Hourly Rate Magic Ep 241

Summary Notes


In a discussion focused on entrepreneurial efficiency and value assessment, the speakers unpack the significance of understanding one's true hourly rate, which is based on profit rather than revenue. They emphasize the importance of this metric in determining which tasks are worth an entrepreneur's time and which should be outsourced. The conversation, led by Speaker A, delves into the practical application of this concept, illustrating how entrepreneurs can use their hourly rate to make informed decisions about task delegation, scaling their business, and personal spending. Speaker D also encourages listeners to support the podcast to aid the entrepreneurial community. The dialogue ultimately centers on the strategic elevation of an entrepreneur's activities to maximize profitability and time management.

Summary Notes

Understanding Hourly Rates for Entrepreneurs

  • Hourly rates for entrepreneurs are often misunderstood as they tend to reference revenue rather than profit.
  • The true hourly rate is calculated based on profit, not revenue.
  • A simple formula to determine an entrepreneur's true hourly rate involves dividing the annual profit by the number of hours worked in a year.
  • The standard calculation uses 2,000 hours as a baseline, representing a 40-hour workweek.
  • Working more hours per week (e.g., 60 or 80) decreases the hourly rate when the annual profit remains constant.

"So one of the interesting things about being an entrepreneur is that we don't always know what our hourly rate really is, right? We like to say we make x per hour or whatever it is, right. But do you really know what your true hourly rate is? It's not your revenue."

This quote emphasizes the common misconception among entrepreneurs regarding hourly rates, highlighting that revenue is not an accurate measure of what one truly earns per hour.

"It is your profit. And so a quick back of Nappian formula can get you to what your true hourly rate is."

Here, the speaker clarifies that the true hourly rate is derived from profit, not revenue, and suggests that a simple formula can be used to calculate it.

"Now if you take that number and divide it by 2000, which is roughly a 40 hours work week... That means you make $25 per hour."

The speaker provides a straightforward method for calculating the hourly rate based on a standard workweek, giving a concrete example to illustrate the concept.

The Impact of Work Hours on Hourly Rates

  • The number of hours worked per week directly affects the hourly rate when the annual profit is fixed.
  • An increase in weekly work hours results in a lower hourly rate.
  • Understanding this relationship can be sobering as it may reveal a lower value of time than initially perceived.

"Now here's where it gets interesting, is that if you think that you work 80 hours a week, then it doubles and you're making per hour cuts in half."

This quote highlights how doubling the number of work hours, such as from a 40-hour week to an 80-hour week, inversely halves the hourly rate.

Quantifying Activities Based on Hourly Rates

  • Entrepreneurs can use their true hourly rate to make informed decisions about which activities to engage in.
  • Awareness of one's hourly rate can challenge the perception that certain work is beneath them.
  • Recognizing the actual hourly rate can lead to more practical decisions about task delegation and time management.

"But the reason that I like to bring it up is because there's two ways you can use that number to quantify what activities you want to engage in, right?"

The speaker suggests that knowing the hourly rate can be a useful tool for entrepreneurs to evaluate and choose their activities strategically.

"The thing is, if you actually look at their numbers, it's actually not beneath them. It might be higher than what they're currently making."

This quote points out that entrepreneurs may undervalue certain tasks without realizing that these tasks could be economically beneficial compared to their current hourly earnings.

The Importance of Realistic Financial Self-Assessment

  • Entrepreneurs should focus on reality rather than fantasy when assessing their financial performance.
  • Honest evaluation of profit and work hours is crucial for accurate self-assessment.
  • Acknowledging the reasons for not achieving higher profits can help in setting realistic business goals.

"But let's just talk about reality, not fantasy."

The speaker urges entrepreneurs to ground their financial assessments in reality, avoiding the pitfalls of wishful thinking.

"And the reasons why it isn't as high as it should be, right?"

By questioning the justifications for lower profits, the speaker encourages entrepreneurs to critically examine the factors affecting their financial outcomes.

Understanding the Value of Time

  • Recognizing the worth of one's time is crucial for personal and professional development.
  • Assigning a monetary value to time helps in identifying activities that are not cost-effective.
  • The goal is to progressively engage in higher-value activities and delegate lower-value ones.

The next thing is that it also allows you to draw a line in the sand and say, over time, I want to decrease the activities that I could replace with someone else doing this for me for less than what I currently make per hour.

This quote highlights the importance of valuing one's time to prioritize tasks and delegate those that can be done at a lower cost, thereby focusing on more valuable activities.

Ladder of Skill Set

  • Outlining a hierarchy of tasks that can be outsourced based on their complexity and value.
  • The process starts with outsourcing basic services and moves up to administrative, financial, sales, and marketing tasks.
  • This strategy is meant to align with the individual's hourly rate and skill level.

Now, the first thing that many people have to outsource in a baseline service is just the actual low level fulfillment of what they're doing, right?

Speaker A discusses the initial step in the outsourcing process, which involves delegating the most basic and low-level tasks.

Quantifying Purchases in Terms of Time

  • Evaluating purchases based on the amount of work time they equate to can influence spending habits.
  • This method can serve as a reality check, helping to maintain a budget and make more conscious decisions about spending.
  • The speaker uses a personal anecdote to illustrate the concept and its impact on financial choices.

And so if you look at your purchases, if you look at your real hourly rate and then you look at the purchases that you make, would you then say, I would spend 4 hours of my time working to get that? A lot of times it's sobering and you're like, no, I actually wouldn't do that.

This quote explains how assessing purchases against the time required to earn the money for them can lead to more prudent spending, as one might reconsider if the expense is worth the hours of work.

Podcast Support Request

  • Speaker D emphasizes the non-commercial nature of the podcast.
  • The podcast operates without ads or sales, relying on audience support for growth.
  • Audience members are encouraged to spread the word to assist entrepreneurs.
  • Rating, reviewing, and sharing the podcast are requested actions.

Real quick, guys, you guys already know that I don't run any ads on this, and I don't sell anything. And so the only ask that I can ever have of you guys is that you help me spread the word so we can help more entrepreneurs make more money, feed their families, make better products, and have better experiences for their employees and customers.

This quote highlights the podcast's mission to support entrepreneurs without the use of ads or sales, and the importance of audience engagement in achieving that mission.

If you can rate and review and share this podcast. So the single thing that I ask.

Speaker D is requesting the listeners to engage with the podcast by rating, reviewing, and sharing to help reach more entrepreneurs.

It would mean the absolute world to me. And more importantly, it may change the world for someone else.

Speaker D expresses the personal significance of audience support and its potential broader impact on others.

Ego and Entrepreneurship

  • Speaker A discusses the role of ego in business decisions.
  • Ego can prevent entrepreneurs from engaging in profitable activities.
  • Speaker A shares personal experience from managing gyms and the importance of selling.
  • Emphasizes the high value of personal selling time versus other activities.
  • Advises against outsourcing sales too early due to limited resources.
  • Encourages focusing on revenue-generating tasks and outsourcing non-essential tasks.
  • Highlights the cost of training new salespeople and the lost opportunity revenue.

The other real interesting piece about this is kind of what I was touching on earlier, related to ego, is that it's just so many times we don't want to do activities that we know will generate money because we have some sort of ego associated with it.

Speaker A introduces the topic of how ego can negatively influence business decisions by avoiding profitable activities.

And so when I had my gyms and I had six of them, I still was selling every day because I knew what I made per hour.

Speaker A provides a personal anecdote to illustrate the value of direct selling in their own business experience.

And so I see people right now who don't want to take sales calls way too soon because you don't have the bandwidth, you don't have the margin, you don't have the padding to outsource your sales so soon.

This quote advises entrepreneurs against outsourcing sales too early, emphasizing the necessity of building sufficient business resources first.

Instead, outsource everything else that's not revenue generating, so that you can focus all of your time on that thing until eventually you acquire the next skill set that you can bring someone else in and you have enough margin, you have enough padding so that you can take a decrease in sales.

Speaker A recommends prioritizing revenue generation and outsourcing less critical tasks to maximize business growth and prepare for future scaling.

Because once someone comes in, the most expensive part of sales is them not selling. That's the cost of getting someone new, and it's the lost opportunities, the revenue that you should have made, that you would have made if you had been selling.

The quote emphasizes the hidden costs associated with training new salespeople, including the lost revenue opportunities during the learning period.

Quantifying Time and Purchases

  • Speaker D advises on how to value one's time by quantifying hourly earnings.
  • Suggests calculating earnings based on a standard work year and actual hours worked.
  • Recommends assessing purchases by the amount of time needed to afford them.
  • This approach helps in making informed decisions on spending and time management.

First, quantify how much you actually make per hour in the real world. Number two, and you do that first on 2000 hours, but then you can do second on how many hours you actually work, which is probably more than that.

Speaker D provides a method for determining the true value of one's time, based on both a standard work year and actual hours worked.

Next, reverse quantify your purchases. Quantify your purchase in terms of how much time it would cost you to get that thing.

This quote suggests a technique for evaluating potential purchases by the amount of work time required to make the purchase, aiding in financial decision-making.

Time Management and Efficiency

  • Emphasizes the importance of conducting a time study to understand where time is spent.
  • Suggests using an Excel sheet with 15-minute increments to track daily activities.
  • Highlights the potential time and productivity savings from understanding and managing one's time effectively.
  • Encourages the practice of regularly assessing and optimizing time usage.

"And the next piece of this is making sure that when you look at all the activities that you're doing, an easy way of doing this is doing a time study, which every time I've done a time study, I always tell myself I'm going to do it again every month and I don't. But I end up doing one like once a quarter or twice a year."

This quote explains the speaker's personal experience with time studies and suggests their usefulness despite the difficulty in maintaining the habit of conducting them regularly.

"If you think this will take you time, it will save you so much time and productivity. I promise you that the ten minutes of actual writing that it will cost you will cost you far less in the amount of time that you want to now get credit for working well and working efficiently."

The speaker assures that the initial time invested in tracking activities will ultimately lead to greater time savings and increased productivity.

Entrepreneurial Journey and Skill Development

  • Describes the entrepreneurial journey as a progression of skills and responsibilities.
  • Outlines the stages of doing tasks, managing those who do tasks, leading managers, and ultimately guiding strategy.
  • Stresses the importance of guiding culture and attracting high-level talent as an entrepreneur.
  • Connects the development of higher-level skills to the concept of leverage in business.

"Because ultimately, if you think about the entrepreneurial journey from a spiritual standpoint, from a skill standpoint, is that all we're doing is practicing higher level skills with more and more leverage."

This quote reflects on the entrepreneurial journey as a process of mastering increasingly complex skills and gaining leverage.

"First we're doing the things, then we're managing people who do the things, then we're leading people who manage people who do the things. And then we're simply thinking and guiding things strategically."

The speaker breaks down the entrepreneurial progression into stages, highlighting the shift from hands-on work to strategic leadership.

Outsourcing and Valuing Time

  • Discusses the concept of understanding one's hourly rate to evaluate the worth of activities.
  • Encourages outsourcing lower-value tasks to focus on higher-value activities.
  • Suggests that recognizing the true value of one's time can lead to more effective business decisions.
  • Advises a bottom-to-top approach to outsourcing, replacing tasks that can be done at market value without sacrificing quality.

"Anything that's below this I shouldn't do, but anything that is above this I should do right? And then over time, outsourcing the activities from bottom to top of what you can replace at market value for an equivalent level of service."

This quote advises prioritizing tasks based on their value relative to one's hourly rate and suggests a strategic approach to outsourcing.

Encouragement and Conclusion

  • The speaker concludes by hoping the listeners found the talk valuable.
  • Asks for engagement from the audience through comments, likes, and shares.
  • Wishes the audience a great Tuesday and signs off with a positive note.

"So anyways, hope that was valuable for you. If you think that was useful, please drop a comment or a like share with friends and all of that good stuff. So have an amazing Tuesday. Catch you guys soon. Lots of love and bye."

The speaker wraps up the discussion, encourages audience interaction, and leaves with a friendly farewell, reinforcing the conversational and supportive tone of the podcast.

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