The True Value of Time as a Business Owner
I juggle wearing a couple of hats in my professional and business life with working in a full time job and running a small business. It’s a daily battle to ensure I am putting 100% effort into these commitments, as well as balancing it with my personal life.
Sometimes I feel that there is simply not enough time or energy to get all your tasks done in a day.
I know that other business owners share the same struggle. Too many hats and too little time. We fill our long days with a multitude of roles, believing our hard work will yield a financial return. But rarely do you see a high correlation between time spent and cash in the bank.
So it got me thinking – how much is your time really worth?
I came across a survey by eVoice (j2 Global, Inc.), which asked 400 small business owners: “How much is one more productive hour in your working day worth to you?”
The results? 30% indicated $100 per hour, while another 24% said $200 per hour.
Most notably, 25% of respondents believed an hour of their time to be worth over $500.
Fascinated by the survey, I took the time (pun intended) to calculate what my hourly rate would be.
I did some brainstorming and research and arrived at the following approach as the most accurate method for valuing an hour of your time, plus explored how it can be maximised.
It involves three steps:
Based on your organisation’s most recent financial year, add your share of annual net profit together with your total annual remuneration (annual salary, car allowance etc.). Then divide that sum (or adjusted net profit) by the total annual hours you devote to the business.
The resulting dollar amount per hour serves as a baseline reference for your hourly rate.
Now that you have a base hourly rate, begin to question what “non-value adding” activities you could potentially reduce or eliminate from operating your business. These things could be administrative tasks, phone calls, emails, marketing, payroll – essentially anything that does not directly correlate to maximising the value and profitability of your business. Once you have identified these non-value adding tasks, estimate the total number of hours you would typically spend doing them annually.
Subtract the non-value adding task hours from the total hours you spend on your business, and recalculate your hourly rate. Do this by taking your adjusted net profit and divide it by your revised productive hours spent on your business. The result is the hourly rate you should aspire to be generating.
I kept a timesheet using Harvest over the course of 7 days, tracking all the time I spent working on my business, and recorded all the specific activities that I was doing.
The results were as expected. My hourly rate was, errr poor. Most people wouldn’t even get out of bed for my hourly rate (haha).
Interestingly, of all the hours I spent working on my business, close to 70% of it was non-value added time. I spent a lot of time on administration and sifting through pages of emails instead of doing tasks that are income producing – like following up customer leads, nurturing relationships with existing ones and improving internal processes.
If I reduced this 70% of non value added time, my adjusted hourly rate would multiply by 500%!!
So Here’s a Tip:
Make a list of everything you spend time doing for your business over a normal daily/weekly/monthly cycle. Rank the list starting with tasks that have the most impact on increasing profitability, working your way down to those with the least impact.
Then starting from the bottom up, ask yourself: “Given what an hour of my time is worth in profit-making potential, which of these tasks can I eliminate from my day, with that effort instead being redirected to activities that will yield a greater return on my invested time?”
If you genuinely challenge yourself through this exercise, you will discover opportunities to reduce those non value adding tasks and distractions, and therefore freeing up time to spend on higher profit generating endeavors contributing to your business’ success in the future.