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    Kevin Prentiss


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08/04/2009

The Hidden Opportunity Costs of a Service Industry

Two weeks ago, my former contracted employer asked me to facilitate a two day student program in California. Normally I'm never available when they need me, but this program occurs in the middle of an upcoming two week no travel period.

Being home allows me to refocus on various work projects as well as spend quality time with my wife, friends, and family. But the other side is that when I'm not traveling, Swift Kick's not making money as the majority (90%) of our revenue comes from our trainings. So, picking up paid work in the middle of a revenue dry period is enticing.

The current rate for student program facilitators is the same as it was two years ago when I did my last program, but it's still $3200 below our Swift Kick daily rate.

After debating the pros and cons, I decided it wasn't worth my time for the amount of money. Though the program was only two days, I calculated it would actually consume four:

- One day of prep
- 1/2 day travel there
- Two days for the program
- 1/2 day travel back

After declining, they came back and asked what would be a rate I'd do it for. How much are you willing to sell your 'open' days for? What a great question!

In talking the situation out with Kevin, he brought up the idea of hidden opportunity costs: Yes, being on the road brings revenue in, but what longer term projects or higher level thinking are you giving up for that time? Hmmmm, that's good. We have lots of long term projects that need watering, but they won't grow without me.

Service jobs seem to have three cost tiers:

Tier 1 - The literal time spent doing the program
Tier 2 - The time spent prepping and traveling to/from the program
Tier 3 - The loss of high level, long term, strategic thinking time to do both Tier 1 and Tier 2

I wrote back:

The funny thing about owning my own biz is the balance between chasing the short term revenue and the long term projects that need serious focus.

Even though many ppl would choke at our day rate, when I value my day, I'm thinking about those long term projects that don't get my love. And those projects are the BIG ones.

I know most (99%) of ppl don't think like this and I'm ok with that.

So in terms of doing the program, I just don't know if it will work with me, but to give an amount, I'd do it for $1300 per day ($2600 total plus travel costs).

Ok thats it. Let me know. I'm about to take off, so will be MIA for couple hours.

Looking back, $1300 is a low number. I sold out long term goals for short term revenue. This is a common theme for me.

Short term revenue can be so deceiving in terms of real costs.

There's a time and place for revenue, but knowing when to take it or not is the difference between a company that has a strategic plan and a company that doesn't or a company that's focused and a company that knee jerks.

I haven't heard back yet about the program, but I assume my rate is too high for them and I secretly (though I'm sure they'll read this) hope they decline so I can spend the time working on our strategic plan.

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