How to Calculate Opportunity Profit

Make better decisions about what to say yes and no to.

Published on

Around 7 minutes to read

Opportunities are relative.

“Wanna go to a major league baseball game tomorrow?”

You probably evaluate that offer against the factors in your life. If you hate baseball, you’ll probably refuse. If you love baseball, you’ll probably accept. If you love baseball but you’ve already scheduled a date with your partner, you might regretfully refuse. If you hate baseball but you haven’t hung out your friend in a while and want to, you might reluctantly accept.

The dictionary defines an opportunity as “a chance for success.” Shouldn’t you take every chance for success that comes your way? Isn’t an honor just to be invited? Many people never get invited at all, so are you being a pompous ingrate by declining?

Nope. Not all chances are created equal. Opportunities are relative to your goals.

If your goals are S.M.A.R.T.—specific, measurable, achievable, relevant, and time-bound—then you can quantify opportunities.

Financial targets are common examples of S.M.A.R.T. goals, so let’s start there. If your goal is to make $10k this month, then a $5k freelance gig gets you halfway there.

But it’s not that simple. It costs you something to do that $5k freelance gig: for starters, your time, not to mention any expenses you might have to incur.

I like evaluating my options by assessing what I call the opportunity profit. Here’s how it works:

The “T” part of S.M.A.R.T. goals is “time-bound,” my favorite criterion of the bunch. Making $10k in 1 month is a very different goal than making $10k in 6 months. So the timebox plays a big role in the worthiness and profitability of the opportunity.

If your goal is to make $10k this month, then a $5k freelance gig gets you halfway there. So, it should take you half your month to do at most. If it takes you longer, you’re at risk of missing your goal.

Here’s a visualization:

A Google Sheet that collects all the criteria for a design system leveling framework

The percentage this moves you toward your goal is the percentage of effort you should be spending. Otherwise, the opportunity profit is too low (because the opportunity cost was too high).

Here’s the formula. Against a specific goal within a given timeframe:

Opportunity Profit=Movement Towards GoalTotal Goal-Effort NeededTotal Capacity

For the purposes of example, let’s shorten that to:

O=MG-EG

If O is negative, I decline.

But isn’t making $5k guaranteed a better alternate than making $0? After all, a bird in the hand is worth two in the bush. This surfaces some important realizations:

If you’re not worried about your ability to make the remaining $5k you need in one week instead of the normal two weeks, then why isn’t your monthly goal $20k/month ($5k/week)? There’s nothing wrong with setting your goal to be the bare minimum you need and can easily make, but consider whether you’re selling yourself short.

If you’d rather take the $5k for 3 weeks of work because you don’t think there’s a better opportunity for you, perhaps your $10k/month goal is too high. Having an “anything is better than nothing” mindset is great cue that you have a wish more than you have a goal.

“Dan, wanna speak at our acclaimed conference? We’d love a 60-minute talk and want you to do a 30-minute prep call and a 30-minute tech check beforehand. We can pay $500.”

What an honor to speak at this conference! I should do it, right?

Let’s use our trusty formula. If my goal is to make $10k in a month:

O=50010,000-42160 O=0.005-0.2625 O=-0.2575

The opportunity profit is negative, so doing this talk probably isn’t worth it for me because it doesn’t move me toward my goal enough for the effort involved.

What if I wasn’t writing the talk from scratch and instead delivering a talk I already have written? The “effort needed” goes from 42 hours down to 2 hours. Certainly, I could swing it now, right?

O=50010,000-2160 O=0.005-0.0125 O=-0.0075

I should still decline.

What if I asked to skip the prep calls?

O=50010,000-1160 O=0.005-0.00625 O=-0.00125

Gah, so close! But still not worth it.

What if I asked for $1,000 instead of $500?

O=1,00010,000-1160 O=0.1-0.00625 O=0.09375

Success! Opportunity profit is positive, so now it’s worth doing because it’s moving me closer to my goal without costing me too much. Hopefully you see how tweaking some of these levers changes the result. The ideal life is optimizing for the highest opportunity profit activities available to you.

This approach can work with any quantifiable goal, not just finances. Let’s say you were trying to lose 5 pounds this month. That’s about 1 pound per week. One way to do that is burn more calories than you consume. You might make choices every day for low calorie foods that still keep you full so you’re burning calories every day.

Then a friend invites you out one night to a decadent restaurant in town you’ve wanted to go to all year. You know the menu, so you know there are very few foods that will keep you under your desired caloric intake. But, reservations are hard to come by, and this might be your only shot.

Many people would justify going to the restaurant by citing the opportunity cost of missing out. But opportunities are relative to goals. If your goal was to eat at the 10 best restaurants in town, then going to this restaurant gets you 10% closer to your goal. The opportunity profit is positive here.

But that’s not your goal. Your current goal is to lost 5 pounds this month. It’s the last day of the month.

Back to the formula:

O=500-500-3030 O=-1-1 O=-2

The opportunity profit for going to this restaurant and eating the food you’ve desired for so long is negative, because it moves you farther away from your goal.

By no means am I recommending not going to the restaurant though. Live your life! But don’t falsely justify it as an opportunity. An opportunity isn’t just something you want to do. For that, you can justify anything, which won’t help you decide which things to pursue or not.

I use a different word. If it doesn’t move you toward your goal—opportunity profit is negative—but you still want to do it, it’s not an opportunity. It’s a splurge.

It’s ok to splurge sometimes. It’s important to recognize it as such.

Evaluating opportunities requires a goal and a commitment to get there in a certain amount of time. Those are the prerequisites for having a rubric to say yes or no to the things that cross your path.

Most people won’t understand this. They’ll be confused or upset that you’re rejecting the “gracious opportunity” they’re extending to you. Most times, it’s because they don’t know what it’s like to be focused on a goal. Sometimes it’s because they don’t know what your goals are; of course they don’t… how could they know that? But that doesn’t mean that you need to stop your progress to accommodate them.

I get a lot of messages from people to review their portfolios or appear on their podcast or talk to them about their product. I appreciate everyone that reaches out, but many of those things have a negative opportunity profit against the goals I have right now. It’s taken a while, but I’ve had to practice how to balance being grateful for everything that comes my way while not thinking of everything as “an honor so I should do it.”

I’m fond of this quote from Jeff Bezos:

Inventing and pioneering involve a willingness to be misunderstood for long periods of time.

People may not understand why you’re saying no to them, but you don’t have to explain it. That’s partially what’s difficult about saying no: even the effort required to explain can have a negative opportunity profit. So don’t. Push through. Say thank you and move on. Keep focused on your goal and keep doing the things that move you toward it. Once you make that $10k or $10M or are living in your dream house or restored that relationship with your sibling or finally took that trip or reach whatever goal you were pursuing, you’ll be grateful that you invested in yourself enough to stay away from the things with negative opportunity profit for you.

Eventually, you may find yourself in a place where every path in front of you has a positive opportunity profit, and a high one at that. What do you do in that situation? Rank them, do the handful that have the highest opportunity profit for you, and practice gratefulness for the blessed life you’re able to live.

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