How much is your time worth?
As a business owner, there is a never ending list of demands on your time. For any given task, you have 3 choices:
- You do it yourself
- You outsource or delegate it
- It’s either deferred or doesn’t get done at all
There is a lot of advice out there on prioritising your time. This blog looks at how much it costs you to do something yourself vs finding an alternative, or just not doing it.
In a services based business, there’s how much you sell your time for and there’s the cost of your time to your business.
The difference between your revenue and your costs (being total cost value of your time spent + other costs) is your profit.
So what’s the cost value of your time. There’s 2 pieces of information you need:
A. How much you would earn as a salary if you were an employee providing that service to clients on behalf of your employer? If you would work part time or shift work, how much would you normally earn in a 12 month period.
B. How many hours a week on average would you spend at work (for some it’s 20 hours part time, for some it’s a 40 hour week and for others it’d be closer to 60 hours per week as an employee.)
The formula to calculate the cost :
A – Total Annual Salary * 1.17 (incl super & other costs) = Total Annual Employee Cost
Total Annual Employee Cost / 46 weeks = Total weekly cost
(52 weeks – 4 weeks holiday – 2 weeks public holiday = 46 weeks)
Total weekly cost / B – number of hours = cost value / hour
This is the cost price to your business of the time you spend delivering your service.
Your sell rate needs to be comparable to what other people in the market are paying for that service, normally it will be at least 2.5 times the cost value / hour due to the time you spend on marketing & networking activities plus business admin, plus the profit margin you make for running your own business vs being an employee. If the ratio is smaller, you may need to look at your chargeout rates.
So what do you do with those activities you want to either outsource or delegate.
Let’s say your cost rate is $60 / hour and your sell rate is $150 / hour.
If an activity will cost less than your cost rate ($60 / hour), then that frees up an hour for you where you have an opportunity to bill your time out at $150 / hour. So why wouldn’t you?
Most business owners don’t measure the value of their own time in the Profit & Loss statement so often this is very hidden. Due to cashflow constraints, they very often don’t pay themselves this amount either (let alone put anything into superannuation), again which tends to hide the true profit position of your service offering.
So what should you outsource?
The first example is bookkeeping & admin. How many hours do you spend a month on that? Times that by your cost rate and compare this to how much a good bookkeeping service will charge you. Their cost rate / hour may be comparable to yours, however they often will be far more efficient.
On a personal front, I do my own bookkeeping as it takes me approx. 3 hours / month. 3 * my cost rate works out to be the starting price per month for most bookkeepers, given I know what I’d doing in that area I don’t get the efficiency benefit.
The next one is managing your social media platforms and content. How many hours a week do you spend doing that, times that by your cost rate and compare that to a Virtual Assistant who often perform these tasks.
At the other end of the spectrum, what are those things you shouldn’t outsource or are cause for concern if they’re not happening?
An example is developing your service packages. Getting someone to do that for you is expensive and given it’s the core of your offering, they will be far less effective that you.
Another is business development with new & existing clients – service offerings are based on trust, it’s not something you can outsource to someone else effectively.
Your time is precious & also valuable. Use it well.