Opportunity cost of money: figuring what to charge for a job

One of the things I consider strongly in setting my price for a shop is how quickly the MSC pays.

I will do shops for The Source and IPSOS for less than I will do the same shop for About Face. Why? Because with IPSOS and The Source, I normally will be paid within 3 weeks. About Face, and many others, won't pay until 45 days after the report is accepted and sent to the client. Some have even longer pay periods.

In accounting and finance, this is known as the "opportunity cost of money" -- i.e., when I get paid right away, I can put that money to work for me, to make more money. For example, paying the cost of a route that I couldn't afford to do if I didn't have money coming in to cover the expenses. If I know I have funds coming in on the 20th via PayPal, I can schedule that 800-mile route with an overnight stay during the last week of the month.

Is this a concept you've ever considered when setting your price for a job?

Is this something you think you SHOULD consider when setting your price?

What other factors do you consider that might not be obvious? (I consider "the obvious" to be prep time, printing out many pages, travel time, the time it takes to report, etc.)

Edited 1 time(s). Last edit at 11/14/2016 02:40PM by ceasesmith.

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I look forward to reading other's answers. I've never heard the term "opportunity cost of money" but it makes sense and I probably should be adding it to the pool of things I consider. For me, writing long narratives takes extra time so I have to factor that in when deciding if a job is worthwhile. I also consider my relationship with the MSC and the company, some really need to pay me more to entice me to take their jobs. I also think about if the job will help me advance or improve in some way.

Of course, there are all the regular things like distance, time to complete shop, fit in route etc. but I assume you mean beyond the regular considerations.

Edited 1 time(s). Last edit at 11/14/2016 04:45PM by wwin.

I agree and have been doing shops that pay (at least) within 6 weeks. Later than that doesn't work, but I know many dining shops have you wait a couple months. Doing shops without reimbursement I give a bit more. The Source has become my favorite due to their paying the 5th and the 20th of every month, and earlier at times. They have many jobs in my area, so, not driving more than 5 miles, not waiting for reimbursement return, treated like a valued shopper is worth money to me I guess being able to be select, and not having to do routes helps.

Live consciously....

Considering the opportunity cost of money is valid, especially if you need payment before you can afford to take on another job or route. However, in that position, it might be smart to build up your shopping kitty instead. Here's why.

The opportunity cost of time should also be considered. Let's say you are considering a trip to Ditchville for a heavily bonused shop and the drive will take two hours. The bonus is tempting, but let's take a hard look at that two hour drive.

What if you didn't go to Ditchville? What if, instead, you drove the opposite direction to a closer location where you could do three shops that are not bonused but add up to the same as the Ditchville shop. Going for three shops with a shorter drive time and the same income could make more sense.

Usually, I'd pick Ditchville because I'd rather drive than shop and report. Every rat to its own cheese.

Mary Davis Nowell. Based close to Fort Worth. Shopping Interstate 20 east and west, Interstate 35 north and south.

Yes, MDavis, that's some of the intangibles. I'd take Ditchfield, too - I'd rather do one shop than 3; and the mileage write-off makes the otherwise equal payments weigh heavily in Ditchfield's favor!

If I could predict with accuracy how much time each shop required, I could develop a formula for this. That is impossible just now. Recently, I tried new-to-me shops that sounded quick and easy but were [unprintable]. Other shops which were reputed to be hard, difficult, lengthy, or otherwise undesirable were quick and easy for me. Waddup with that. In future, I will not be able to price such shops beyond this: there is not enough money in the world to pay decently for some mystery shops!

Gardening is how I relax. It is another form of creating and playing with colors. - Oscar de la Renta

A bit of disagreement here as I do not take into consideration the time it takes to get paid. The amount I get paid is my sole concern and I have a strict formula that I will not go into here. My MSC income goes into a business account ans is used strictly for shopping expenses and there is enough to carry me for a while. I don't re-invest my income and don't really care about the .05% or so interest it accrues. So, no, opportunity cost of money is not a concept I have considered.

By the way Mary, I don't think there really is a Ditchville, TX but do you know there really is a Hicksville, NY? And yes, I've done shops there.

OK, I googled it. there is no Ditchville, TX. Correct me if I (google) am wrong.

Well, surprise me. I absolutely must buy an updated Mapsco.

Mary Davis Nowell. Based close to Fort Worth. Shopping Interstate 20 east and west, Interstate 35 north and south.

I look at the Return on Investment. Seeing that your " bankroll" is liquid, you are not losing much interest. Your Working Capital needs to be sufficient to maintain and if desired grow your business. Once your business is established and fluid, a good business plan will allow you to operate out of profits. I consider 90 days of operating income a good basis. Thusly, after three years of doing this I do not weigh in how long payments take. My priorities have been identifying trustworthy MSCs and clients while establishing myself as trustworthy. The money side worked itself out.

My posts are solely based on my opinions and for my entertainment, contact a professional if you need real advice.

When you get in debt you become a slave. - Andrew Jackson

I focus on hourly rate, despite how long it'll take to receive payment. Otherwise, all other shops at a lower rate or even at reimbursement are taken because of how I value the shop, its perks and reimbursement.

Very infrequently shopping the Greater Denver Area, Colorado Springs and in-between in Colorado these days.

I make my decisons based on how i can maximize each and every shop. I will do a $200 shop before a $20 shop. I dont consider a $30 shop that takes half an Hour as equalling $60/hour. Im going to go with trying to actually getting $60 for an hour. As an example. Also if you are going to ask me what woukd it take fof me to do a shop for you as a scheduler im going to ask for something outrageous. My experience 4/5 times i get my outrageous demands. I regularly have a schdduker from a couple of places call me at the end of the month and be like can you do this shop for $20 and i say no, i will for $200 and they make it happen. I also take some educated guesses on shops and dont jump all over them at the beginning of the month. I wait till the end. Its a strategy that works for me. May not for everyone. Im still new to this so its an evolving strategy. I also build relationships with some schedulers and have an understanding where i know i will be pretty sure i can get the next months shops as well.

During my first six months of shopping, the opportunity cost of money was very important to me. I learned quickly that doing a lot of reimbursement only shops when funds were limited was a bad idea. At one point I missed out on end of the month bonuses because I was out of cash, even though I had at least a couple of thousand owed to me by MSCs. I had to take all my change to CoinStar just to to do a few local shops. I would even put unnecessary wear and tear on my vehicle driving home during some routes because I couldn't afford a hotel.

Now, I make sure to have enough cash on hand - a kitty, if you will - so that I can maximize profits without having to worry about how long it will take to get paid. I would much rather do $300 in shops and get paid in three month than do the same amount of work for $275 and get paid the next day.

@mystery2me wrote:

I would much rather do $300 in shops and get paid in three month than do the same amount of work for $275 and get paid the next day.

To each his own. I'd rather have the $275 the next day. I've pretty much stopped doing work for companies that have my money for more than 60 days. There's no good reason whatsoever that they need to take three or four months to pay me.

Now scheduling travel shops for the day after Christmas through mid-January.

I absolutely consider the opportunity cost! If nothing else, I have my pay deposited to a savings account, so I am losing interest with each day. Plus, the company is (usually) accruing interest for each day they keep my money.

I would go for the mythical Ditchfield, too.

@stormraven73 wrote:

I absolutely consider the opportunity cost! If nothing else, I have my pay deposited to a savings account, so I am losing interest with each day. Plus, the company is (usually) accruing interest for each day they keep my money.

I would go for the mythical Ditchfield, too.

While technically yes the concept of an entity eating up your interest is true, the reality is with the small numbers involved it doesnt make much of a difference. Just an opinion.

I definitely factor in cost of shops and who is paying. If it's an easy peasy shop that doesn't require me to put forth a lot of money, I will pick up those shops that take forever to pay out. I have one Sassie company that takes 60-90 days every time but it is an easy shop, fast, and those $10 add up when you aren't out anything other than a quick stop. I often pick up car shops for maintenance. I don't like the reports, but I can stop by, sit for an hour or two in their lounge, and use the time to write my reports up and enjoy free coffee and donuts. I haven't planned any huge routes yet. I'm expanding to further out. I've been sticking to 60-90 minutes one way, but have taken a few this week that require 3 hours one way. I've learned of some hidden gems close by too! I had no idea that just 75 minutes away, there was a university town that offered $100's in shops! Wowza. I always avoided the area because it was so hub-bubby with traffic. I think I'm going to suck it up. One company had 4 shops bonused at $50 in the area. I could do that in a day and win!

MegglesKat

I don't factor how long it will take to get paid for a shop, but I do look at when I am expecting payments, so I know when I have funds to schedule new shops. I look at the shop date and the pay date as completely separate points in time. Then again I only work for one company that has very long pay cycles, not counting companies that pay by cheque, mailed to Canada.

If I have the opportunity, the only thing I consider is how much I want to charge for my time, how long it takes me to do the job , plus my gas. If I have to drive 2 hours round trip and spend an hour doing the report, then I ask for: $36 (12/p hr.) plus ($8 for my gas--100 miles round trip), minus whatever the pay is for the job. MSI is one of the few companies that allow you to petition for distance pay. If the shop offers significantly below my cost per hour plus gas; I don't take it.

catkins, everybody has their own method but I suspect you're cutting yourself short on the car expense. This is just a suggestion but I'd consider at least 25 cents a mile for the car (not just the gas). That will help on tires and general wear and tear. I wouldn't go below $12 per hour to drive (I ask $15) and I wouldn't subtract the regular shop fee from the offer.
Also, any time they call you, I'd suggest asking them for their time frame. If they have to have it right away (they're hitting the wall) I'd ask another $25 minimum tacked on. Be aware that on some of these shops that are deadlined you can easily get $75 to $100 bonus and even up to $300. You won't get all of them, but you'll get some of them and you'll make just as much or more money by upping your bids.

Mary Davis Nowell. Based close to Fort Worth. Shopping Interstate 20 east and west, Interstate 35 north and south.

Edited 1 time(s). Last edit at 11/19/2016 03:48AM by MDavisnowell.

MDavis, I considered posting a reply to catkins, too. I don't know where catkins is, but there's not enough working hours in a day to make a living @ $12 an hour. I expect (and get!) $1 a mile (one-way). PLUS adequate recompense for prep, performing the actual shop, and the time it takes to complete the report.

If I don't get what I ask, I just pass on the shop.

Today, I had an opportunity to take a drive in the country. It was lovely because the wide open spaces were dotted with critters and occasional indications of humans. It was easy on the eyes because the pale winter palette is on now. It was fabulous because I had miles and miles of relaxation under an ever-changing sky scenery.

I will receive money for performing a little work along the way, and that is connection to this thread. I did not ask for more money. I simply scheduled shops and anticipated pleasure in the countryside.

Should I have negotiated for more money or waited for bonuses? Waiting for bonuses might have made the shop dates coincide with future snowstorms, road closures, detours, time pressures, etc. I do not like to work under those conditions.

I like what I had today. Technically, I worked. Essentially, I had a drive in the country and observed critters in the wide open spaces.

What would you have done?

Gardening is how I relax. It is another form of creating and playing with colors. - Oscar de la Renta

LOL! All my shops involve country driving! I ALMOST feel guilty for charging money!

But sometimes I'm on the road 12 hours, and get home so exhausted and in pain...facing those reports, and getting them done and done right, is worth every penny of my requested bonus money!

Never knew the term for that...but it makes sense.

I wish I could be picky about what people pay me. I'm mostly working a few little shops to get vacation money and will only work one town (I moved to a new place with awful traffic, so that cut out my willingness to travel). I must be signed up with the wrong companies, because if I only took shops that paid over $15, I'd have two a year.

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Opportunity cost of money: figuring what to charge for a job

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