What is your True Hourly Rate?
This is the first question I ask when working with small business owners and specially 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.
Are you working 40hrs ( full time) a week, every week at that rate? I did not think so.
I never thought of that ?
I sell products. I don’t have an hourly rate?
Trust me you have one, irrespective of what you sell.
And sometimes I get detailed answer based on Real Hourly Rate.
Not quite really. See ‘Further Reading’ section at the end of this post.
Unless you are pursuing a hobby, not a business, it is imperative you find a good solid answer to this question.
First, what is True Hourly Rate?
True Hourly Rate is value of your time in dollars. It helps you find out your opportunity cost and prioritize better. Be it your leads, meetings or tasks, this simple number helps you in being productive and efficient.
And, how does one go about computing True Hourly Rate?
- First find out what you love to do in your business, is it selling, coaching, public speaking? 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 willing to hire you to just do what you love. And, cannot fire you for next 5 years.
- Next, at what yearly salary you see yourself doing this day in and day out for at least next 3-5 years, with a guaranteed job and a great place to work.
- Now take that yearly salary and divide by 2000, that is your True Hourly Rate.
Example: If this yearly salary is $100K then your hourly rate will be Yearly Salary divided by 2K, so in this case it will $50 an hour.
Why is this number so important?
Now you can compute the opportunity cost of every meeting and ROI for any work you do. If each one 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) too much details and (2) really not that applicable to small business owners.
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