The Number Most Business Owners Are Too Damn Scared To Calculate
Do you remember why you started your business?
I bet financial reasons were one of your key drivers.
You saw an opportunity to create your own financial security and you went for it.
But are you earning enough?
Does your monthly profit make up for the extra hours, stress and uncertainty you put you and your family through?
Or are you busy justifying an income that you really wish was higher?
As a micro business owner it’s very easy to look at your monthly turnover and underestimate all the hours needed to reach it. In fact, what looks like a reasonable figure can look terrifyingly tiny when you divide it by the actual number of hours worked.
But you justify it. Perhaps you tell yourself you love what you do so it’s OK. Maybe you’re afraid to raise your prices because you’ll scare customers off. Perhaps you rationalise your productivity is lower than others because you’re juggling a number of commitments around your workload.
These are all nice “excuses”.
But they prevent you getting real about your business.
Ready for that scary number?
I recently read Dan Kennedy’s No B.S. Time Management For Entrepreneurs.
It was fantastic.
And one of the biggest takeaways was to calculate your base earnings target.
It’s a very simple calculation that lets you see in black and white how much each productive hour needs to be worth for you to achieve your income target.
This calculation is seriously powerful
First it forces you to commit to a target annual income.
And by putting a figure “out there”, it starts to focus you.
The question is – Are you aiming for a figure that covers what you need, or an aspirational figure? And whichever you choose, are you clear why?
Next the calculation takes into account what Kennedy calls a “productivity v non-productivity multiple”. And this is where the real magic happens.
Let’s say you want to earn £40k a year. You might say something like “well I work around 1920 hours a year so that’s only £20.84 an hour. That’s achievable – great”.
But here’s the killer.
No one can be 100% productive every moment they are at work (remember those distractions and work avoidance strategies).
Then there are those necessary tasks like invoicing, quoting, answering queries, bookkeeping etc. that take time but don’t directly translate into billable income.
In addition, if you are committed to developing and growing your business, you also need to take into account the time you spend working on your business (things like developing adverts, social media management, writing sales letters etc.) which again are not immediately profitable although can generate the profit figure you are looking for later.
In fact, you’re probably lucky if as little as 1/3 of each working day is directly billable.
Which means you need to multiply that £20.84 by 3 – and that gives an actual hourly value of £62.52
Is what you are doing worth that?
That presents a different picture doesn’t it?
Calculate your Base Earnings Target NOW.
It’s simple to do, just complete the calculation below.
1. Decide your Base Earnings Target (this is how much you want to earn per year)
2. Divided by 1920 (240 days x 8 hours = 1920 work hours in a year).
3. This gives you a base hourly figure.
4. Multiply by 'productivity vs. nonproductivity' multiple (if you’re not sure, 3 is a good bet).
5. This is what your activity must be worth per hour to meet your target.
What does your base earnings target reveal to you? Is it still worth doing your admin, bookkeeping or opening your post?
Feeling the pressure?
Perhaps it’s way off what you currently earn.
So how do you react?
A. You could dial down your expectations and tell yourself that your target income was too ambitious.
B. Alternatively you can get fierce. Here’s how:
- Reassess your currently marketing strategy and identify how you are going to make more profit.
- Change tactics or offerings to attract higher paying clients.
- Add more value so your services have a higher intrinsic value.
- Get tougher with the procrastination pixies because you can see how much they cost you.
- Outsource work that’s just not cost effective for you to do yourself.
- Use newly liberated time to implement marketing to meet your base earning target.
And never forget that your role as a business owner if to turn time invested into profits.
Over to you
How has your Base Earnings Target made you feel? How will it motivate you to work less and earn more? Please tell me in the comments below.
Hi, I'm Paul.
Husband of Michele, daddy to Isabella and Jemima, owner of over excitable dog Ben.
I developed SpinLessPlates to be the easiest to use, most time saving B2B micro business management software in the world. If you'd like to save tonnes of time managing your B2B business, simply click here to find out more.