Opportunity cost: the cost of an alternative that must be forgone in order to pursue a certain action (Investopedia)

The easiest way to think about opportunity cost is with time. Choose to spend an hour one way, and you miss out on all the other ways you could have spent that hour. It’s a great way to think about productivity, but have you ever thought about opportunity cost as it relates to the products and services you offer within your business?

It takes a certain amount of resources (time, money, effort, etc.) to pursue a given product or service, and since you only have so much to give in the way of resources, it’s important to choose the ones that are most likely to guarantee success for your business. Choose one, and you limit the resources available to pursue another.

Usually, we’re inclined to go with the options we think will generate the most money, but you have to dig a lot deeper to discover the true opportunity cost associated with a given product or service. Here are just a few of the things to consider.

1. Money. With certain products and services, you can demand much higher fees, but often there’s a trade-off of time or cost to you as well.
2. Creation/performance time. With every product and service, there’s a set amount of time required of you to actually create it or perform it. Some are more automated, once you put in the initial creation time; some are group-centric, allowing you to leverage your time; others limit you to working with one client at a time.
3. Lead generation time. Some products and services, especially big-ticket items, have longer sales cycles, while others require you to generate higher quantities of traffic in order to reach certain sales levels, so it’s important to consider the amount of time and energy required of you to generate customers or clients to purchase the product or service. It might also be important for you to start generating income quickly, and certain products and services can take much longer to generate profit than others.
4. Emotional labor involved. It’s not something we usually think about, but every product and service requires a certain amount of emotional labor. Writing a book, for instance, might require a lot more emotional labor from you than meeting with a client for a consulting call. You have to consider how important emotional labor is to you, and if it’s realistic to expect yourself to do emotionally demanding work for long periods of time.
5. Long-term stability and sustainability. Some considerations will be more indirect or intangible, like long-term stability and sustainability. For instance, you might prefer doing more work up front, if it ensures greater flexibility and freedom later, or you might want to know that you don’t have to work at an intense pace for too long.
6. Growth potential and saleability. Some products and services might limit your growth potential or your ability to sell your business down the road, especially if they require your direct input.

To give an example, let’s take a virtual assistance business, where there are tons of possibilities for potential service and product offerings. As a virtual assistant, you would need to narrow down the list of possibilities to maybe three or four services or products that you thought would be the most successful.

Say you narrowed down the possibilities to individual client services and some kind of how-to guide to sell on your website. Let’s assume you wanted to generate $5,000 per month in revenue for your business. Here’s how the numbers would work out for each option:

Option 1: Individual Client Services

• Hourly Rate for Services: $45
• Average Client Usage: 10 Hours Per Month
• Ongoing Clients Needed: 12
• Time Required to Fulfill: 120 Hours Per Month (Roughly 28 Hours Per Week)
• Monthly Revenue Generated: $5,400

Option 2: Selling a How-To Guide

• Price for How-To Guide: $30
• Sales Required Per Month: 167
• Time Required to Fulfill: Product-Creation Time
• Monthly Revenue Generated: $5,010

Financially speaking, it’s easy to see what you could make with each option, but here are some other considerations. Think about the individual client services to start.

• How long and how much effort would it take you to generate 12 ongoing clients?
• What about locking yourself in to one-on-one client work? Wouldn’t that affect the overall opportunity cost of that option? Yes, but what if you hired a couple of virtual assistants to work on your team? Say you paid them $25 per hour. Now you would need 25 ongoing clients, but you would still make the same amount of money each month, and 100 percent of the work would be delegated to your team. How long and how much effort would it take you to generate 25 ongoing clients? Could you maintain that level if you could devote 100 percent of your time at that point to that task? How hard would it be to sustain that level going forward?

Now think about the how-to guide:

• How long and how much effort would it take you to get to the level where you could generate 167 monthly sales?
• How much effort would it take to maintain sales of 167 per month over the long term?
• What about surviving while you gain momentum and get up to that number of sales? If you had at least a few clients with the service option, you’d make over $1,000, but if you only sold a few copies of your how-to guide, you’d make less than $100 for the month.

There are a lot of things to think about when it comes to the opportunity cost of a given product or service, and in many ways, the decision will be unique to a given business, individual, and situation, but it’s important to carefully evaluate the products and services you are pursuing in your business and not base the decision solely on the money that the opportunity might create. As you weigh the opportunity cost of a given possibility in your business, ask yourself, “What am I giving up in order to do this, and would it be better to spend my resources on something else?”

How did you decide what products and services to offer in your business, and did you consider the opportunity cost?

Photo by Flickr user AZRI_fi, licensed under CC 2.0

How much are you willing to pay for your favorite web apps and services? That’s the key question to which every app developer wants an answer. It seems as if the provider of every once-free service is now pondering ways to make money and extract revenue from their members, which makes sense when you consider that they are, after all, businesses.

Remember that old adage, you get what you pay for? Will we continue to see more of our favorite free services following this model of offering stripped down freemium accounts along with feature-rich premium plans? Will online advertising ever allow these sites to generate enough revenue to avoid going this route?

Proven Winners

Here are a couple of services that have found the right formula for success when it comes to charging their members. There might be some valuable lessons learned by examining these successful services to see how they managed to get their users to take out their wallets rather than their pitchforks and torches.

Flickr was one of the first sites to capitalize on the fact that its members needed its services. They knew that people love their photos and they would be more than willing to pay a small fee for the convenience of storing and sharing their precious collections online. The paid accounts offered a few other bells and whistles, too, which only made the decision to pay easier.

Evernote is another service that was clever enough to jump on a need it knew its members would pay for — storing notes and information in the cloud, and then having them accessible via the web from their desktop and mobile devices.

When the iPhone was released with its feeble notes app, Evernote swooped in with its own much more fully featured app, which allowed even more users to tap into their service, and thus into their wallets.

Contenders or Pretenders

Here are a few services that show promise as they venture into paid subscription territory from the freemium universe. They originally hooked their users with totally free service, and only later announced their membership plans. Time will tell if they made the right move.

Jott emerged on the scene with an ambitious service that allowed its members to save their audio notes to the web via their mobile device. It also cross-posted to other services such as Twitter, Facebook and Remember the Milk. For the longest time it was free and in beta, then it announced its premium plans. There’s still a free plan but it’s extremely limited. Many members opted out, but many of them stuck around for one of the new paid plans.

Box also enticed members with free online storage but then later added premium plans with greater features such as larger file size for uploads (25 MB vs 1 GB, for example) and much more storage space (1 GB for free accounts vs. 30 GB for Business accounts).

While there are a slew of online storage services comparable to box.net (including some free ones with much larger storage), Box has wisely continued to innovate and has released many new features and options to make its service stand out. For example, its ability to work with your desktop applications as well as mobile devices is very handy. It has also released its own online apps to create documents and save them directly to your account.

Dropbox is another online storage service. It’s similar to Box but it does things a little differently. It provides the ability to automatically synchronize your files from multiple computers and provides twice the space of box.net for free accounts (2 GB). It also has premium accounts for far greater amounts of data.

Services That Will Start Charging Someday

Hulu is extremely popular these days. It remains free, but look for it to trot out some premium services soon. The companies behind it, NBC and ABC/Disney, are no slouches when it comes to making a buck, so hold on to your wallets. Clear signs of its financial plans is the way it has thwarted boxee’s attempts to share its content with its user base. The message is “No pay, no play”.

Yes, even the red-hot popular media darling Twitter has been struggling with the subject matter of monetization. Its difficulties with discovering a way to make money have been analyzed to death by countless financial experts and business gurus. It has looked at charging users for premium services, implementing advertisements and charging third party services for access to its API. Ultimately, no one knows how Twitter will cash in on all of its recent media coverage. No matter what it does, they will become the perfect case study in courses for future web entrepreneurs.

Final Thoughts

Ultimately, most sites will fail if they aren’t careful when it comes to charging for their services. Recession or not, there are only so many services anyone can pay for, no matter how slick the interface or how many bells and whistles they offer. However, they also need to conduct themselves as a business and find a way to pay the bills.  At the end of the day, it’s always going to come down to a question quality of service and quantity of need.

Do you use mostly free services, or mostly pay? What factors help convince you that a service is in fact worth paying for?

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Late last year, Celine shared some tips on avoiding conflicts within a teleworking team. Around the same time I came across UK-based “business psychology” consultants, Psycuity, a company that asserts that it can help design better teams through understanding the underlying psychology of individual team members. Could this type of understanding be useful in figuring out how distributed web workers could work together more effectively?

Using psychometric testing and a long pedigree in psychology, Psycuity has codified a lot of the personality types, compatibilities and behaviors we might ordinarily find difficult to measure. Using these measurements, we can make helping more informed decisions about our teams.

After completing a short online questionnaire — it took about 20 minutes — I was called by one of Psycuity’s cofounders, Ian Hudson, who talked me through my test results. Ian had no prior knowledge or understanding of my work or personality, but spent half an hour or so breaking down his analysis of my interpersonal style, thinking style, coping strategies, leadership qualities, influencing styles and where in teams I would best fit. Frankly, I was astonished at Ian’s insights, which he later provided to me as a printed report. They accurately reflected probably around 90-95 percent of my self-image.

Psychometric testing is by no means a new tool for those managing and recruiting personnel, but the Psycuity guys have managed to package and streamline the experience to require minimal input from the test subject, while still providing a rich and very detailed analysis of their capabilities and qualities.

Circling back to Celine’s original thoughts on avoiding conflicts within teams, I wonder if it’s possible to use a company such as Psycuity to predict how well a group of untethered workers will work together. There are some interesting questions to consider:

• Could Psycuity-style tests help prepare guidelines on how best to coalesce a diverse group of people into an effective team?
• How would this type of screening be applicable to assess the “fitness” of a coworking community?
• Can it only really work for people that work together in the same organization — or  would it also be useful for a group of collaborating freelancers.

Individually, I found a great deal of insight into my own behavior, but I’m curious to hear what others think. Can business psychology be used to enhance team spirit between disconnected, untethered, web workers?

Do leave your thoughts in the comments below — I’d love to hear everyone’s views on this.

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If you’re looking for another venue for promoting your services or investigating service providers to partner with, Qapacity is definitely worth checking out.

First, from the perspective of someone looking to sell their services, Qapacity presents a very attractive proposition. Basically, they give you a web site for free in exchange for your registration with their network. The web site they provide is designed to garner reviews from your current clients, in order to provide potential customers with testimonials about the quality of your work.

Upon signing up for Qapacity, you’re taken to your Dashboard, where you can fill in your profile details with the standard fare for social networks, and, if you want, offer a service to be added to Qapacity’s public listings. I noticed a strong resemblance to LinkedIn when browsing through the dashboard and profile options. When it comes to a site intended for professional networking, this is a good thing.

From the Dashboard, I proceeded to add a service to Qapacity, specifically my awesome freelance writing and editing abilities. The process was quick and painless, and once I’d provided a title, description and keywords for my service, I was able to specify a custom URL to point to my page under the “qapacity.com” domain.

You can customize your site’s content from top to bottom with Qapacity’s built-in WYSIWYG page editor, which also allows you to add modules. Modules available include video, maps, images, text and RSS feeds. You can add subpages that visitors can access via tabbed links at the top of your site, upload your own custom logo, and select from a few different themes and color combinations. It strikes me as a great way to set up a launchpad to refer people to from your Twitter account, for example, especially if you don’t have your own hosting and aren’t very comfortable with HTML.

As for sharing and promotion, which is the real purpose of the site, you’re constantly encouraged to either share your site via Facebook or email, or to invite other professionals to join in and grow Qapacity’s network. The idea behind the site, after all, is that you gather reviews and thus offer one-stop shopping for those looking for service providers.

From the perspective of someone looking for services, I found the interface to be underdeveloped. You can search for services by keyword, but there is no overall listing that you can browse. Some kind of broad categories and subcategories listing all services in that area would really add to Qapacity’s usefulness in this regard. Still, it was easy enough to find illustrators to work with for a promotional event I’m working on, but I had to know exactly what I was looking for to begin with.

Also, since Qapacity was originally a Spanish-language site, there aren’t many U.S. or North American-based providers available yet. Luckily with web work, that doesn’t always matter, but sometimes the language barrier comes into play.

Whether you’re looking to promote your own services, find a trustworthy provider, or find a partner for collaboration, any tool that provides meaningful connections with minimal investment is going to be useful, and Qapacity definitely accomplishes that goal. The major hurdle to success for Qapacity is getting community buy-in and promoting involvement, but the platform they’ve set up definitely encourages exactly that.

Have you tried Qapacity or a similar service? Share your thoughts in the comments.

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While just a few data points don’t make up a trend, it does seem likely that we haven’t seen the last closures. Services start up in a burst of optimism, then hit the cold hard wall of needing to pay for servers and bandwidth. The tightening of venture capital and the decline of online advertising have been covered elsewhere: other factors that will make it tough for free eternal-beta Web 2.0 startups to stay in business. But how is the savvy web worker to cope?

It’s clear that “free” doesn’t actually mean “free” when you put it into a larger context of web work. Choosing to use an online service for part of your business workflow carries with it opportunity costs and risk costs. Rather than rushing to put your entire business online, consider these guidelines:

1. Prefer in-house servers for mission-critical applications. Yes, it’s nice to be able to sit down in a cybercafe with instant access to all of your work – until the day when some of it is just missing in action thanks to factors beyond your control. As a software developer, for example, I’m not willing to place client code on a free source control server in the cloud, even though there are several excellent ones out there. Instead, I run my own server, and can access it remotely if I need to. There are tradeoffs, of course, but for this particular data I am willing to assume the administrative costs to eliminate the dangers of free.

2. Prefer portable data. If you do have data that you’re willing to host with a free service, then one of the best things you can do is ensure that you’re not locked in to that particular service in case things change. This implies that you should have easy access to all of your data in some standard format (XML or CSV, for example) in case you ever want to pick up and leave. Beware of services that have no export capabilities or that only let you save data in their own proprietary formats.

3. Prefer backed-up services. All the data portability in the world does you no good if you don’t have the data when you need it. I Want Sandy and Stikkit are doing the right thing and giving a few weeks of warning, but what if you end up on a service that shuts down overnight? We’ve mainly been concerned with backing up desktops into the cloud over the past few years, but I’m increasingly convinced that backing up the cloud to local storage is the sensible thing to do. I expect this to become a key differentiator in the next round of services.

In the current software and economic environment, I’m re-evaluating my dependence on free services, and pulling some things back to less trendy but more reliable client-side applications. How about you?

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Monday saw the release of a major update to Weave, bringing in several new features and, tellingly, locating Weave at a subdomain of Mozilla, named ‘services‘, implying that Weave will be the umbrella for a number of web-based service coming from Mozilla’s commercial arm. Also telling is the hackable and very social URL issued to a user on signup (in my case, http://services.mozilla.com/user/imran)

So what’s new?

• Installation is much simpler, being no more complex than installing any other Firefox plugin, though worryingly users are warned to backup their local firefox profile prior installation (likely a results of Weave’s experimental status).
• The ability to store not only bookmarks, but browser history, cookies, passwords, form entries and the current set of open tabs – essentially all the data necessary to ‘resurrect’ your Firefox profile on another device…I wonder if Weave will extend to Mozilla’s non-PC efforts for mobile devices.
• A manually configurable synchronization tool to keep your online and local profiles aligned.
• Encryption of data during synchronization and indeed the possibility of sharing profile data with third parties with the user’s consent.
• The potential for XMPP-based notification.

Though Weave is far from stable and various features still work in a haphazard manner, the current update illustrates an exciting path to the future for Mozilla, finally moving into the cloud, application data from most web worker’s most powerful and useful application.

The possibilities for Weave are enormous, notably the possibility of sharing parts of your profile with third parties. Perhaps Weave and Firefox will be the nexus points at which OpenID, Data Portability and the Open Social Graph will be centralized and useable enough to break into mainstream usage.

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