e-tip 68 – How do you value you?

Have you ever worked out what your time is worth? For many businesses they usually start by doing pretty much everything themselves

The belief is often:
o I’m saving money
o If I don’t do it no one else will
o It’s what all small businesses do
o I can’t afford to get someone else to do it

To help you make decisions to where your time is most profitably spent I thought I’d share the formula I use with my clients:
Annual Income divided by the annual hours you want to work
= value of time/hour

Note I say: the hours you want to work. If you say you’re willing to work all hours God sends, then that’s what you’ll end up doing!

Say you want 6 weeks holiday, plus Public Holidays and Duvet Days that leaves around 44 weeks (start as you mean to go on). At 35 hours/week (more if you choose) gives annual hours of 1540. If you already earn or want to earn £30k/year this means your time is worth around £20/hour. If its £40k, then it’s worth £26/hour. £50k is £32, and so on.

If you run your own business then allow a margin of safety – making your money early, rather than wait for the last day of the year to know you’ve hit your target. I usually allow at least a 30% safety margin, i.e. aim to hit your annual target 30% before the year-end. At least then you can make extra profit, or extra take time off and it’s less stressful too. So 1540 x 70% = 1078 hours.

Now your £30k target becomes around £28/hour, £40k is £37/hour, £50k is £46/hour, and so on.

If you start your business with this figure in mind, then you’ll create the business that meets it. If you have the notion of just breaking even, or I’m not in it for the money, then guess what you’ll end up doing?

Now you know the value of you, you can make decisions on where to spend your time most profitably. One of my clients did this and we found a way to regularly earn £250 in a few minutes!

From my experience, doing the stuff you hate or are not particularly skilled at generally takes about 3 times longer than someone who loves doing it, so multiply your hourly rate by a factor of 3. And of course every hour you spend doing other stuff takes away an hour when you could be making more profitable and relaxed use of your time.

A simple example is book-keeping: If a book-keeper charges £20/hour then for you to do that hour of book-keeping costs you £111 at £40k/year. That’s aside from the weeks of angst from putting it off! So, doing it yourself costs you an extra £91/hour! That’s a no-brainer!
When it comes to marketing then if a marketer charges £60/hour, then you save around £30/hour by having someone else do it for you! Fantastic!

This is the secret of successful entrepreneurs: making the most profitable and best use of their time.

Today’s experiment
o Calculate the value of your time using the formula above. It may not be what you’re earning right now but as you know, it’s good to have a specific goal to go towards.
o Make a list of areas that you love to do, and hate doing, or are less than expert at and generate a list of people or ways to do these for you. Some ideas could include:
· Getting domestic support – cleaning, washing, ironing, baby-sitting etc
· Getting technical support – IT, book-keeping, R&D etc
· Getting professional support – Accounting, PR, Marketing, management etc
o And take action, within 24hrs

Until we meet,

Anthony

©Anthony Davis 2006. All rights reserved