One of the most important math calculations in an entrepreneurs toolbox is knowing what the value of an hour is worth. We tend to call this calculation ‘dollars per hour,’ as in, “I just billed out $200 per hour,” or “I make $100 per hour.” We hear and see this fairly frequently in forums where appraisers are talking about bidding on work and how much one should aim for when deciding how much to bid on an appraisal order. One of the first thing we start coaching appraisers on when it comes to their financial picture is to know what their ‘dollars per hour’ looks like, realistically.
For example, if you billed out and received $100,000 in revenue last year, to solve for your dollars per hour you’d need to do 3 more calculations: subtract how much it cost you to deliver that $100,000, then subtract your tax on the remainder, and finally, divide that number by the total number of hours it took you to produce that $100,000. So, $100,000 minus $15,000 in costs (this is just a hypothetical number, yours might be more or less) leaves you with $85,000. Then you subtract what you had to pay in taxes on the $85,000, lets say its 20%. 20% of $85,000 is another $17,000. Subtract $17,000 from $85,000 and you’re left with $68,000, which is yours to keep. You billed out and received $100,000, but really only pocketed $68,000. Now, we have to figure out what it cost you in terms of your time to truly earn that $68,000. Most people work an average of 50 hours per week to earn their income. But we know appraisers are far from average! They tend to push the outer limits of hours worked, especially in these extremely fruitful times of being spoiled for choice when it comes to lending and private appraisal work. The average appraiser is working 60-65 hours per week or more. If we multiply 60 hours per week times 50 weeks (because, of course, you’re taking some time off to rest, right?), that equals 3000 hours. Now we get to divide our income of $68,000 by 3000 hours, which ends up being around $23 per hour.
Surprised? Most appraisers I speak with and coach think they earn $50 to $200 per hour because they use the appraisal fee divided by the hours they worked to complete the appraisal as their basis. They forget about expenses, and they forget about taxes. What they also tend to forget about is all of the hours they spend doing very low value work like driving, errands, staring at the computer screen, taking comp pictures, data entry, time on social media, cleaning the office, and a bunch of other low dollar tasks. Not only do all of those little low value things eat away at your dollar per hour, they keep you from seeing the extremely high dollar opportunities, like your $1000, $5000, and $10,000 hours! That’s right! You may not know it at the moment, but you actually do have brilliant moments where you are in the flow, or doing something super valuable, and you don’t even know it. Most entrepreneurs earning $100,000 to $200,000 per year spend the bulk of their time on $10 and $20 per hour tasks, some time on $100 per hour tasks, and, occasionally, on $1000 and $5000 per hour tasks, often without knowing it.
You see, the first thing we have to do is retool our brains to a different way of viewing our time because not all hours and minutes are the same. Just as all appraisal orders are not the same, nor are our hours and minutes all the same. Instead of always thinking in terms of hours, we have to first start thinking in terms of minutes. As I mentioned earlier, we all have moments of greatness where we’re absolutely killing it and producing valuable returns on our time. However, the bulk of an 8, 10, or 12-hour day for most, at least when honestly assessed, are spent on relatively low value activities. This isn’t necessarily bad, except that it often tends to skew how we rate our hours. We tend to know when we’re doing higher value work, like maybe working on producing the appraisal report, the activity that tends to bring in the most revenue in an appraisal business. However, what this does is blind us to the massive opportunities that live in the shadows, the 10 or 20-minute incremental opportunities living all around us to earn $1000, $5000, $10,000 or more per hour. When we start to see that our hours aren’t just hours, but instead 60-minute blocks made up of 1-minute, 5-minute, and 10-minute blocks, we can start to value our time differently. If you only ever calculate your dollars per hour, you’ll always get the sense that all hours are created equal, and they aren’t! Learning that you really only produced $23 per hour worth of work last year (our $100,000 per year example earlier) should be an eye opener for most. Not only did you learn that you aren’t worth as much per hour as you thought, you also trained yourself to think that all of your hours were the same $23 hours. What really made up that $23 hour throughout the year was that you had some $1000 hours, some $100 hours, and a whole bunch of $3 to $10 hours. Knowing what each of those hours looks like comes down to recognizing that a $5000 hour does not mean you’re necessarily producing $5000 for a whole hour. It means that you did something for one minute that made you $85, or you did something for 10 minutes that was worth $850, even when the remaining 50 minutes produced $10 or $20 worth of productivity.
So, what makes something a $1000, $5000, or $10,000 hour? That’s exactly what you have to figure out! If you’ve ever met an avid bird watcher, you’ll know that they can spot and identify birds that the average per can’t even see. How? Because they familiarize themselves with the various indigenous bird species, where they live, how they act, what they sound like, and so on. They develop an eye and an ear for each of the different birds in the environment. We have to learn to be avid trackers in our environment. Not necessarily to identify birds in the trees or chipmunk tracks through the tomato garden, but instead to identify the activities that lead to our most valuable efforts and highest value activities, even if those activities only last for 5, 10, or 20 minutes at a time. Without doing this exercise, we tend to miss and blow off lots of the $5000 per hour activities because they tend to disguise themselves as busy work, or even drudgery! You may not like talking on the phone, but taking a 10 minute call from an angry client that saves $500 worth of business is a $3000 hour! $500 in 10 minutes is 1/6th of an hour. $500 times six equals $3000. Although you didn’t earn $3000 that hour, its only because you didn’t have six $500 ten-minute calls. However, when you start to recognize how valuable that ten-minute call was in your day, you’ll start to figure out how to turn more ten-minute increments into higher dollar activities.
To figure out how to have more $5000 and $10,000 hours, you’ll have to start to categorize the activities you might be faced with throughout your days and weeks, and then assign them a dollar value. This is how you start to train yourself to identify those hidden opportunities that you may have been missing in favor of doing the lower value activities. For example; driving, cleaning, errands, and social media is $10 per hour stuff. Problem solving, outsourcing low value activities, and writing thank you cards to clients might be $100 per hour stuff. Developing checklists for your processes, utilizing a new technology, speaking to your community, making content for your website, and inspiring the talent in your company may be the $1000 per hour activities. Coming up with a new business idea that generates an addition $20,000, $50,000, or $100,000 over the next year or two might be your $10,000 hour. You might get a phone call from a potential new client during the day that turns into $2000 per month of regular business. If the phone call lasted 30 minutes and it leads to $24,000 worth of business over the next year, that 30-minute call was worth $800 per minute! Of course, you still have to produce the work they send you, which takes time and costs you something. So, at the end of the day, when you calculate your profits on that new business, maybe those minutes were only worth $500 per minute. Would you complain? Doubtful!
Learning how to identify your most valuable activities, and then recognize that they can occur in minutes and not necessarily hours, will lead to more $10,000 per hour activities and more opportunities to offload the low value activities to somebody else.
To listen to a deeper explanation of the $10,000 hour concept and download a handy worksheet, go to www.realvaluecoach.com/10000-hour/