Subscribe to Entrepreneur for $5
Subscribe

How much an hour of your time is worth. This formula helps you calculate it.

The result of this calculation may be the reason why your company is not growing that much.

By
This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process. Opinions expressed by Entrepreneur contributors are their own.

Growth Hacking , Lean Startup , Costumer Acquisition Cost (CAC), Customer Lifetime Valu e (CLV), EBITDA, ETP, ROI, Dupont Equation , etc., are indicators, trends or financial ratios, which you are likely to know or of which have you heard about.

Depositphotos.com

All these concepts serve (and very well, if you know how to apply them) to grow your business exponentially.

However, they are of little use compared to this indicator.



The main challenge for 90% of entrepreneurs is not the lack of knowledge, it is not necessarily the lack of flow, nor is it the lack of a market, it is the lack of time .

Tell me, what things would you like to do this year in your business that could help you grow it?

In my experience as a business advisor, the vast majority I know are very clear about what they have to do to grow their business. Most have a list of pending strategies to implement, and many of them have more than a year with these pending. MORE THAN A YEAR!

In this list we could see things like:

  • Expand your ecommerce channels
  • Lower the cost of customer acquisition through growth hacking strategies
  • Change the inventory model to have less cash flow pressure among many others.
  • Find a business partner
  • Export to other markets
  • Import from other markets

So, if you already had these or other strategies in mind for a few years, why haven't you done them yet?

I know the answer: You have been very busy.

And this is where this indicator comes in.

If you spend your time focused on operational issues, it is very likely that you work a lot and grow little; you're so busy putting out fires that you don't have time to do strategic things, and this translates to one thing: You work hard and you're not growing or earning more .

Now, let's do an exercise to know how you spend your time.

The ideal would be to keep a daily log of the activities you do to really know how much time you dedicate to each thing and at the end of a week take a summary and see how much time you invested in the things that generate value and how much that does not.

But it becomes impossible to keep this blog because it takes a lot of time.

And that was precisely why I defined this indicator: The value of the entrepreneur's time .

As is the formula: VTE = Money / Time = $ / t

This gives you how much your hour is worth.

In my particular case, in the first interview I have with an employer, the first thing I do is help him see how much his hour is worth.

  • A low value (less than 1,500 pesos per hour) tells me that he is an entrepreneur who is saturated with fires to put out and 90% are operational entrepreneurs.
  • A high value (more than 1,500 pesos per hour) tells me about an entrepreneur who knows how to focus better and most of his time is focused on the design and implementation of strategies instead of operating.
  • And the one that has a negligible value, (less than 300 pesos per hour) I recommend a course or a book better because there will be no way to put into practice anything that we see in session.

Let's do a small example:

  1. How many hours do you dedicate to your business in a typical week? Surely more than 60 (10 hours a day including Saturdays)
  2. Multiply that by 50 weeks of the year (assuming you take 2 weeks of vacation)
  3. In our example 60 x 50 = 3,000 hours per year.
  4. How much money did you generate in your business in that same year?
  5. Take the salary, benefits and dividends that you have generated in the year and add them.
  6. Let's say it gives you 1,200,000 pesos (100,000 pesos a month).
  7. Now divide what you earned by the hours you dedicated to generating it: 1,200,000 / 3,000 = 400 pesos per hour.

Congratulations! You earn the same as a good English teacher.

How do you feel about your number? Is it much lower than you thought? You feel like doing the calculation again, right?

Surely something is not right. You can't possibly be making so little per hour, correct?

As I mentioned, the value of this indicator is that it lets you quickly see how efficient you are being with your time. If the value is low, it is because you are busy doing THINGS THAT DO NOT GENERATE VALUE .

That is why I consider it to be the most valuable indicator for any employer, as it allows to understand objectively and very quickly whether you are doing your job or not.

And, let me be painfully clear, your job consists of three things:

  1. GROW THE COMPANY
  2. Monitor current operation
  3. Create more companies

Note: Monitoring is not the same as trading.

THE DAY-TO-DAY OPERATION OF YOUR BUSINESS SHOULD NOT BE YOUR JOB , but your team's.

Your job is to make sure people are doing their part and put new strategies in place to help the business grow.

How is it solved?

In the 14 years that I have been an entrepreneur consultant, I have seen great entrepreneurs spend time on operational things that the driver, the secretary, the marketing person or the salesperson could do.

And when I ask them "Why do they make them themselves?" Your answer always falls into one of two options:

  • They think it's better for them to do it themselves rather than delegate it (they don't trust important things to go well for their team)
  • They think it is very expensive to ask someone else to do it (they "save" a salary).

The first is solved by learning to delegate and for this I recommend my book that talks about it, it is called: Delegate well .

For the second, let's do an exercise:

  • We already know how much your time is worth, let's see how expensive it is to have valuable people who could do the operational work.
  • A salary for a driver is between 10,000 and 18,000 (April 2021).
  • And he will gladly dedicate 200 hours of his life each month to wear what you ask of him.
  • The cost per hour is 90 pesos.
  • That of a secretary of 20,000 pesos is 100 pesos.
  • That of a 40,000 peso marketing specialist is 200 pesos an hour.

What is more expensive? Have someone who can do the operation? Or having you do operational stuff instead of doing the things that are required to make your business grow?

An entrepreneur who does not know how much his time is worth is condemned to minimize it and stay focused on activities that require a lot of time and do not necessarily add much value, in my experience once an entrepreneur becomes aware of the value of his time; the quality of your decisions and your approach change completely. So it is his job to grow the company and supervise the operation.

Start measuring how much your time is worth and set a goal of doubling that value in less than a year, that's what I guarantee to my client candidates when they start working with me and it gives me very good results.

This implies two things: Letting go of the things that do not generate value and occupying that time with actions that do generate value .