We’ve all heard that “time is money,” right? Well, it’s true. And most of you probably know that determining the value of your time can be the first step in becoming a more effective professional.
You may have even tried using your hourly rate to make better time management decisions. But if you are a salesperson, you’re selling yourself short when you calculate the value of your time using the traditional “hourly rate” formula. There’s a much better way.
The traditional formula generates the magic number by dividing your gross annual income by the number of hours you work in a year. For someone making $150,000, for example, the classic calculation looks like this:
|1.||Total annual income||$150,000|
|2.||"Working Hours" in a year||52 weeks x 40 hours = 2,080 hours|
|3.||Hourly Rate (1. divided by 2.)||$150,000 / 2,080 = $72.13|
Traditional hourly rate: $72.13
The traditional hourly rate method falls short—especially for sales professionals—for a number of reasons. It doesn’t take into account the weeks you weren’t selling due to holidays, vacations, or conferences. It assumes a 40-hour work week, which is rarely true. And it doesn’t account for the fact that many of your “working” hours are spent doing non-sales tasks (i.e., stuff you’re not paid to do).
How Much Time Do You Spend Producing Income?
When you’re looking to find the true value of your time, you should be focusing on the time you spend on your income-producing activities (IPAs), as that’s the time when you’re really contributing to your bottom line. To dive into more detail about how to determine which of your daily activities are actually income-producing ones, check out my recent blog post on IPAs.
You don’t want to include non-income-producing activities in the calculation of your true hourly rate, and as a rule of thumb, non-IPAs are things that someone else could easily do for you. For example, administrative tasks or managing your email is a non-IPA in general. Sure, you have that one email that you send in a month that closes a deal, but largely, that’s not the case. And yet, Microsoft Outlook has shown that email takes up roughly 35% of your day. Isn’t that silly?
Calculate the TRUE Value of Your Time
So what can you do to reduce the time you spend on email and other non-IPAs so that you can spend more time on the things that actually make you money? Well, you can start by calculating your true hourly rate to see what the real value of your time is. This number can help you make a mental shift to focus on reducing or eliminating non-IPA hours so that you can increase the time you spend on IPAs without unnecessarily extending your working hours.
The New Formula:
Get started by collecting the following information to complete the exercise below:
|1.||Total annual income?||(This is your gross annual income)|
|2.||Total hours worked each week?||(Hours you work per week on average)|
|3.||How many of those are spent on IPAs?||(Income producing hours only)|
|4.||Weeks worked on IPAs each year?||(weeks actively selling/closing)|
|5.||Total IPA hours||(3. multiplied by 4.)|
|6.||TRUE Hourly Rate||(1. divided by 5.)|
Weekly IPA Hours
The magic starts with step 3—instead of looking at all the hours you spend working, we only want the number of hours in an average week that you actually spend on income-producing activities (Remember: IPAs generate revenue, build relationships, or save time). If you’re not sure, a good guess is about half—and probably less if you work more than 40 hours a week.
IPA Weeks per Year
Step 4 forces you to look at weeks when you are actually closing deals. We all know that there are 52 weeks in a year, but I suggest that you remove one week for the 4th of July, a week for Thanksgiving, one week for Christmas, and another week for New Year’s. You may be working some during those weeks, but it’s traditionally very difficult to close deals during those weeks, so I tend not to count them as IPA hours. In addition to deducting those four weeks, think about how much time you take off for spring break, fall break, summer vacations, and deduct that time as well to get your total number of annual IPA work weeks.
True Hourly Rate
For step 5, simply multiply your weekly IPAs hours (from #3) by the number of IPA-focused weeks you work per year (#4)—this is your IPA hours per year. Lastly, divide your annual income (#1) by your yearly IPA hours (#5) to get your true hourly rate.
For someone making $150,000 per year, the updated calculation might look like this:
|1.||Total annual income||$150,000|
|2.||Weekly hours worked||50|
|3.||Weekly hours on IPAs||20|
|4.||Weeks worked on IPAs||48|
|5.||Total IPA hours (3. multiplied by 4.)||20 x 48 = 960|
|6.||TRUE Hourly Rate (1. divided by 5.)||$150,000 / 960 = $156|
TRUE hourly rate: $156.00
(Remember: The traditional hourly rate was only $72.13!)
As you can see, there can be a huge difference in your hourly rate when you consider all these factors!
Knowing this number can help you determine if it’s worth the cost to automate or delegate certain non-IPA tasks. The salesperson in our example above makes $156 every hour that she works on an IPA. It would be a no-brainer for her to pay someone $50 to do a non-IPA like book her travel, finalize proposals and make copies or coordinate schedules for a meeting. That is, as long as she used that newfound hour to sell. She could pay an assistant $25 per hour—even if it took them five times longer to do it! (Because $25 x 5 = $125, which is still less than $156.)
Keep it Front and Center
I recommend that after doing this exercise, you take your true hourly rate and write it down on a sticky note and tape it to your computer monitor or laptop. This way, every time you find yourself getting lost on the Pottery Barn website because they sent you a promotional email (or deleting emails out of your inbox for an hour), you’ll stop to consider if this activity is really worth $156 of your time.
If you’ve made it all the way to the end of the blog post, here’s your mission—do the calculation! I’ve done this activity with hundreds of salespeople across the country, and I’ve seen them have major breakthroughs on the spot. Once you know the real value of your time, you can finally make some changes with how you manage it. Take 3 minutes—right now—and calculate your true hourly rate.
Were you surprised? What changes are you going to make? Drop me a line on social media or in the comments below. I’ll look forward to hearing from you!
Until next time—go sell some stuff!