The Opportunity Cost

Opportunity Costs

The Technicians on the Technibble forums brought up a very interesting topic about the “opportunity cost” of the things we do.

A good example of explaining “opportunity cost” is if a person invests $10,000 in the stock market, they deny themselves the interest that could have accrued by leaving the $10,000 in a bank account instead. The opportunity cost of the decision to invest in the stock market is the value of the interest they could have earned if they put it in the bank.

So how does this apply to Computer Technicians? Someone on the Technibble forums mentioned the idea of pre-making lengths of RJ-45 network cable and packaging them individually (such as 1m, 5m, 10m lengths). The margin would be fairly high on the products because when you buy network cable and the plugs in bulk, they work out to be fairly cheap and you can charge more for a pre-packaged cable.

One of the Technicians on the forums chimed in with this:

Once you tack in your opportunity costs (Your time not spent doing other things) and what your time is worth making your own cables for lengths shorter than 6′ is a waste of time.

Lets say that you sell network cables at $1 per foot. It takes you a minute on each end of get the wires in the right order and crimp the plug on them so that works out to 2 minutes per cable. If you sold twenty 5-foot cables for $100 and our material costs was $28 then you would have made an easy $72 for 40 minutes of work.

However, if you had purchased these pre-made cables at the same material cost of $28, you would have had these cables already in you inventory and earned $66 of your normal $100 per hour rate while you used that time to repair a clients computer.

Total cost of making them yourself:
$100 income – $28 expenses = $72 profit (at a loss of 40 minutes of time)

Total cost of purchasing the cables:
$100 income – $28 expenses = $72 profit
$72 profit +$66 you earned having used your time and skills for repair work instead = $138 profit

In this situation, the opportunity cost of making cables is the loss of $66 you could have earned if you used your diagnostic and troubleshooting skills for fix computers instead.
The figures change a bit when you are making a small amount of very long cables because then it might be worth it. A few technicians recommended as one of the cheapest places to get network cables (I haven’t used it, but a few forum members have). In this example, if you were to purchase those twenty 5-foot cables from Monoprice, the total cost would have been $13.60 for the cables and about $6.60 shipping equalling $20.20 in total.
Is 40 minutes of your time worth $20.20? Probably not.

I understand that many people will make cables if they have no other work to do, but that time could be used far more effectively by reading a marketing book or doing something else to improve your business – which will in turn bring you more income.

There comes a point in the life of your business when your time and skills are too valuable. Of course, a lot of people just do it for the love of the work, and thats fine too if that is what makes them happy. I must admit I do this myself in certain areas, we just need to be aware that there is an opportunity cost in the decisions we make.

Special thanks to everyone in this thread for bringing up the topic.

Bryce Whitty

About the Author

Bryce Whitty
More articles by me...
Bryce is an Australian computer technician and the founder of Technibble. He started his computer repair business when he was 17 years old and is still running it 9 years later. He is an avid traveller and spends at least a month of the year in another country.

Comments (10)

  • BPC says:

    A very true article.. the other thing to remember is the premade cables will always work.. where as no matter how careful you make one yourself, they’re not quite the same as a properly sealed manufacturer checked one.

  • Chris says:

    If I buy premade cables from my supplier they have a lifetime warranty and are fully certified to CAT5e or CAT6 or whatever.
    If I make them myself then I can’t certify without an expensive tester.

  • I’d make a case for building your own cables in situations where custom cable lengths help you professionally dress the installation such as on racks or in server closets. Those premade 3-footers don’t always do the trick. Further, when the custom cables are made onsite (as is usually the case for me), I’m billable for the time it takes me to make the cables, which in turn, allows me to charge a little less for the cables themselves.

  • ben says:

    Never make your own cables!!!
    I had a friend who one of the network admins made the patch cables for the server and network closet. It caused them much angst, Till they figured out that the patch cables made their 1GB NICs work @ 10Mbs.

  • David Day says:

    Two comments:
    1) Non-billable time otherwise being wasted as “spare” might as well be used to make cables, sort parts, cold-call potentials, or STUDY. The opportunity cost question is only really valid if you are 100% billable.

    2) I have had more issues with premade cables than I care to count. Too often, the so-called affordable ones ended up being remade on-site, so you effectively end up paying for them twice. Premades that are reliable are enough more expensive to balance the “spare time” used to make them. PS: IMO, a quality cable tester should be in every tec’s kit, anyway; and should be used on every cable being put into service.

  • Or you can just teach you $7.50/hr college student receptionist how to make cables in their spare time. Then you can be free to do billable work, and still get cables. Win win.

  • Mathieu Gagnon says:

    While we’re on the subject of ethernet cable, there is those cheap cable testes @ 3$ each.

    I wonder if “in bios” cable length test is better.

  • edgepcs says:

    Great article and definitely something to consider in future.
    I recently did some buying and selling on eBay and found the opportunity cost was far from worth it so I stopped.

  • NRK says:

    How many times over the last 45 years have I found home made cables to be the problem (we used to build our own RS232 cables, both nine and 25 pin had to be soldered, then CatX cables). I don’t look at the time but the quality. Purchased cables (about $0.30/ft) are guaranteed to deliver performance and a profit maker at $1/ft. I will only build cables when I have to snake a cable through a hole that the RJ45 adapter will not fit through.
    I have drilled a new hole through 6″ of concrete to put the pre-made cable through.

  • desert_gold_hound says:

    In business class “Opportunity Cost” was described “The next best forgone alternative”. My point is this doesn’t say “The best cost alternative” So opportunity cost cannot always be looked at through the eyes you are writing this article through.

    Good article though and it does make you think. I just don’t want everyone to start thinking that they have to put a price on their time. Sometimes we may be watching TV to deal with our unlimited wants and we could use that time to also build cable. That is if you can chew gum and walk @ the same time.