One of the ongoing questions entrepreneurs face is, “Should I do this myself or should I hire it done.” The conservative (read “cheap”) side says what my dad used to always say: “I’d rather have the money in my pocket than in theirs.” But that pat answer ignores opportunity costs. Yes, there are opportunity costs with your time. Would you rather fix a toilet or watch your kid perform in sports or theater (well, maybe), or something? Would you make more money fixing that toilet or finding another deal?
But the thing about opportunity costs is they cut both ways. You always have to give up something to get something.
Luckily, there is a secret formula—I love secret formulas!—that ensures you always make the right economic decision. It can even help with the kid dilemma.
To get started, you have to know three things:
- What is your time worth on an hourly basis?
- How much time (Including travel time and shopping time) will it cost to do the thing your are considering doing yourself?
- How much will that thing cost per hour if someone else does the work?
Your Time Has Value
I list the value of your time first because it is worth knowing. Like my dad, many of us ignore the fact that we are spending money when we do something ourselves. You can determine that value with a simple formula. Divide your personal gross income for last year by 2080, the number of hours and hourly employee works in a year before overtime kicks in. If you grossed $100,000 last year, your time is worth roughly $48 per hour ($48.0769, for the more anal of you).
Be honest when you calculate how much time it would take for you to do the job. Don’t forget the time it takes to drive to the home improvement store, shop for the materials, drive to the site, figure out you bought the wrong stuff—you’re probably not an expert in whatever it is you’re trying to save money by doing yourself, drive back to the home center and buy the right stuff, go back to the job site, and (finally!) do the job.
Let’s say all of that would take you three hours. The cost of Thing Time would be $144.
If your contractor’s bid doesn’t distinguish between materials and labor, you may need a different contractor. But if you really like your contractor or just don’t have enough time to find another one, you can estimate labor costs by subtracting the cost of the materials you’d need to do the job from the total bid. If you’d spend $200 for materials and your contractor’s bid came in at $350, assume your contractor is charging you $150 for labor. Dividing $150 by the three hours it would take you to do the job—not the half hour it takes your contractor—means you’d be paying $50 per hour.
The “do it right” in the last paragraph to me is a big deal. If you’re not satisfied that you can do the job just as well as a contractor, add $100 per hour to Thing Time and calculate again.
If doing the work is going to keep you from doing something you enjoy, like say…watching the game, double the value of your time and recalculate.
Family Time is another factor. If doing the work yourself is going to interfere with your family, triple the value of your time and recalculate.
But if you really like doing whatever it is your thinking about outsourcing, divide Thing Time in half.
Finally, what is your skill level? Can you at least do the thing adequately? Or would a contractor coming behind you shake their head and wonder why you didn’t just do it right?
Here’s the secret formula: Subtract Thing Time from Contractor Time. If the result is a negative number, you need to have some really drastic extenuating circumstances to do the job yourself instead of outsourcing it. If the result is zero, go ahead and hire it done. If it’s a positive number, you have to decide if the money you’ll “save” by doing it yourself is worth the frustration and opportunity costs.
But finally: if you can’t do the job well enough, don’t do it. Period.Hermann says please like and share!