mower and tools but also responsibly and work. It would have been easier to do it myself but I had a goal in mind for them, not for me.
They taught me things too, like the difference between ‘done’ and ‘finished’. I’d send them out to ‘cut the grass’, which included edging, blowing debris and cleaning up the tools and putting them away. More than once I would hear the door slam, a yell of “I’m done!” and footsteps upstairs to the shower. I’d go look outside and find things left out, edging not done or other problems with the chore.
They were ‘done’ but the job was not ‘finished’. Lesson learned.
Now that I’m an empty nester, I’m no longer responsible for teaching my ‘boys’ who are now men about the lawn, or work or anything else, unless they ask but I still hate cutting the grass.
It takes me about 3 hours every week to keep it looking the way the HOA thinks is acceptable. I have to put down mulch, edge, keep the weeds at bay and lots more. 3 hours a week. Here is where opportunity cost comes in.
That 3 hours can be recovered for a cost of $140 a month. I pay a lawn service to come weekly, mow, edge and trim, blow the debris and even trim hedges and clean the gutters (that’s a bonus). Let’s say this saves me 13 hours every month. That’s 3 hours times 4.3 weeks in a month. $140 / 13 hours is a $10.75 per hour cost BUT I get to do something I’d enjoy or something that makes money instead of doing my lawn. That seems really fair to me even though it only takes them 20 minutes a week to accomplish this task because of crew size and tools they use. It’s a bargain to me and I get to find other opportunities with the time saved.
Let’s talk about cold calling, circle prospecting, door knocking, expired listings, and FSBO marketing. All of those things are like cutting the grass. I hate the thought of doing them. I believed I was wasting time on one thing that could be put to better use in building relationships.
My first team leader preached at me that I’d fail if I didn’t do those things. It was demoralizing. I decided I’d find another way and I did. I’ve never made a cold call or any of that other stuff. I didn’t have to in order to be successful and do the level of business I wanted to do. I am consistently in the top 20% of the office and sometimes in the top 10% or even top 10 out of 300 agents. I am a solo agent with an assistant part-time doing that level from a database of about 100 good connections of SOI and past clients.
When you spend time on activities that produce a lead 1% of the time, the opportunity cost is really high. Hours and hours of cold calling, door knocking, etc. and the return is falling in the pandemic and with the spam filtering tools available on cell phones now. It might only be half of 1%.
Our business is about relationships. It’s about referrals and connections that we can create or grow with a little time on our part. 1 hour a day of calling people you know, visiting them for a few minutes when you’re ‘in the neighborhood’, and a consistent monthly mailing. The more you do those things, the more they trust you, and referrals are based on trust.
So, it’s up to you as a business owner to decide. Will you spend the time cold calling and say no to using it to build relationships? I promise it works if you focus intently on the relationship, go a mile deep and an inch wide instead of doing the circle prospecting.
You’re going to enjoy life more without the constant “NO” or hang-ups all day.
Thanks for listening,
- Podcast 1: What makes Keller Williams Different than all other brands? Part 1 of 2
- Podcast 3: Opportunity Cost