What is your time worth?
What is your time worth? Do you have an hourly rate? Perhaps a per-project system you rely upon? Two weeks ago, my nine-year-old asked me an excellent question. She wanted to know if it was less expensive to buy a McFlurry from McDonald’s or buy the ingredients and make it at home.
The accountant in me was so excited to figure it out. We went home and did research and math. Then, we found a recipe, reviewed portion size and figured out each ingredient’s cost to make the McFlurry. We came up with the price (I’ll tell you the answer at the end). But a big question came up….how much do we add for our time and energy?
This, too, is a big question that our clients face. How do you know how much to charge for the job you do or the time it takes you to make the product you produce? What is your time worth? Equally, when should you outsource a task so that your time is better spent on income-producing results? Let’s look at an example of a Do-It-Yourself project:
It’s 1:00 pm on a Saturday. You are scrolling through social media and see a table that you want for your house. You think to yourself, “I could make that myself.” Moments later, you are on Pinterest looking for inspiration on how to execute.
It’s now 90 minutes later and at 2:30pm, you leave home to drive to the local hardware store to get all the supplies. You spend $30 on supplies though you won’t need all of them. Since you bought the smallest quantity available, you will have about $10 worth of extra supplies.
When you get home at 4:00 pm, you get right to work on what was assumed to be (and maybe even pitched via video as) a 1-hour project. At 6:00 pm, you are finished. Two hours of elbow grease and you find you are pleased with your handy work. You sit back and admire what you created.
Now, let’s revisit how much the project actually cost you.
Most of the time, when I ask people this question the immediate response of people is the answer $20. They take the cost of the supplies less than what is left over. Others will declare that the price is $30 because the waste is part of the total cost of sunk costs.
Few remember to add the gas money, and even fewer remember to add the value of their time for the project. If you didn’t consider either, no worries. It’s rare that we account for such unless it becomes a habit. Again, we ponder, what is your time worth?
Adding up the time you spend researching on Pinterest, commuting to the hardware store, shopping, and searching for the items, commuting back home and, of course, the assembly, will give you a total time that far exceeds the two hours of production.
So, the question remains, if you were to sell that same table you poured your time, talent and tools into, would you still feel that the wage you would value the table at was consistent with what you spent on supplies and assembly alone?
The gears are turning, I bet…
One of our clients has a day job in a state department office. He also has a side job where he does handyman jobs of all kinds in his neighborhood. When asked how he comes up with his hourly rate for his side jobs, he said he takes his hourly rate from his day job and charges the same price.
This methodology I highly discourage and even reject. Your current employer is paying you based on the job you are doing for them, not the value of YOU.
Another standard method we hear is to take the hourly rate of your day job and double it. Many people think this is a more accurate representation of total compensation that your employer provides, including taxes, insurance, etc. Again, we challenge the idea that your value is the same as that amount any employer would pay you. So, what is your time worth?
The truth is the value of your time is the combination of the emotional enjoyment you get from it and the market value you could have earned if you had been working if doing the same task for someone else.
Let’s assume the client mentioned above is the DIY project maker in this scenario. His day job pays him $30 an hour, and the market value for the handyman is $100 an hour. He also really loves doing his side job and views it as a community service and hobby.
His rate should be between $80-$100 an hour. If the handyman job is extra income needed to put food on the table, but he does not enjoy it, we would value the rate at $110-135 per hour. This way, he can modify his prices as demand increases or slows down.
Back to the table. The truth is that if you enjoyed making the table, it was a stress release or creative outlet and benefited in more ways than one, the cost that you can “charge yourself” for this project is lower than if you found this job to be emotionally or physically daunting. You may get to the end of the project and realize that it cost you $30 in supplies and an additional $75 in time for the labor and gas money. However, had you bought it at retail, it would have only been $50 to purchase in-store.
If you enjoyed it, great. That additional money spent beyond the cost to buy it outright went towards a fun project that you enjoyed. Any extra cost was entertainment value.
Contrary to the above, if the project added strain to your schedule and created a mess that you had to clean up for hours, it was far too expensive and turned a $50 table into one that cost you much more than $30 in supplies. It also cost you the additional labor and fuel as well as drained your time for several hours. Hours that could have been focused on income-producing or money-saving ventures, time with family or rest. What is your time worth?
Many would call this a #fail.
The McFlurry ended up costing us $2.69 at McDonald’s or $1.67 to make at home. But we had LOTS of ingredients leftover which turned into sunk costs unless we use them in the near future. With the sunk costs, it was $17.98. If we buy more supplies to use all the ingredients, we could make 64 servings averaging costs to $9.55 per item.
We decided to add $5.00 an hour to the cost of the McFlurry. It took 41 minutes in total to go to the store and make it. My daughter and I chose this amount because we wanted to try the experiment and were excited to do so, but at the end of it did not taste great so we were not satisfied with the end product nor the cost of production.
We now know that economy of scale in making a McFlurry, and the value of the product we produce will play a big part in the valuation of our product. Ultimately, we would rather raise the funds or budget our time to produce the income to BUY a great-tasting McFlurry, than spend time, money and resources on a sub-par McFail.
How do you find your hourly value?
This very type of exercise can help you immensely in your business. Whether it is deciding whether or not to outsource a project, bring in an expert or similar, when you know the value of your time (especially hourly), you can quickly assess whether something is worth what you’d “save” doing it in-house or on your own.
Call Two Sense Consulting, LLC. We can walk you through new ways to consider your product and your labor value. Making it easy to answer, “what is your time worth?”