What is your True Hourly Rate?
This is the first question I ask when working with small business owners and especially single person businesses.
Most common answers I get are something like this:
“I charge $200 per hour for my consulting, so my internal hourly rate is $200.”
To which I reply:
Are you working 40hrs a week every week at that rate? No – I didn’t think so.
Other responses people give are:
“I never thought of that.”
Really?
Or
“I sell products, so I don’t have an hourly rate.”
Trust me you have one, irrespective of what you sell.
Or
Sometimes I get a detailed answer based on Real Hourly Rate.
Only not quite “really”… (See the “Further Reading” section at the end of this post.)
Unless you are pursuing a hobby, and not a business, it is imperative that you find a good solid answer to this question.
First, what is True Hourly Rate?
True Hourly Rate is the value of your time in dollars. It helps you find out your opportunity cost and prioritize better. Be it generating or following up on your leads, attending or coordinating meetings, or various other tasks, this simple number helps you stay productive and efficient.
And how does one calculate their True Hourly Rate?
- First, find out what you love to do in your business – is it selling, coaching, public speaking, something else? Something that you are willing to do day after day.
- Then imagine you find an employer who let’s you be your own boss. Completely flexible. Allows you to set your own schedule and is willing to hire you to just do what you love. And, cannot fire you for the next 5 years.
- Next, at what yearly salary you see yourself doing this day in and day out for at least the next 3-5 years, with a guaranteed job and a great place to work.
- Now take that yearly salary and divide it by 2000 – that is your True Hourly Rate.
For example: If this ideal yearly salary is $100k then your True Hourly Rate will be that divided by 2K, which in this case would equal $50 an hour.
Why is this number so important?
Now you can compute the opportunity cost of every meeting, and the ROI for any work you do. If each hour of your meeting or any work you do on daily basis is not returning at least your True Hourly Rate, then you need to drop that task and pursue others which potentially give you a better return.
Now you can measure all those meet-ups you love so much and that BNI which promised you leads. Are they actually returning value for your time and money – at least at your True Hourly Rate?
Further reading: Real Hourly Rate. Search Google for Real Hourly Rate. There are many good articles which get into computing your real hourly rate. These articles talk about expenses and your salary etc. These are good things to know if you are interested in more details, but (1) it’s a bit too much detail, and (2) really not that applicable to small business owners.
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