Whether you’re setting a value on your time for a sales letter – or trying to figure out how much a personal project is “costing you” it’s important to know what your time is worth.
Now we’d all like to just plug our name into a magic calculator, along with our related experience and education, and have the machine tell us “Your Time is worth this amount.” But since that’s not going to happen, let’s consider alternatives.
Method 1: What You’re Paid
If you’re still working a job, it’s a fairly easy calculation to see what you’re paid per hour. Just take your annual salary and divide by 2000. That’s the average work hours per year.
Sure, that’s not really what you’re worth, because you’re being underpaid. But it will give you something to work with.
Method 2: Annual Income
If you’re self-employed, take your gross income for the year and divide by 2000. That’s your hourly earnings.
You can also rely on your “billing rate” for consulting. But for every hour you are paid a consulting fee, you also have preparation, marketing, and background hours. So it sounds good, but isn’t realistic, unless you’re paid that rate for 2000 hours per year.
Method 3: Market Comparison
If you’re new to your business and don’t have a track record, look around at your competition. What do they charge for an hour of consulting? What do their sales letters refer to when talking about their time value?
But you have to be careful with this approach. Just because your competitor or your mentor is charging a particular amount does not mean that your time is worth that amount. There’s the experience and education factor you have to consider before you can match their value.
A word of caution: You never want to put a value on your time that is more than you have actually gotten paid. Unless you’ve been paid that amount, you can’t say you charge that amount. This is particularly true in sales letters where you are subject to governmental regulations. It is better to understate, than to over-inflate your rates.
Method 4: Internal Rate
Finally, there is the internal number. This is the amount you pay yourself – in your head. Twenty years ago when I started consulting, I read that if you got paid $50 per hour you would make a hundred thousand per year. That sounded good to me at the time, so I decided to consider my time worth $50 per hour.
So if it took me 30 hours to create a product, it “cost” me $1500. If it took me 5 hours to write a sales letter it cost me $250. And so on.
As my actual worth has increased I’ve also increased my internal number. At the same time I’ve gained expertise and speed. So a product that used to take 30 hours to create can now be finished and ready for sale in 15. It still “costs” me more because my rate has more than doubled – but I can create more of them in the same amount of time.
Start applying your new “time value” to the things you’re doing in your business. For example, if you spend an hour surfing the net, how much did that cost? If you spend an hour playing a game in Facebook – what was that worth to you?
And a final word of caution, from personal experience. I have tried using my real billing rate, currently set at $450 per hour, for personal costs. It doesn’t work. “I’ll fix dinner but it will cost you $450” doesn’t fly here at our house. Around here my rate is about $5 per hour. It just keeps you humble!
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Jeanette,
This is a very interesting post. After 35-years of self employment my “hourly rate” has been all over the place. About ten years ago I finally figured out I was not getting paid for my personal time and production costs on most of my projects. I started figuring that time and expense into my rate and my consulting/speaking business took a huge dive. Business lesson number 1,900, people do not respect nor care about your personal time and effort. They think all this knowledge and information falls from heaven. So I started looking for a better class of clients, and it worked. Bottom line…I undervalued my effort and time and so did my old clients.
FYI: my domestic hourly rate is about the same as yours and “I’m worth this” doesn’t fly around this house either.
I’m still cleaning out, are you?
Jeanette,
I have thought about this before and this is sort of a loaded question for me so here is what I have concluded. Determining the value of your time actually has many layers. Your time is worth the perceived value you provide. Your time may have a value of $500, but if the market doesn’t accept that, then it is not because the value you provide fluctuates depending on a what you are offering at the time. If you are offering something of a more complex nature, you may be able to charge more but there may not be as much demand.
The value of your time also depends on what you choose to do with your time. If you do something that you could outsource for $10 an hour, you have a self-imposed value of $10 for however long it takes you to complete whatever you’re doing.
Also, it’s good to know the next time I’m in Austin, I will need $5.00
Jeannette,
I’ve often thought about what the real-world costs would be for a working mom who manages the myriad of tasks involved in running a house, raising kids and performs her career tasks as well.
If we were paid what it could costs to outsource all that we do, no husband could afford us. That’s why sadly our $ value drops miserably, like your $5 dinner prep fee–when we cross the home threshold.
Thankfully we get paid in a very different currency at home: love, joy and a life full of memories.