If you’ve been in business for any length of time, you know your time is valuable. But exactly how valuable is it? Put it this way: If someone asked you to assign a dollar value to your time, could you? How do you determine that number?
Most small business owners set a rate for their time that is way too low for their product or service. But at MindShift.money, we look at what your time is worth in a different light. You’re offering something of great value in exchange for sustaining your business, paying your bills and ultimately working toward your Financial Freedom. So you should get paid appropriately.
Seeing your worth through this lens is essential for many reasons. You can confidently take a pass on an opportunity or client that truly isn’t worth your time (or is a flat out waste of time). And you know how to effectively price your services so you’re getting paid what you’re worth.
Calculating The Value Of Your Time
The first step to calculating what your time is worth is downloading the “Value Your Time Calculator” tool in Cash Flow Cure Module 5. This one-page spreadsheet is filled with several questions and corresponding columns where you can plug in numbers. (Hint: For the best values, first figure out how much you need to personally earn each month in order to cover fixed costs while saving toward your Freedom).
Now you’re ready to calculate what you’re worth! Let’s use hypothetical couple John and Mary who are starting a business. We’ll plug in their respective values to demonstrate how they figure out what their time is worth.
What Your Time Is Worth
Say their minimum profit target—the amount they need to take care of baseline needs today, and then secure their freedom outside of their business in their ideal time frame—is $20,705. Next, let’s say their fixed expenses—which cover virtual assistants, accounting fees, and so forth—is $5,000. After that, we need to factor in what percent of their income gets spent on marketing. We’ll estimate that at 20% of their income.
After plugging those numbers into the calculator, we see the amount of revenue they need to make per month to hit that profit is $30,881. If they’ve allocated 20 hours per week to fulfilling client work, and plan to take six weeks of holidays, our calculator tells us they have 920 hours to use for clients each year.
Finally, they need to factor in how efficient their time is. Just because you’ve allocated 20 billable hours per week to clients doesn’t mean you’re utilizing all of it. A more realistic estimate is that 75% of billable hours will be used.
The result is that each of their clients must earn a minimum of $537 per hour. If John and Mary go below that number with too many clients, they won’t hit their goal.
Maximizing Your Time
Armed with the number that represents the value of your time, the question then becomes, “what are you going to deliver that clients would be willing and happy to pay that much per hour for?”
If John and Mary are offering the right mix of products and services to the marketplace, they need to look at whether they’re utilizing their hours in the most efficient way. If they offer one-on-one coaching for two hours a month, perhaps they could expand their product line to include group coaching or consulting. They could potentially double their per-client earnings by delivering value to multiple clients simultaneously.
As you know you can’t make more time. Time is the one commodity you absolutely have to use effectively. So before you can appropriately price your programs or services, you need to know what your time is worth. Once you have that number, you can look more deeply at client pricing structures.
image credit: Bigstock/colorwaste
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.