It’s common practice to think about maximising your return on money invested and to have some kind of measure to track it but do you consider how to maximise your return on time?
The twin problems of:
- Lack of time; and
- Having too much to do;
are common issues for business owners and they can contribute to the business getting stuck in a rut. The business owner wants to move forward but seems unable to take the actions necessary.
This is why the thinking in the Stop Start More Less Matrix is important. It recognises that, to do something new or to do more of something good, you have to buy time from yourself.
Time is finite. No one has more than 24 hours in a day or 168 hours in a week.
Your task is to get the most out of the hours you choose to work in those 24 hours. In other words, your aim is to maximise your return on time. I first blogged about Return On Time in June 2009 while I was thinking about the importance of respecting the attention and time of your customers.
The Difference Between Rich And Poor People
I remember reading a quote that went along the lines of…
Rich people spend money to save time. Poor people spend time to save money.
I’m not sure where I got it from but it’s something that I’ve remembered over the years and quoted back to various clients when I’ve felt their use of their time was misdirected.
I suspect that those of us in the middle do both, we spend money to save time and to take advantage of convenience but we also spend time when we could be spending the money.
The trick is getting the balance right and there’s where thinking about your return on time and setting a target helps to guide your actions.
How Is Time Worth Per Hour?
When you employ staff and set their wages or salaries levels, you’re effectively setting a minimum expected return on their time that will also incorporate social security costs, pensions, holiday pay and benefits.
If employing Alan Brown costs you £22 per hour and you feel you’re only get back £15 per hour in value, it’s time for a tough conversion that may ultimately lead to saying goodbye to Alan Brown if his actions and effectiveness don’t improve.
On the other hand, Christine Dunn costs you £27 per hour to employ but you feel you’re getting back £120 per hour from her work activities. You don’t want to lose Christine because she’ll be hard to replace so, if you think she’s not feeling happy and fairly treated, and you think you might lose her, you could proactively increase her pay and benefits package to the equivalent of £35 per hour. You’re still winning big and you avoid the risk of her getting another job.
This return on time is easy to understand for employees but can be quite hard to apply in practice. In many cases, it’s more on gut feel than on absolute numbers although jobs like direct sales staff are easier to assess.
The Return On The Business Owner’s Time
With employees, the “deal” is fairly clear:
- For working a set minimum of hours;
- And completing certain activities and responsibilities;
- You’ll pay them a particular salary and benefits package and you may have a bonus scheme to encourage increased results.
As their boss, or the boss of their boss, you’ll be forming an opinion on whether they are working effectively and meeting their return on time objectives.
Your deal as the business owner is much less certain. There are no set hours, no set duties, you’re responsible directly or indirectly for everything and there isn’t a minimum salary that you’ll be paid.
If you don’t manage itself, your return on time could be all over the place.
Start by thinking about how much you’re worth per hour. It’s a hard question to answer but one way to start is by thinking about the deal you want with your business.
If you want an annual salary and benefits package with a total cost to the business of £100,000 and ideally, you want to work about 2,000 hours per year, then you have a target of £50 per hour.
Anything you do with a value of less than £50 per hour means that either:
- You’ll have to do another activity worth more than £50 an hour to provide the extra income. It’s important to maintain your average at £50; or
- You’ll have to work more hours. 2,500 at an average of £40 per hour still comes back to £100,000 for the year; or
- You’ll have to accept that you’re not going to have an income of £100,000.
What Reduces Your Return On Time?
There are three types of activity that will reduce your average time per hour;
- Activities worth something but less than your target rate;
- Activities of no practical value. They just consume your time.
- Activities with a negative business value. These make your business worse.
Activities worth something but less than your target rate
These are tasks that you should have delegated to an employee or perhaps subcontracted to a third party.
In my business, I still do my own bookkeeping and accounts. I have a very simple business but I can’t let go of this activity. I try to justify it to myself by saying that I want to keep my hand in and it lets me think about all my expenses.
Activities of no practical value
These are things that you do in your working time that are probably unrelated to work.
My big weakness is time spent reading about my favourite football team and contributing to a forum about them. What I intend as a five minute break to relax my mind can turn into a 60 minute indulgence. That’s time I should have been working that’s gone.
Activities with a negative business value
These are things you do that finish up having unintended negative consequences.
Obviously you’re not going to go and deliberately upset a large customer or a key employee but things happen.
Sometimes you’ll make a bad decision. As a result, you’ll lose money.
These activities are hard to avoid but you can make sure that you learn from your mistakes. You can hold yourself accountable, just as you would an employee who has found himself or herself in an unfortunate position.
How To Assess The Value Of Activities?
If you’re going to proactively manage the value of your time, rather than suffer the consequences reactively, you’ve got to think about what you’re going to do.
In particular, you need to think about how much something is worth for you to do it.
A good starting point is to ask how much it would cost you to pay someone else to do it.
Earlier, I mentioned my bookkeeping and, if I could outsource to a bookkeeper for £20 an hour and we were equally efficient, then my time has an opportunity cost of £20 per hour.
Alternatively a website designer may charge me £60 per hour to do a task but, if they can do it five times faster than I can, my return per hour plummets to just £12.
I shouldn’t be doing either if it’s time I could be spending helping paying clients and earning £100 to £150 per hour. My inability to let go is costing me money.
The tasks that you do may well be different but do you have the same problem?
Remember…
Rich people spend money to save time. Poor people spend time to save money.
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