How much do you earn from your business per hour? And how much do you charge out? Unless you are in a business charging per hour, this might seem hard to know or even irrelevant. And even if you do charge an hourly rate, chances are that not all your hours are billable.
What is Your Time Worth?
Most business owners never think of how much their time is worth per hour. This leads to the fallacy that you save more money in the business by doing stuff yourself and not hiring an extra hand.
Here’s a simple calculation – If your profit after tax (and before you take any money out of the business) is £50,000 for the year and you are working 50 hour weeks, with a couple of weeks of holiday every year, your per hour rate is only £20 (£50K/ 250).
Now the interesting questions – What should you be doing which earns you more than £20 per hour for yourself? If you went looking for and found a new key customer, how much will they be worth over the next few years?
How many hours of work would that take and what is the difference on a per hour basis? If you look at the value of time recruiting a new member of staff, training staff to be as good (and valuable) as you, what is the per hour return of this effort? Most business owners agree that these are all incredibly high-value activities… but then they tell me they don’t have time to do them!
Can You Afford Not to Employ Someone?
It’s not rocket science – the higher the value of the work that the business owner does, the more profitable the company. What should you not be doing to make sure your per hour rate does not decrease further? Make a list of all the things that you spend an incredible amount of time on each week.
These could be answering the phone, doing quotes, manning the counter, bookkeeping, administration etc. Against each activity, write down what you could pay someone hourly to do this. If the hourly rate is less than you can be worth when doing your most valuable work….employ someone to do the lower-paid work.
The question is not “Can I afford to employ someone?”, it’s “Can I afford to not employ someone?”
As a business owner, you have a remarkably high level of control over your level of income. Why then would you choose to do minimum wage work? You need to pay someone else to do the lower value work so that you can do more valuable work and earn more money for the business.
Make Your List and Outsource Now
Take action. Make a list today, identify one thing that you can outsource and ask your consultant or other trusted adviser to recommend someone to give the work to. Don’t do work with a lower hourly rate than you could be doing.
Identify one item which is the clearest high-value work in your business. Make time for this at the expense of the low-value work.
If you focus on using more of your time to earning a higher rate per hour, your business will be more profitable – or you’ll be able to work fewer hours – whichever is more important to you.
Which brings us to another set of interesting questions – How much per hour would you pay for extra leisure time? How much per hour would your partner/ child pay you for an hour of your leisure time? Is £20 per hour worth the sacrifices you make?
If you would like to discuss any of the points covered here, please feel free to request a free call below.