Doing NPV calculations on time investments seems wrong. Should you spend $5000 now for 7 years of $1000/y cash flow, given a discount rate of 5%? Yep, $5786 NPV.
Should you spend 100 idle hours on it? That’s $57.86/h discounted future income. But feels wrong to think that way.
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The temptation is to use (bill rate * load factor) as opp cost. So if you charge $100 and sell 1000 of 2000 hour work-year time inventory (50 weeks * 40 hours), that’s a $50/hr opp cost. But if you can’t sell those idle hours the opp cost is value of 1 hour leisure 🤔
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The math is easier with elastic demand. Your value of leisure is where working an extra hour by lowering your price feels not worth it. So if you could make $40/hr for 1300h instead of $50/hr for 1000h, but choose not to, clearly you value marginal leisure hours between $40-50
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Ah I think I see the problem. Time investment is also future time commitment in maintenance *if* the cash flow materializes. Your 100h is just the upfront time. You’re commiting more future time that’s hard to estimate
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So 100h spent developing day a teachable course is also ~2-10h/y maintaining it to realize the future cash flow. So you have to discount more steeply if you think you’ll drop the ball.
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Also, you should model a scenario that you’ll kill a project *even* if it succeeds because you get bored, a better opp comes along etc. Best not to average this into 1 scenario. Q to ask is what would someone have to pay you to *quit* a long-term project at any point? Kill cost.
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A robust time investment is one that would have a very high kill cost under success.
This is why if an activity doubles as leisure (so leisure opp cost is zero), it’s very hard to kill.
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