💵 How to know when to outsource

Last week when I wrote about the best thing you can buy for your business, the concept of Effective Hourly Rate came up.

Your effective hourly rate (EHR) is how much you earn on average per hour.

As an employee, this is fairly easy to calculate. It is the rate your employer pays you per hour, minus your average necessary costs related to employment (your commute, for example). 

As a business owner, it is a little more difficult to get an accurate figure. The easiest way to calculate a rough enough number is how much money you personally draw (take home) per month divided by the number of hours you have worked in that time period. 

Knowing this number is more useful than it often seems at first. 

As an entrepreneur, you will do a lot of “unpaid” work - such as admin, learning new things, or responding to enquiries. People often forget to factor unpaid work time into their costs, pricing, or even their understanding of how much they make. Many people think they make the $250 per hour they bill, when they actually make $50 an hour after all the necessary additional work.

One of my favourite ways to use my Effective Hourly Rate is to help identify which tasks are worth my time and which I should outsource.

If somebody can do a task 80% as effective as I can but for a fraction of my EHR then they should be doing it instead of me. This helps me to identify key points of leverage, which can then be used to grow efficiently and effectively.

ACTION: Calculate your EHR

Do it right now. It should take 1 minute. Calculate your Effective Hourly Rate. Even if you have done it before, do it again. It is worthwhile tracking your EHR regularly.

EHR = How much you earned divided by how much time you worked to earn it

Ideally, take the figures from real data for over the last year (how much you earned last year vs how many hours you worked).

If you don’t have real data, such as if you haven’t tracked the amount of hours you worked, make an educated guess. It is easier to do this for a shorter time period, such as over the last week or the last month. How much I made last week vs how many hours I think I worked last week.

An estimate right now is worth more than having absolutely no idea.

Guesstimate, then start tracking so you can improve your awareness in the future.

Did it take you longer than 1 minute to calculate your EHR? You will want to improve your income tracking and time tracking.

I shared this in my Work Smart Wednesday newsletter. Want the full set of related insights? You can read them here: https://worksmartwednesday.substack.com/p/work-smart-wednesday-february-7-2024

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