What is the value of your time as a small business owner?
Many small businesses owners want to grow their business but often get caught up in the day to day running of it. To break this cycle, you need to start putting a value on your time and work out how much return you are getting for all the time you are putting in
By understanding this, you’ll be able to take steps forward to grow your business. Failing to understand this will keep your business small.
So what is the critical number to understand?
It is something called your hourly rate.
So what is your hourly rate?
Firstly, it isn’t the per hour rate that you might charge out for your product or service. It is a measure of the return on your time. For all the time and effort you are putting into your business, what are the financial returns that are coming back to you?
You can work it out as follows:
Your Hourly rate = Financial return to business owner ($) / Hours worked each week (hours)
How to value your time – your hourly rate
The first thing you need to work this out is what are you paying yourself. This may come from a number of sources such as:
Add up all the money that is coming out to you from your business. For example, let’s just say you are a business owner paying yourself $80,000 a year and on top of this you are making $20,000 profit. Your total financial return is $100,000 a year.
On a weekly basis, let’s say on average you are putting in 50 weeks of work a year (in round numbers) then that works out to be $2000 a week.
The next part of this is to understand what are the hours you are working for this return? In this case, let’s say the small business owner was working 50 hours per week.
So, by putting 50 hours in, they were getting $2000 a week out, or in hourly rate terms, when you divide the $2000 by the 50, equals $40 an hour.
So what is your hourly rate? Take the time to work it out now.
What does your hourly rate mean?
Once you have worked your hourly rate out, you’ll be in one of two places:
- You might think, “That’s a great number. I’m happy with that number.” or
- You might be thinking “Hang on, I’m not happy with that number.” In fact, I would probably be better off working for someone else based on the return I’m getting.
This is the point. By being in business, you should be rewarded for the extra effort and extra risk you are putting in.
The key thing to understand is that your hourly rate is an average. Some of the activities that you do in your week are going to bring your hourly rate down and others are going to boost your hourly rate up. Your hourly rate will also be brought down when you’re having time wasted in your week.
Let’s look at an example…
One of our customers runs a limestone paving business. He thought he would save some money by driving his delivery truck in the afternoon. He would save a few hundred dollars a day by not spending it on a truck driver. The problem was is that while he was driving his truck, he wasn’t doing sales. This was further exacerbated in that this guy was a great salesperson and could sell at least $5000 worth of product in an afternoon.
He was saving money but it was costing him a fortune.
This is what can often happen in your business. You try and save money by doing things yourself, but it’s actually costing you. It’s costing you your time, where you could be investing your time into other activities. This is why it is important to start to put a value on your time.
How to increase the value of your time by increasing your hourly rate
This starts by looking at each of the activities you do.
Firstly, identify the top hourly rate activities that would actually make your hourly rate go up. These activities are ones that will:
- grow your profit;
- increase your sales;
- make things more efficient;
- give you a greater return for the time you’re putting in.
Focus on valuing your time and putting more of your time into high value activities.
Then, identify the low value activities that are pulling your hourly rate down. This could be where time is being wasted or where you are getting caught up doing low value tasks? The key with low value activities is to look at how you can:
- Automate them, i.e. getting a computer, technology, or software to do the task; or
- Delegate them, by getting other people in your business to do them; or
- Outsource them, either locally or overseas.
Whatever your hourly rate is now. Look at ways that you can increase it, because by continually asking that question, you’ll be able to grow your business to a whole new level.