What’s your time actually worth?
I see business owners everywhere constantly living the struggle. The struggle of running a small business.
“I’m stuck in the start-upy phase at the moment. I’m so busy trying to manage my staff, do business development, manage my cashflow…plus do the work!”
Days are spent fulfilling a multitude of roles, with the belief that hard work will eventually yield a financial return…but rarely is there a correlation between time spent and cash in the bank.
So why not?
The most common error business owners make is that they are too focused on working IN their business, rather than ON their business. To be blunt, they’re spending time doing sh!t they shouldn’t be doing!
Things like filling forms, bookkeeping, chasing debtors, paying the bills, fixing the IT system.
Most entrepreneurs already know they shouldn’t be doing these sorts of tasks…but the excuses I always hear are:
I can’t afford to pay myself let alone another person!
I can’t justify the cost to employ or even contract someone to take care of it because it’s easy and I can do it myself.
The second excuse is most common. Profit margins are front of mind when running your business and sometimes we just can’t shake the mindset of:
If I can do it to save a buck, then I should.
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 (haha pun…) 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. I also 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 (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 such as 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…not bad, but could be better. We’ve got a virtual team that manages most of our administration, but I’ve still got bad habits and a minor case of OCD which causes me to want to get my hands dirty every now and again. It’s something I’m working on.
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?”
Focus your valuable time and energy on the things that really add value to your business, like training and nurturing your staff, developing great relationships with your customers and constantly innovating. Consider outsourcing, or even just delegating the non value added tasks. You’ll be surprised at the results.
Make your business work for you, not the other way around.