How to Calculate the Value of Your Time
At some level, we all have an internal gauge of how much our time is worth. For example, if someone were to offer you £1 for an hour of your time, you would (presumably) decline, however, if you were subsequently offered £1,000, you would likely say yes.
Clearly, our “hourly worth” lies somewhere between the two extremes and it is in this grey area that we often struggle to define the value of our time.
Fear not, however, as there is a means to better understand the value of our time and clarify how to use it best.
To know and apply this simple construct can be something of a paradigm shift, resulting in a significant step forward for you and your business. However, please note that the following calculation is fairly crude and certainly not a hard and fast rule to be followed unquestionably.
How to Calculate the Value of Your Time (an Imprecise Science)
The following calculation can be based on actual earnings. If you have a fixed salary for example, or a target income figure. Most of us are likely working towards a target income, so for the purposes of this example, let’s say that our revenue target is £100k per annum.
Side note: calculation of your target revenue should not be this arbitrary. It is an exercise in and of itself and should take into account things like business costs (including your own salary — surprisingly often overlooked), desired profit margin etc.
Using this revenue target of £100k, your weekly rate is therefore approximately £2,100 — calculated by dividing £100k by 48 (52 weeks in a year, minus four weeks for holidays etc).
Further dividing by five (the number of typical working days in a week) gets you to a daily rate of £420. Obviously, you can take this one step further to work out an hourly rate, should you require it: £420 / 7 = £60 per hour.
How to Use This Figure
This exercise can be used for calculating an hourly or daily rate to support quotes sent to prospective clients. However, I would suggest a more scientific approach, such as an internal rate card, that takes into consideration other factors such as fixed and variable overhead, desired margin etc.
The purpose of this calculation, therefore, is to illustrate that not all uses of time are equal and to highlight the necessity of appropriate delegation.
As someone who effectively trades time for money, as many startup business owners and entrepreneurs do, I know that learning how to build a website is not an effective use of my time. It would make much more sense to expedite this process to a professional (read: someone with vastly greater experience than myself) for a fee.
To put this into practical terms, a website might cost £1,500 to build.
Understanding that your daily worth (or your business’ daily worth) is effectively £420 per day, if you could learn to design and build a website within three days, doing so might be worth your time. If it in fact takes you 15 days, you are effectively sacrificing £6,300 of your time that could be better utilised elsewhere.
The practicalities of finding 15 days of time aside, this also doesn’t take into consideration the fact that the website will likely be significantly inferior to that of one built by a professional.
Of course, you could argue, “I can just work more hours”. I understand this sentiment, as I’m sure anyone in the startup world does, but ask yourself: is this really how you want to work? At what point do you learn to delegate and / or outsource appropriately and turn your attention to growth rather than saving money?
Moreover, if you intend to be in this for the long-term, you need to be aware of your inherent limitations both from a time and energy standpoint. Burnout has recently been recognised by the World Health Organisation as a bonafide health issue and the startup culture of “hustle” is finally seeing a much needed realignment with reality.
There will be situations where your finances will not permit the delegation or outsourcing of tasks that do not meet your hourly worth. In such instances, the minimum viable product may be all that is required. However, I would reiterate that such decisions be made with a long-term, holistic view of the value of your time. This is a flexible and fluid calculation but one that can help you get to a point where you can delegate and / or outsource duties below your hourly worth index.