It’s a pretty simple question, and the answer can help you make a variety of business decisions, from maximizing your productivity to deciding which tasks to delegate or outsource.

But although the question is simple, it can be challenging to come up with a good answer. Researching how other people value their time won’t help you much, because it’s a very individual calculation. And the result will vary extensively depending on what kind of work you do, where you live, how much you earn, how much you expect to earn in the future and more.

So today we’ll talk about how you can calculate the value of an hour of your time/labor. We’ll walk through the process step by step, and we’ll talk about what you can do with that information and how you can use it to make better business decisions.

So, let’s get started!

Why It’s Important to Know What Your Time Is Worth
Your time is a limited resource, and how you use it can make a big difference to your life and your business. Knowing how much each hour of your time is worth can help you make the soundest decisions for your business and your life.

For example, when should a business owner consider outsourcing work? Without knowing how much your time is worth, there’s really no rational way to make that kind of decision. You’ll have to make the call based on your gut instinct or guesswork, and often your instinct will be to save the money and do everything yourself, which can easily lead to overload.

How to Calculate the Value of Your Time
Step 1: First of all, you’ll need to calculate how much money you earn over a particular period – per week, per month, or per year – whichever makes the most sense for your particular situation.

What you’re looking for is your after-tax income – the amount you actually have available to spend, after taxes have been deducted. For salaried employees and freelancers, this number is pretty easy to come by. But if you own a business, it’s a little more complicated.

You’ll have your salary and any other direct compensation you take from the company, but you’ll also need to add in your share of any profit the company makes, even if it isn’t directly paid out to you. After all, this is value you’re adding to the business, and we want to take that into account.

Step 2: Now, determine how many hours you worked during that period? Include not just time spent in the office, but time spent on things like travelling, answering emails at home and so on.

If you don’t already track your time, I’d recommend trying it, at least for a week or two, to get a clear idea of where it all goes – the results can be surprising! But if you don’t want to do that, just try to make your best estimate by thinking back over your schedule for a typical week.

Take into account all the time you spend on anything related to work – the total will probably be much higher than your official working hours or billable hours.

Step 3: Here’s the formula: Value of time = Total net earnings / Number of hours worked.

So if you work 2,000 hours a year for an annual salary of $100,000, the value of your time is $100,000 / 2,000 = $50 an hour.

Keep in mind that this is just a simple, rough calculation at this stage.

Step 4: The above calculation gives you a baseline. For some people, it may be pretty accurate as it is, but for others, it may need some refining. Even if your income is quite stable and predictable, you may want to ask yourself some questions to help you refine the figure you arrived at and make sure it’s correct.

For example, how much would you pay someone to do what you do? What’s the going rate for that kind of work in your industry? Do you think that, if you worked an extra hour, you could increase profits by the amount you’ve valued your time to be?

How to Use the Information
So now you know what an hour of your time is worth. What can you do with that information?

Start by taking an inventory of everything you do right now. Come up with an accurate hourly breakdown of the tasks you undertake in a typical week and then research the cost of outsourcing those tasks. If you can hire someone to perform those tasks for less than your own time is worth, it’s a wise investment.

For example, let’s say you spend five hours a week on general administrative tasks that could be performed by a virtual assistant (VA). If your time is worth $50 an hour, then any VA who charges less than that hourly rate will be a good investment for you.

Follow the same process for a range of other tasks, like cash flow management, strategic business planning, estate planning, accounting, tax preparation, etc. If someone else will do the work at a reasonable rate and if you’re happy with the results, then it’s a good investment.

It will give you more free time to work on important things that will contribute to the growth and health of your business. This includes more important tasks such as improving your marketing efforts, getting new clients, client retention, etc.

Similarly, apply the same criteria to new opportunities that arise. Think about how much you’ll make and how much time you’ll need to invest, and if the hourly rate comes out higher than what your time is worth, it’s a good opportunity; if not, you may want to decline, unless there are other important benefits.

The Bottom Line
Now you know how to calculate the value of your time and how to assign a dollar value to each hour. And you know how to use that information to make better business decisions.

What you’ve learned today gives you a good way of making decisions with more clarity about the financial impact. But you can always override that or adjust it to take account of things that, despite having no monetary value, are still important to you.

How We Can Help
In observance of Labor Day, we urge you to provide us with an opportunity to show you how our CFO On Demand services can free up your valuable time so you can focus on issues and tasks that are more suited to your area of expertise.

Call us today to schedule a consultation – we’ll show you how to stop the time-draining activities that are robbing your business of energy, direction, and most importantly, cash!

Happy Labor Day!
Best regards,


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