Choosing between hiring two engineers or entering a new market can change your startup’s trajectory. And what you skip matters just as much as what you pursue. That’s the cost of opportunity—the value of the best alternative you didn’t take. It’s how you make sure every dollar fuels growth instead of regret.
In this guide, we’ll define, calculate, and embed the cost of opportunity into your financial planning. You’ll get clear formulas, see where teams stumble, and understand how it connects to metrics like CAC. You’ll also learn how modern tools take this from theory to action—so you spend less time calculating and more time deciding.
The basics of Cost of Opportunity
The cost of opportunity is the value of the next-best thing you pass up when making a choice. It’s a core principle of classical economics, and a daily reality in startup finance.
Spend money on one thing, and it can’t go to another. Resources are finite. The cost of opportunity is how you make that visible, even when it doesn’t show up on the income statement.
The idea traces back to thinkers like David Ricardo and Gottfried Haberler. But in practice, it’s simple: you can’t build every feature, hire every candidate, or try every go-to-market motion. The cost of opportunity helps you focus on what creates the most value.
Why it matters in startup finance
Startups work with tight timelines and limited resources. You’re always weighing growth against runway, and you want every bet to pay off. Opportunity cost gives you a smart way to compare your choices.
Say you’re choosing between two revenue strategies:
- Strategy A: Costs $50,000, brings in $200,000
- Strategy B: Same cost, brings in $150,000
If you pick B, the cost of opportunity is $50,000 in lost upside.
This logic extends to hiring. Say you have $120,000. Do you hire one senior engineer, two juniors, or a performance marketer? The cost of opportunity is the return you don’t get from the paths you didn’t choose.
It’s about more than just dollars. Your time, where your teams focus, and the direction of your entire strategy are all on the line. Opportunity cost keeps you thinking about the bigger picture.
How to calculate Cost of Opportunity (and its variants)
The main formula is straightforward:
Opportunity cost = Return on best foregone option – Return on chosen option
Or, C = FO – CO, where FO is what you could have made, and CO is what you actually make.
Here’s how it works. You’re looking at two options:
- Paid search ads: invest $10,000, expect $15,000 in revenue
- Content marketing: invest $10,000, expect $12,000 in revenue
Choose content marketing, and your opportunity cost is $3,000—the extra upside lost by skipping ads.
But in real-world startup decisions, it’s not just about static returns. Let’s go deeper.
Risk-adjusted returns
Not all returns look the same. A sure $10,000 beats a coin flip for $20,000. Compare options with different risk levels by adding probabilities.
Example:
- Option A has a 90% shot at $15,000 —> Expected value = $13,500
- Option B has a 70% chance at $12,000 —> Expected value = $8,400
So if you go with B, you’re missing $5,100 in likely returns.
Time value of money
$10,000 now is worth more than $10,000 a year from now. Discount future returns to compare apples to apples. The discount rate reflects what investors expect or target each year—it’s the opportunity cost of your capital.
Pick your rate wisely. For startups, your discount rate usually matches your cost of capital—what you pay to raise cash, through equity or debt. If it’s 15%, any project or investment needs to beat that number to make sense.
Relationship to NPV and IRR
Opportunity cost powers Net Present Value (NPV). With every NPV calculation, you’re using a rate that reflects your cost of capital—the heart of opportunity cost.
In financial analysis, opportunity cost gets baked into the present value in the NPV formula. A positive NPV means returns beat your opportunity cost.
Internal rate of return (IRR) is similar. The IRR is when your NPV hits zero. If your IRR tops your cost of capital, you’ve created value. Otherwise, rethink the investment.
For startups, knowing your cost of capital is non-negotiable. Maybe it’s your weighted average cost of capital (WACC) if you mix debt and equity. Or maybe it’s the return your investors want. Use it as your baseline for decisions.
Common pitfalls in calculating Opportunity Cost
Finance teams can stumble here. Get these right, and your analysis becomes a real decision-making tool.
Ignoring non-financial factors
Opportunity cost isn’t just about cash. Changing invoice terms, for example, eats up time, energy and focus. If your team spends 40 hours a month chasing payments, that’s a hidden operational cost worth counting.
Strategic calls matter too. Choosing to build a new feature might earn less money than a marketing campaign, but it could make you more competitive or improve customer retention. Don’t miss the big picture just looking at the financials.
Overlooking execution risk
Don’t assume every projected return will materialize. If you’re comparing a reliable channel to something new, factor in the odds the new channel might not deliver at all.
Build out scenario planning. Model a range of outcomes and their probabilities. You’ll get a clearer view of what’s really at stake.
Ignoring working capital needs
Look past the upfront bill. Do the options need ongoing working capital? A marketing campaign may cost $50,000 initially, but success could mean you need another $20,000 to support extra sales. Tally up everything.
Same with maintenance. A new SaaS platform may cost less at first, but ongoing support or customization adds up fast.
Mixing nominal vs. real returns
Nominal numbers don’t include inflation. Real returns do. When you’re comparing options that pay out on different timelines, use real returns or adjust for inflation, so you’re not comparing apples to oranges.
Including sunk costs
This trip-ups teams most. Ignore sunk costs in your opportunity cost analysis. Once spent, that money is gone. Focus only on what you stand to gain moving forward.
Say you spent $100,000 building a feature that didn’t stick. Should you spend $50,000 to fix it or pivot? That first $100,000 can’t be undone. Decide based just on the $50,000 you’re about to spend.
Sunk costs are gone, unrecoverable. Opportunity costs are about the benefits you skip when you choose one thing over another. Keep them separate every time you run the numbers.
How opportunity cost shapes CAC and everyday trade-offs
Customer acquisition cost (CAC) is huge for startups. Opportunity cost analysis helps you target spending to the channels bringing you real value.
Tracking CAC lets you put your marketing and sales dollars where they’ll work the hardest.
Here’s an example. You run three channels:
- Paid search: $5,000 spend, 60 new customers, CAC of $83.33
- Social media: $3,000 spend, 30 customers, CAC of $100
- Email marketing: $2,000 spend, 10 customers, CAC of $200
If you’ve got another $5,000 to invest, what’s the opportunity cost of putting it in email marketing versus paid search? Paid search brings in 25 customers for that $5,000. Email delivers 25 customers too. But don’t stop at cost per customer—think about lifetime value (LTV) too.
If email customers stick around longer or spend more, the higher upfront CAC may pay off. If paid search customers are just as valuable, tilt more budget to paid search to maximize returns.
This logic applies everywhere:
- Sales vs. success
- Hiring vs. tooling
- Speed vs. precision
The cost of opportunity is how you reason through each one.
How Runway simplifies opportunity cost analysis
Spreadsheets are great for quick what-ifs. But when you’re weighing real tradeoffs, you need more. Modeling multiple scenarios, tracking assumptions, and keeping data current takes time and can slip. A modern finance platform gets you there in minutes.
Runway lets you model scenarios side by side. No more separate spreadsheets. Set up multiple scenarios inside a single model and compare them easily.
Want to know if hiring two engineers beats funding a marketing campaign? Model both. You can adjust assumptions for revenue, cost, and timing. Runway connects with your accounting, HRIS, and CRM, so your models always use up-to-date info.
You get:
- Revenue forecasting: model growth scenarios using live data
- Expense management: test expense structures and see the trade-offs
- Headcount planning: track hiring decisions and impact on runway
- Collaboration: bring sales, marketing, and ops into one live model
Headcount planning gets easier. Model hiring plans, update assumptions, and see exactly how each move impacts runway and future revenue. Use capacity models that tie rep workloads to sales targets and growth—see in minutes if adding salespeople means more revenue or just more cost.
The platform lets teams forecast together. Finance doesn’t operate in a vacuum here. Bring in sales and marketing leads. Get everyone’s numbers and insights in one place. That way, your analysis always matches the reality on the ground.
For expense management and budgets, try different scenarios and track the cash position and key metrics. Know your opportunity cost before you commit—so you’re confident every time.
How to calculate Cost of Opportunity in Runway
1) Connect your data, so actuals stay current
Start by plugging in your source systems:
- Accounting actuals (e.g., QuickBooks) for P&L, balance sheet, and cash drivers. This keeps actuals fresh for baselining forecasts.
- HRIS (e.g., Rippling) to pull headcount, start/termination dates, and compensation for hiring scenarios.
- CRM/revenue (e.g., HubSpot or Salesforce) to model pipeline and revenue lift from go-to-market initiatives.
2) Build your core model and KPIs
- Use a model or a driver table to house key metrics you'll compare (Revenue, Gross Profit, CAC, Cash, Runway, NPV, etc.). Models let you organize drivers and compare across scenarios; driver tables on pages also support comparisons.
- Drivers are time series values with Actuals vs. Forecast formulas, so you can clearly separate historical calculations from forward-looking assumptions.
3) Define the initiatives as plans
- For "Option A: hire two engineers" vs. "Option B: marketing campaign," tag your forecast overrides to named plans. You can add plan tags when overriding forecast cells (e.g., headcount, spend, conversion) so each initiative's impact is traceable and adjustable source.
- Surface a plan timeline on a page to visualize when each plan affects metrics and to stretch/shift timing to test sequencing impacts.
4) Spin up one Scenario per option
- Create a scenario for each alternative so you can keep options isolated: "+ New scenario," then name it (e.g., "Hire 2 Eng" and "Marketing Push").
- In each scenario, turn on the relevant Plans or adjust drivers and assumptions specific to that option. Scenarios are safe sandboxes—changes stay local until merged.
5) Add risk- and time-adjusted return drivers (optional but recommended)
If you want to account for probability and time value of money:
Risk-adjusted Expected Value (EV): Create drivers for outcome probabilities and outcomes; then EV = probability × outcome. Use operators and IF/AND/OR as needed.
Discounting/time value: Create a Discount Rate driver (annual), and a Discount Factor per month using dateDiff and exponentiation. Example structure:
PeriodsInYears = dateDiff(thisMonth(), startOfProject, 'm') / 12
DiscountFactor = 1 / (1 + DiscountRate) ^ PeriodsInYears
PresentValue = CashFlow × DiscountFactor
Sum discounted cash flows to get an NPV-like driver for each option. You can implement this as a time series driver and (if needed) a cumulative/total line using sum across the time horizon.
6) Compute "Opportunity Cost" as a driver or via scenario variance
You've got two ways to surface the number:
- Driver-based method: Create a driver "Opportunity Cost = Return on best foregone option − Return on chosen option." Point each scenario's Return driver (e.g., NPV, GP, Cash at T+12) to the right inputs.
- Compare view method: In a Model or Driver table, click Customize → Compare → choose the two scenarios; toggle Variance and Variance% to see the difference between them for your KPIs. Set the "current scenario" (top navbar) to the chosen option and compare to the best foregone option; Variance then visualizes FO − CO for each metric. You can also pin explicit scenarios in Compare (deselect "Current Scenario").
7) Interpret results across core metrics
Don't rely on a single number. Look at Revenue, Gross Profit, CAC, Cash runway, and your PV/EV drivers side by side. Scenario compare tables and charts make this quick—add Driver charts and enable Compare for a visual read.
8) Decide, share, and (optionally) merge
- Share scenario links to collaborate; adjust Plans on the timeline and re-run comparisons as needed.
- When you're aligned, use Compare & merge to promote the chosen scenario into Main.
You're now quantifying trade-offs with the same rigor you'd apply to a financial model, because that's exactly what it is.
Make confident, data-backed trade-offs
When the cost of opportunity is part of the system—not just a thought exercise—your team moves faster, with more clarity.
It turns planning into strategy, and trade-offs into decisions you actually trust.
Want to see how Runway helps your team model smarter? Book a demo.