A Simple Calculation That Can Make The Difference Between Success and Failure

28 | Posted In Life & Mindset by David

The numbers don’t lie. The problem is, many of us don’t know the numbers and pay little to no attention to them.

I’m not talking about your website metrics. I’m talking about something bigger than that, yet much simpler. That simple metric is…

What is your TIME worth?

Have you ever actually calculated it?

Here’s a simple equation you can use to calculate what your time is worth:

Your Annual Income / 2080 = Your Hourly Rate

This is actually super simple. Assuming a full-time 40-hour work week for 52 weeks per year, you have 2,080 work hours per year. Obviously, I’m aware that there’s a give & take to this for varying reasons, but we’re just keeping it simple here.

So, for example, in 2010, my online business grossed roughly $210,000. If you do the math on that, my hourly rate comes in at about $101/hour.

Why Does This Matter?

Obviously, with an equation like this, we’re assuming a lot of things. We’re not taking into account weeks we don’t work. We’re not taking into account costs of doing business (such as taxes). Those things don’t matter here one bit.

The point here is to get an actual dollar value for what your time is worth, with a real dollar figure that is based on real numbers.

When you know what your time is worth, you can make much better decisions on how you spend your time.

I mean, when you think about it, time is the ONE resource that, when you burn it up, you’ll never get it back. Ever. The clock just doesn’t run in reverse.

Using This Information

Would it be worth it to hire a virtual assistant to do work for you? Or a developer?

One of the big mistakes I see from a lot of newcomers to this business is concentrating solely on the outflow of cash rather than the tradeoff. What I mean by this is that they focus only on the fact they have to spend money – and how much they have to spend. They don’t consider the personal opportunity cost of that cash outlay.

Do you do this, perhaps?

For example, let’s say you want a nice blog design. You know about the premium themes out there and you know you can hire somebody to do it. However, that costs money and you’re trying to avoid spending money at any cost. So, instead, you spend countless hours trying to do it yourself. Between research, learning and doing… plus the fact that you have other things going on in your life… you end up taking three months to “perfect” your blog design.

In the end, you either come up with something that probably looks pretty amateur… or you give up. And, it took you 3 months to do it. How many actual hours you spent on that, who knows.

OR… let’s say you know you can buy a premium theme and pay a designer to customize it for you. Let’s say $70 for the theme (much cheaper with Elegant Themes) and $500 for the customization. Fine, so that’ll cost you about $570. They can have the whole thing done for you in a week or less. Plus, it looks a lot better.

But, what about the money? Well, what’s your hourly rate as calculated above? What is all that lost time worth for you to do it yourself? Plus, if it takes you 3 months, that’s 3 months you could have spent growing your blog rather than dicking around with code you don’t understand.

The “Gotcha” I Know Many Are Thinking…

I know, I know. You might be thinking something like, “Well, I’m not making any money with my blogging yet, so this doesn’t count. My hourly rate is zero.”

:)

Oh, the things people say.

If you’re already running your own business, then the calculation is simple.

If you’re an employee of another, then just take your annual salary and work it. Doesn’t matter if that income is coming from blogging or not. The point is… your time IS worth something. The moment you start thinking like that, the closer you’ll be to whatever your income goals from the Internet are.

How This Has Helped Me

Assigning a dollar value to my time has helped me. Not only does it help me choose when to hire others, but it also helps me make decisions on whether to say “yes” or “no” to certain things.

For example, I used to do website development for people for $60/hour. I don’t do that anymore and haven’t in a few years now. Why? Because it isn’t worth my time. My hourly rate is way over $60/hour. Plus, I just don’t feel like dealing with clients. :)

When I look at my business and all the various tasks that need to be done, I now judge it from the standpoint… is this work worth my hourly rate? Sometimes I’ll do it even if the answer is “no”, but it provides an easy way to decide if hiring makes sense.

Also, what about opportunity cost? Could I be doing something more important with the time?

Lastly, as for balancing business and personal, it helps to know the rates. For example, we need to unbury some sprinkler heads and repair one in my yard. I could do it myself, but is it worth it? Between the trip to Lowes and the time to actually get it done, it could take me a few hours. Or, I could pay somebody a couple hundred bucks (2 hours of my time) to do it for me. I can spend my time doing something more in-line with what I’m good at.

So, think about it. Work the equation and see what you come up with. It doesn’t matter if your hourly rate isn’t as high as mine. You might even consider non-monetary factors as well…. things that don’t make you money but you enjoy immensely. However it works, I encourage you to assign yourself an hourly rate.

Your time is valuable. Know what its worth, stop devaluing it. Once you’ve spent it, its gone forever.

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  • Anonymous

    I recently did a braindump of everything I’m working on and everything I’m planning on starting.  I was a little shocked at the amount of stuff I was trying to accomplish in a limited amount of time each week.  So I went a bit radical and prioritized it like this;

    1. What can be done in under five minutes?  (If I have ten things that could be done in five minutes, then I’ll take an hour and kick them all out)
    2. What has to be done?  (Stuff like writing for my blog)
    3. What have I started that will produce an income? (videos, ebooks, etc)
    4. What is left?

    Using this method, I’m clearing out the easy stuff, doing what needs to me done, and then using the remaining time on profitable ventures.  This stops be from spending my free time toying around with logo changes, web site layout changes, and in general, running down rabbit holes where I would likely be wasting my time.

  • http://davidrisley.com David Risley

    I like that. Well done. :-)

  • http://twitter.com/HYVAssistant Owen McGab Enaohwo

    I really do think that this is the starting point for any Entrepreneur looking to outsource work because without really knowing the numbers and which activities are one’s income producing activities how can one then properly delegate the right stuff. In addition folks need to do a review or cataloging of their weekly business activities in order to first eliminate stuff that they should not be doing in the first place (no need to outsource those because it will be a waste of money), then next begin by outsourcing all those non-direct income producing activities that can’t be eliminated or automated so as to free up their time for what really matters. Then eventually work your way to outsourcing those income producing activities that you are not so passionate about. Great post David! I will share it on my Facebook page.

  • http://fix-it-blog.com Monte

    Whoa! 3 bucks an hour, looks like I have try BTMchis’s method…

  • Jeff Morris

    Thanks for sharing. That’s a really helpful and actionable plan.  I’ve got to go now — and implement it.

  • Anonymous

    Monte, I learned this through two things; 1) Life Experience and 2) from articles like this that David has written.  Gotta give credit where it’s due! :)

  • Daniel

    Thought-provoking post, but I’d like to question your use of the “gross” of your business to calculate your hourly rate… 
    If that’s your NET, fine, you’re worth 100 dollars an hour, but if it’s your total sales, you’ve got to take off all sorts of stuff to get what your time is actually worth. 
    My business grosses around 500 k, but my take-home is virtually nil, so I guess that means my time is worth nothing either 250 an hour, or nothing at all!
    There’s another way to look at it – messing around trying to set up your own blog or personalise your theme may be a waste of time (I know, I’ve wasted lots of time this way), but it’s also educational. How do we learn? By messing around with new things. And those who don’t learn, make bad buying decisions and/or get overcharged by suppliers.

    Conclusion: this is not as simple as it sounds. Outsourcing can be a great idea if you know precisely what you want and where to get it. But getting that knowledge is a cost in itself. And if you outsource everything, what’s left???

  • Blogshopsantafe

    I like this method of prioritizing; putting the 5-minute items first teaches you a) what actually takes 5 minutes, and b) how quickly you can get things done. When I used to work for a paycheck, I kept a detailed record of my time and discovered that I had to stop what I was currently working on and switch tracks every fifteen minutes. This left me feeling like I never got anything done. Now that I am full-time-for-me again, I allow myself not to keep track. Instead, I look at the entire week and make a note of what I accomplished.

  • http://davidrisley.com David Risley

    But, here’s the thing… gross revenue is money you MADE. In other words, it was generated through the fruits of your labor, right? Therefore, it matters.

    If net income is a lot lower, then you just have a spending problem. But, that doesn’t mean you worked any less to generate that cash in the first place. 

    Also, I’m making this simple for a reason. Once you start trying to figure-figure it too much, you lose sight of the point. The number here is supposed to be a point of comparison only, not a down-to-the-cent hourly figure.

    Lastly, sure, there can be a value in doing it yourself in order to learn. But, I’ll tell you this… many of the most successful people online don’t have the first damn clue how to make or design a website. So, you have to wonder… whose priorities are “right”?

  • http://www.spanishhelpnow.com/beginner-2/spanish-verbs-ser-and-estar/ Cynthia

    Great  post, and timely too! I just posted my first job so I can stop doing some of the menial, time-consuming tasks. It has been great learning how to do some things, but I came to the realization independently of this article, that my time was too valuable, and I need to start outsourcing. Thanks

  • http://www.ArvindDevalia.com/blog Arvind Devalia

    Me too – I am off to implement it.

    Just as well I have allowed some non-income generating time to read really useful posts like this one:)

  • Anonymous

    Great post, David.

    I always start with the thought that I’m worth AT LEAST $100/hr. I base my assessments on that. It doesn’t necessarily mean I take home $100/hr but it gives me a place to start from.

    Another way I go about assessing the best way to use my time is to consider how much money a particular tasks can make me and my businesses. For example, I know that creating great content for my websites attracts traffic but that spending the time to format the post with images and then do all the background work is best completed by my assistant.

    I say get some help early on. It’s the ol’ leverage thing. Outsource or delegate the low value/low enjoyment tasks and create room to do the stuff that really makes a difference to your bottom line and your lifestyle goals.

    That’s my $0.02.

    Cheers, Adam.

  • Anonymous

    Wow. Great ideas here.

    I did something similar recently and then started mind-mapping the important stuff I should be doing. It’s amazing how much is in your head that just spurts out when you give it a chance.

  • Niv

    Hey David,

    Outstanding guide!

    A great way to catch yourself doing things to “keep busy” rather than actually producing results.

    I found Fiverr a useful spot to outsource the smaller (but time consuming) tasks.

    What are the main tasks you use a VA for?

  • http://www.hansrajhans.in hans raj hans

    really great example for time value….cool post for newbies. 

  • http://www.bes.co.uk plumbing

    What you had just stated gave me a lot of reasons why I should keep on following your posts. This is really helpful. It will make me be a wise time consumer.

  • http://www.lazybastardlife.com Jason

    I have to disagree on this one. You post is very relevant to the person who is making money online and can confidently state, my time is worth X amount of dollars. But for someone like myself just getting started, I can’t sit back and say my time is worth $100 per hour and then start shelling out money to outsource everything hoping my ideas will work. Starting out, if capital is low, you need to do the grunt work out of necessity. 

    I feel your post would frustrate the beginning entrepreneur. If they can’t afford to pay someone else to do stuff, they will spend countless hours working on sites, articles, videos, etc… and in the beginning start off making $5, $20, $100 per month putting their actual hourly worth at a few dollars per hour. 

    I hope to someday be in a position where I can confidently state that if I take the time to register a domain, set up wordpress, and write five articles, I will be losing money because in that same time I can XYZ that should bring in more money than to outsource. But until that day, it’s long hours doing some of the menial tasks, knowing I’m worth more than what I’m currently getting out of this, but also knowing that 6 months or 1 year or more, my hard work will pay off.

  • Anonymous

    The mindmap is how I started. The center is titled “my plate.” My plate had a lot more on it than I expected. :(

  • Anonymous

    Jason, having been in that situation, here’s what you can do…
    1. Don’t worry about creating a custom web site.  Pick one of the thousands of free themes and use one.
    2. Don’t worry about a logo.  Use the site name in the beginning. 
    3. In short, write the content and make the connections with people (via twitter, facebook, and comments) so that you find yourself in a position where you have created a product and then decide what you want to upgrade (pay for logo for example). 

  • Dr. Q.

    Referencing Daniel’s post above…

    Congratulations on having such a large income from your ‘business’, but how can you call it a business if so much money is coming in, and making you a ‘virtually nil’ income. Sounds more like a colossal time investment on a hobby.

    Is there more to the story that I should know?

    Dr. Q.

  • http://davidrisley.com David Risley

    I do understand, Jason. A lot of people are in the same boat. But, I still think you might have missed my overall point.

    It isn’t so much about the dollar figure as it is that you are assigning a value – any value that is real to you – to your time.

    … because valuing your time at zero is what causes so many newbies to get stuck in the endless cycle of do-it-yourself and then end up a year later having gone nowhere. Instead of spending time on the things which GROW your business, you get stuck in trivial matters like installing WordPress or trying to position something over a few pixels.

    This is business we’re talking about. And, investing a little money to get it started is pretty normal to most entrepreneurs, but somehow – online – people think the rules are different.

    If somebody wanted to open a store on the corner, I doubt they’d build their own store and then hand-build every item in their inventory. No, they’d pay people to do it while they concentrate on getting customers.

    Difference is, these things are obvious in the “real world”. Online, people tend to look at it differently.

    Time is money.

  • http://davidrisley.com David Risley

    Big topic. Could be a whole blog post right there. :-)

  • http://www.facebook.com/people/Katja-Elsner/100001745710525 Katja Elsner

    Thank you very much for this. 
    I was about to say the same. 

  • Anonymous

    Tell me about it. I often joke that my mind maps show how out of control the part of my brain that generates ideas really is.

  • http://www.lazybastardlife.com Jason

    Thanks for the response. I do see your point a lot more now. Especially with your comment about investing some money in a business. I bet many wouldn’t think twice about dropping a few thousand dollars in a brick and mortar, but struggle to even spend a $100 just for hosting. I still feel that many people could benefit from the education of doing some things yourself. I think it helps you gauge what you should be paying someone else to do the task later down the road. 

  • Abdul Qoyyuum Haji Abdul Kadir

    Actually it really does depend on whether the individual has the money to spend in the first place. I mean, if I had the money to pay somebody to create me an client application or a web application, instead of me studying it for a few months, I would pay most definitely. But because of the quotes that I’ve been getting, there’s no way I could afford such a thing to enable me to build a business around that idea.

    My point is, afford what you can and you do the rest.

  • http://www.lazybastardlife.com Jason

    Thanks Chris. My comments weren’t really about my situation. I have a niche with a product I created and just finished an android app that falls in line with my niche. My issue is more regarding the general theme that people should be placing a value on their and outsourcing accordingly. I have a limited background in programming and spent about 2 months off and on working my app. People suggested I just pay someone $800 – $1000 just to knock it out in a week. However, if the app doesn’t sell well, I would not recover that investment.

    I feel that many newbies probably rush in with an idea, pay for a couple courses, pay some people to write content, and then when they don’t see results in a couple months, pull the plug. My opinion is that if people put in some work and hours, they are more apt to motor through when they’re not getting any traffic in the beginning months.

    When I started my site last year, I did use a free theme, wrote some content, and created my product. Once I made a little money, I upgraded to a paid theme.

  • http://www.thepadrino.com/ The padrino

    Well you had to consider taxes also