How to value your time - Dollarizing. A short excerpt from Start Small, Stay Small: A Developer's Guide to Launching a Startup by Rob Walling
I like this book by Rob Walling a lot, and it is obviously a book written by someone who lives business. His viewpoint on the value of your time is great, so I thought I would pass it on.
Start Small, Stay Small: A Developer's Guide to Launching a Startup
by Rob Walling
Changing Your Time Mindset
It’s a big leap moving from employee to entrepreneur. One of the biggest adjustments is accepting that time is your most precious commodity. Dollarizing The phrase “dollarize” is used in sales to describe the approach of showing your prospect how your price is less expensive than your competition due to the amount of money they will save in the long run. For example, you can dollarize a screw10 by showing how your deliveries are always on-time, your defect rate is half that of your competitors and your screws can withstand an additional 500 lbs. of stress, each resulting in time saved in material handling and warranty calls. If you take it a step further and you possess the appropriate data, you can approximate how much money your screws will save your prospect in a given year based on the number of times your competitors deliver late and how many defects the customer will avoid by using your screws. It’s a powerful technique and a way to turn an otherwise commodity purchase into a bottom-line savings.
Dollarizing Your Time In the same vein, dollarizing your time is the idea of putting a theoretical dollar amount on each hour you work. If you value your time at $100/hour it makes certain decisions, such as outsourcing work to a $6/hour virtual assistant, a no-brainer. Putting a value on your time is a foundational step in becoming an entrepreneur, and it’s one many entrepreneurs never take. Skipping this step can result in late nights performing menial tasks you should be outsourcing, and an effective hourly rate slightly above minimum wage. It never seems like a good idea to pay someone out of your own pocket for something you can do yourself…until you realize the economics of doing so.
Approaches to Dollarizing Your Time There are two approaches to dollarizing your time. Choose the one that makes the most sense for your situation.
Approach #1: Freelance Rates If you are a freelance developer or consultant, you probably have an hourly rate. This is a good place to start. If you bill clients $60/hour, then an hour of your time is worth $60. If you don’t perform freelance work, do a search on Craigslist or Guru11 for freelancers in your local area with similar skills. As a developer with a few years of experience you’ll likely see rates in the $40 and up range. Frankly, if you have no other information, stay at $50/hour is a good number to start with.
Approach #2: Salary If you don’t perform freelance work or have difficulty finding comparative freelancers online, another approach is to divide your current salary + benefits by 2,000 (the approximate number of hours worked in a year), rounded up to the nearest $5 increment. It varies widely, but a typical benefits package including 401k matching, disability insurance, health care, and time off can range from 20-45% of your salary. You can come close to determining the real dollar amount using your pay stub and a bit of math, but if you just want to take a swing at it use 30%. So if your salary is $60,000 per year, 30% of that is an additional $18,000 making your effective salary $78,000. $78,000 divided by 2,000 gives you an hourly rate of approximately $39/hour, or $40/hour when rounded up to the nearest $5 increment.
Be aware that freelance rates are nearly always higher than salaried rates because freelancers spend a portion of their time on non-billable tasks such as invoicing, marketing, sales, etc… They have to increase their billable rate to make up for these non-billable hours. Ultimately it’s up to you, but I would tend towards using the higher freelance rate for your time, especially since it’s closer to what you would receive on the open market if you chose to pursue freelance work.
Realizations Several realizations stem from dollarizing your time.
Realization #1: Outsourcing is a Bargain Once you’ve established you’re worth $50/hour, paying someone $6/hour to handle administrative tasks or $15/hour to write code seems like a trip to the dollar store. Outsourcing aspects of your business is the single most powerful approach I’ve seen to increasing your true hourly rate as an entrepreneur.
Realization #2: Keep Work and Play Separate Wasting time is bad. Boring movies, bad TV, and pointless web surfing are expensive propositions. If you aren’t enjoying something, stop doing it
Work hard and play hard, but never do both at once.
Realization #3: Wasting Time is Bad If your time is worth, say $75/hour, standing in line at the bank is painful. Sitting in traffic is another money waster – every non-productive, non-leisure minute you spend is another $1.25 down the drain. Since it’s not practical to assume you will never wait in line again, the best counter-attack is to have a notebook and pen handy at all times.
Realization #4: Information Consumption is Only Good When it Produces Something The following discussion excludes consumption for pleasure, such as: reading a novel, watching The Daily Show, catching a movie, etc. Consuming and synthesizing are very different things; it’s easy to consume in mass quantity. It’s much more difficult to synthesize information. Have you ever read through an entire magazine only to realize you can’t remember any specifics about what you just read? As someone who likely enjoys consuming in large quantities, at some point you will realize that you are wasting an enormous amount of time. I highly recommend putting the following into place: When reading blogs or books or listening to podcasts or audio books, take action notes. Action notes are short- or long-term to-do items that apply directly to my businesses.
For example, I listen to several SEO podcasts. If they mention an interesting website, I make a note to check it out the next time I’m able. As they mention a new SEO technique I create a specific to-do to try that approach on one of my websites. I make the action note specific so I can act on it quickly the next time I have a few spare minutes. If I were to write something general like “Google Webmaster Tools,” it doesn’t help me. But if I write “Create Google Webmaster Tools Account for DotNetInvoice,” I can act on this quickly and cross it off my list without having to do much real thinking. Action notes allow you to quickly determine which resources provide real value and which are fluff.
Start Small, Stay Small: A Developer's Guide to Launching a Startup
“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.
— Charles T. Munger”
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