When you write up your first business plan or even start thinking about building a business, you’ll spend a lot of time setting prices for your products or services. It’s critical to value your products fairly, but in a way that allows you to break a significant profit.
Here’s the thing: While many entrepreneurs may take their time and conduct significant research to value their products properly, they end up undervaluing or failing to value something else that’s just as important (if not more so): their time.
The importance of setting a value
Why is establishing a value for your time so important? For starters, your time is a limited resource, and, aside from living a healthy lifestyle, there’s no way to get more of it. There are only 24 hours in a day, and seven days a week, so how you spend those hours plays a significant role in how fast and how effectively your business develops.
Plus, there are some circumstances where you’ll be compensated for your time directly, such as with consulting fees, or when you’ll compensate others for time you would have spent. And, in those cases, you’ll need to set a fair price just as you would with a product.
In summary, valuing your time allows you to maximize your efficiency and get compensated fairly for your efforts (when appropriate). So, here are a few ways to properly set the value of your time.
1. Estimate your would-be salary.
Your first step should be to roughly estimate what your salary should be. Depending on your role as a leader and the size and nature of your team, this could get complicated. To get things started, imagine what your salary would be if you performed all your roles and responsibilities with your last employer. You may even want to use a tool like Glassdoor to see what positions in your industry, at your experience level and geographic location, go for.
Then, it’s a simple matter of dividing that salary by how many hours you spend working, on average, in the same time period. With that, you should have a ballpark of what your fair hourly rate would be.
2. Evaluate your competition
Next, take a look at other consultants and entrepreneurs in your area, doing what you do. Do they list an hourly consulting fee on their site? If not, can you estimate one based on what they charge for services that include them personally?
3. Evaluate your employees’ pay.
You may also want to look at what you pay your employees. Obviously, you’ll have more responsibilities (and probably more experience) than your employees. You should value your time as being slightly higher than that of your highest-paid employee, at a minimum. If your business is strapped for cash or dealing with other financial variables, however, you’ll need to make some adjustments to your expectations here.
Putting it into practice
If all else fails, you can attend networking events in your area to meet like-minded entrepreneurs and openly discuss what they would hypothetically charge as an hourly rate. If this is significantly above or below original calculation, you’ll need to make an adjustment.
After taking these steps, you should have a reasonable idea of what your time is worth. On the surface, it may seem like setting a value for your time is unnecessary, or redundant, but it’s both a valuable decision-making tool and a way to fairly price your own services. The earlier and more accurately you can estimate this value, the better.