Opportunity Cost

Opportunity Cost of Your Time

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How much is your time worth?  $10 per hour?  $50? $500? For a business owner, this is a critical figure to know.  When you know what your time is worth you are able to calculate how much time-consuming activities cost you in terms of dollars and cents.

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Here are two ways to calculate:

  1. Replacement Cost
    How much would it cost in salary, taxes and benefits per year to hire someone to replace you?  Take that salary, divide it by 2,000 (50 weeks x 40 hours = 2,000) and this will give you an hourly rate.  Then take that hourly rate and double it (you’re not looking to break-even on this new employee, you need to make some money). For example:  To pay someone to do your job would cost $100,000 in salary, $12,000 in taxes, and $20,000 in benefits for a grand total of $132,000.  $132,000 divided by 2,000 = $66.00 per hour x 2 = $132 per hour is a fair estimate of your hourly rate
  2. Your Target Salary
    How much do you WANT to make per year?  As a business owner, you are in direct control of this.  Whatever you WANT to make, you are capable of achieving it.  For example, say you WANT to make $300,000.  Simply divide $300,000 by 2,000 = $150 per hour.

What is Your Time Worth?

Now you have some perspective on how much your time is worth.  Next time you’re questioning whether you should attend a seminar, sit in a meeting, go on a sales call, or any other time consuming activity, you can ask yourself “Would I pay $150 per hour to do this?” Because if you do go, that is what you are paying.

You can also use this information to delegate responsibilities.  You can use your time, which you value at $150 per hour, or you can delegate it to someone who you are paying $25 an hour.  This allows you to focus your time on activities that justify a cost of $150 an hour.

I use this concept for myself, and I add an additional 25% onto my calculated hourly rate.  I do this because not only do I want to cover my cost, I want to get additional value out of activities that consume my time.

So I ask again, how much is your time worth?

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