What is your time worth?

As published on Stuff

What is your time worth? Have you ever stopped to ponder the answer to that question?

Most entrepreneurs feel like there are not enough hours in the day to achieve all they wish to. As a business owner, your day should focus on achieving the outcomes necessary to satisfy your clients/customers’ needs while boosting your earnings and not losing your mind! Therefore, time is your most precious resource.

In the race to grow your business, you often get caught up in the day-to-day activities of running the business. But is this the most valuable use of your time? Business owners frequently get caught between running their business and working to grow it simultaneously. It is easy to fall into the trap of taking our time for granted as there is a perception that we are saving money by completing all tasks ourselves.  We rarely stop to consider the cost of trying to do it all.

Let’s discuss this in detail and see how we can change this misconception!

First and foremost, have you calculated the value of your time? Do you understand how much you earn by working in the business and taking care of those everyday tasks yourself?

So, what is this “value of your time”? It is calculated by your hourly rate, which is not the same as the per hour rate you charge for your product or service. It measures the return on your time, i.e., what financial benefit you receive for all the time and effort you put into your business. You may be surprised by the result. The formula to calculate this is highlighted below to make it easy.

Your hourly rate = Financial return divided by the number of hours worked each week.

The first step in calculating your hourly rate is determining how much you pay yourself. This might be wages, drawings, profits, dividends etc. Say you pay yourself an $80,000 annual salary from your company and make a $20,000 profit. Your total financial return would be $100,000 a year. You might look at that and think that’s pretty good, and you’d be right. Most people don’t make anything near that by working in a typical job. But when you look at the amount of effort required to generate that salary, things start to look slightly different.

Let’s say, on average, you work approximately 50 weeks a year. That equates to $2,000/week.  If this is your pay after all expenses, tax etc., I guess it’s not bad, but let’s go a bit deeper.

Now let’s understand the hours you work for this return. In this scenario, let’s say you work 50 hours per week. Fifty hours a week is a 10-hour day. Most business owners would agree they work long hours, possibly even longer than 10 hours a day, but we’ll stick with this to make it easy. By putting in 50 hours a week, you get $2,000 per week; or in hourly rate terms, that’s $40 per hour. And the more hours you work, the more your hourly rate dilutes.

Now, if this reality sounds like it could be you, you might be okay with it, and that’s great! $40/hr is a pretty good hourly rate for people working a typical job. $40/hr before tax roughly equals to an annual salary of $83,000. But, the difference between an employee earning $40/hr and a business owner earning $40/hr is that employees get paid sick leave, they receive 3-4 weeks of paid annual leave, Kiwisaver, and other benefits business owners don’t get. Plus, an employee generally only has to work a 40-hour week, and whilst they may work extra hours from time to time, their work hours typically don’t change that much.

However, as a business owner, you might not get paid for that day off if you’re sick and can’t work. If you want to take a holiday, again, you might not get paid for that time away from your business. These are the things business owners deal with, but never stop to think about the reality of what owning a business means in reaping the financial rewards vs the amount of effort they put in. In other words, they don’t stop to think about the value of their time.

On the flip side of this scenario, you might be thinking, “How is it possible that I am only making $40/hour when my hourly rate for my clients is $300 per hour?” This is because you are trying to save money by doing everything yourself; believe it or not, it costs more than you think. How?  It costs your time, where you could invest your time doing what you do best instead of investing in other activities.  For example, let’s say you take care of a task that you could pay a contractor or an employee $40/hr to do. Suppose you charge your clients $300/hr and the task in question takes an hour to do. In this case, that task has just cost you $300. That’s because you could have spent that hour either earning $300, actively engaging in activities to bring in that next client, or promoting your services to get more sales.

But, I hear you say, I do all those day-to-day activities when the working day is over, so there’s no harm spending time getting those admin tasks complete. My chargeable hours are over.  Again, remember your hourly rate is based on what you earn from your business divided by the number of hours you work. The more hours you work, the lower your hourly rate. If your hourly rate is $300 and you’re working a 40-hour week, unless you’re earning $600,000 per year, then you are not making $300 for every hour you spend in your business, based on a 40-hour week x 50 weeks a year.  And, let’s remember that business owners usually work closer to 50 hours a week, if not more.

Therefore, as a business owner, you need to start thinking about the value of your time.

• How much do you want/need to make from your business?
• How much effort do you want to put in to achieve that financial return?
• Do you want to spend every possible hour in the day working, or would you prefer to earn more and work less?

I don’t know about you, but I would prefer the latter. There are benefits and risks in owning your own business, but there is always the hope that owning a business will provide the financial freedom and flexibility you desire.

Okay, now you’ve worked out your current hourly rate, and we’ve established it’s not the same as the hourly rate you charge for your services. The next thing to think about is how to increase the value of your time by increasing your hourly rate. This can be achieved by following the steps below:

• Look at everything you do in your business, and I mean everything from answering emails, speaking to your clients, getting your invoices sent out and your marketing activities. Subscribing to a time tracking app can help you identify where your time goes.
• Identify all the high-yield activities that will increase your hourly rate.

Spending your time on those activities will:

• grow your profit
• increase your sales
• increase your productivity and efficiency; and
• give you more return for your time and effort in your business.

Once you have figured out the high-yield activities, you need to focus on putting more of your time into them.

Next, list the low-value activities that potentially decrease your hourly rate. They are the activities where you are wasting your time. This is where you need to identify how you can:

• automate them; or
• assign them to other people in your business; or
• outsource them.

This exercise will give you the clarity to discover what you’re earning regardless of where you’re at with your business. I hope it gives you a new perspective on the value of your time. Hopefully, it gets you to pause the next time you go to do something someone else could do and consider how that time could be better spent growing your business! Ultimately, the less time you spend on activities that are not a good use of your time means more time to do what matters most to you, and the beauty of it all is that you get to decide. Increasing your hourly rate, growing your business or spending valuable time with family are just some benefits of being more discerning with your time.

Remember – resources are primarily unlimited. There is no limit to how much money you can make, how many customers you can have, or how many employees you can hire. But, you only have 24 hours a day, 7 days a week and 52 weeks a year. You have to sleep, eat, play, grow with friends and family, and find time to relax in those hours you have. Your most precious resource is TIME because it is the only thing that is limited, so be more discerning with it! We generally stop to think before we pay money for other things we want (sometimes), but we rarely stop to think about how we spend our time. I hope this blog has prompted you to think about how valuable your time is, and if you would like to start spending it more wisely, get in touch with us, we can help you get back your precious hours.