Is there a more important business concept out there for freelancers than opportunity cost? I don’t think so.
Understanding opportunity cost will get you launching your business sooner, beating analysis paralysis, and sailing right past clients that are dragging you down. So what is it? Here’s what Investopedia says:
“Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. Because opportunity costs are unseen by definition, they can be easily overlooked. Understanding the potential missed opportunities when a business or individual chooses one investment over another allows for better decision making.”
What Opportunity Cost Means for Freelancers
So what’s that mean for freelancers? It means that a lot of us have high-dollar opportunity costs leaking cash, business growth, and life benefits everywhere. Here’s an example.
Let’s say you use the “new client” method of raising your rates—you create a set of higher rates and only apply them to newly signed clients, letting natural client churn lift your earning over time. In this scenario, you used to charge $100 an hour and have been signing new clients on at $200. (I don’t recommend hourly rates for freelancers…for reasons…but for simplicity’s sake, let’s roll with it.) Every hour of work you do for one of your old clients at the lower rate is costing you $100. Think about how quickly that adds up when you’re doing just four hours of work for that client a week. You get it.
Personally, I paid entirely too much early on in my freelance journey with high-stress, low-paying clients.
I’d gone out on my own to address burnout issues after years in a stressful job—but I was scared to let go of a couple of clients because I didn’t want to lose the income. What I didn’t realize is that I was missing out on the opportunity of lower stress work that paid just as well (if not better).
This is a hard one to beat, though. Mostly because it’s all about vision.
If you don’t think things can be better, you don’t know they can be better. I didn’t start to understand just how high my opportunity costs were…at least not until I found a good coach, started reading materials specifically to improve my freelance strategy, and listening to freelancers and other business people who were ahead of me in the game.
So if you aren’t surrounding yourself with media and experiences that inform your freelance vision…try it out.
Megan
