YOUR MOST VALUABLE HOUR
One of the most valuable lessons I ever learned in life is that the quality of your questions determines the quality of the answers and outcomes. There is most definitely a correlation between asking good questions and getting better answers, and there is also a correlation between asking the right questions about the right things in order to make the highest quality decisions and investments of our time that is possible.
Let’s jump right into the first important question to be asking yourself, and I would go so far as to encourage you also to start teaching others these same ideas. It’s said that when you teach something, you’re learning it twice. Start to teach others these ideas and questions and they’ll become ingrained in your DNA.
What is my hourly rate?
This is the foundational question everybody in the working world should ask themselves on a regular basis. It doesn’t matter if you’re a server in a restaurant averaging $12 per hour, a mechanic in an auto shop making $20 per hour, or the founder of a successful company making $1,000,000 per year. If you don’t know this number, you have no starting point to begin analyzing your daily tasks, the value of those tasks, and the opportunity cost of the all the other things you could or should be doing that could increase that number. We’ll talk about opportunity cost when we dive into the second question.
For now, let’s just figure out your average hourly rate so that we have a baseline with which to begin making better decisions. You simply take your annual take home pay and divide it by 2000, which is the average number of hours worked for most people. (Keep in mind, if you’re super macho and proud of working 80 hours per week, your dollars per hour goes way down! It’s more honorable to work less and earn more per hour, in my opinion).
Whatever that number is, that’s your average hourly rate. For example, if you take home $100,000 per year, and you divide that by 2000, your average hourly rate is $50. This is your baseline. This means that, at your worst, you should never be doing $10 or $20 per hour work since you’re worth $50 per hour. If you wouldn’t pay somebody else $50 to do the work you’re doing on any given moment, why are you doing it yourself? That’s what leads us to question number two.
What’s my buyback rate?
Your buyback rate is the amount of money you’d be willing to pay to ‘buy back’ your hours. There is a simple equation I’d recommend using and it’s simply to divide your hourly rate by 2. If you’re hours are worth $50 on average, then you should be willing to pay somebody $25 to get that hour back. That’s giving you a 2X return on that hour, assuming you use that hour to do more $50 per hour work. And that’s the mistake most people make. They compare that hour and those tasks to something worth far less, like taking a nap or a lunch break. It shows a complete lack of the concept of opportunity cost, which is the cost, and potential return, on all the things you can’t choose because you’ve chosen something else.
Think of opportunity cost in terms of an investment in the stock market. You have $1000 to invest in the market, and you’re trying to decide which stock to purchase. What are your criteria? For most people it will be things like the cost of that stock; how many shares your $1000 can buy; the potential return over a particular time horizon; whether or not the company pays out dividends; and so forth. But it doesn’t stop there because the answers to all of those questions are meaningless unless and until you compare the answers to those questions against the answers to those same questions, but with another competing stock. If you can get an annual return of 10% on Apple stock, but a 13% return on Microsoft, all other things being equal, why would anyone choose the Apple stock?
That’s opportunity cost simplified. You can’t choose all the options all the time, so make sure you’re choosing the best options given the optimal return on those choices as compared to the other choices you could make. A perfect example from the appraisal world is data entry.
Let’s assume entering the data you’ve gathered for an appraisal will take you one hour of your time. You think about it and say, ‘it’s only an hour; I have an hour; might as well use that hour for something productive instead of taking a nap.’ Well, if you’re comparing that hour of data entry work against the measuring stick of sleep, then yes, working might be better than the work not getting done at all. The problem is not in the work, it’s in the question! The question shouldn’t be work or no work, it should be what’s the absolute best use of that hour given all the options, possibilities, and potential returns on my time?
Once you really start to understand this question, you’ll start to see that it’s not about the $25 per hour, in fact, it’s not even about your $50 per hour, it’s about the potential to turn that hour into a $100, $500, $1000, or $10,000 hour by making a different choice of things to focus on. Whatever the number, until you know your average hourly rate, and then your buyback rate, you’re making decisions based on too little information. In essence, you’re comparing all the wrong things, if you’re comparing anything at all.
So, to take this a step further, we now have to know the 3rd question, which is:
What is the individual value of every task I do during my day?
Everything we do in our business has a value. Sometimes the value can be easily quantified, and sometimes it can’t. But, even if you can’t easily assign a particular task a particular dollar figure, you can almost assuredly assign every task a label of high value, medium value, and low value. You can even go deeper and label them; high value, low priority; high value, high priority; low value, low priority; low value, high priority, and so on. This is often called an Eisenhower Matrix.
Learning to categorize and label everything that you do, as well as everything that needs to be done by somebody, is an extremely valuable exercise because it will help bring some awareness to what you’re doing, how you’re doing it, how long it’s taking you to complete, and the value of that task or project. If you never assess the value of the things you’re doing, you’ll likely always be working, at some point, on things you simply shouldn’t be working on.
So, let’s break down some of the categories and see what the value and cost might be for certain tasks. How do we derive both the cost and the value? Easily! Using a principle that appraisers use every day: the principle of substitution. That principle basically says that when two or more things are of similar utility, function, scale, design, and so on, the less expensive one is the preferred one. Let’s turn that principle into an easily remembered question: why would I pay more for this one when I can get that one for less? In essence, why pay more?
Now we apply that to each task based on what we can ascertain is the lowest reasonable cost to have that thing done for us. I would simply recommend starting with the cost of an administrative assistant. You can either use the cost of a foreign remote professional, or you can use the cost of a stateside worker who can handle a particular role. You can get a foreign RP/VA for around $5-$7 per hour, or you can get someone stateside for around $12 to $20 per hour. Now you list out every task you’d like them to do for you.
Email, voicemails, scheduling calls, data entry, cleaning, correspondence, managing your calendar, order acceptance, bidding, updating portals, and so on. These are all things another human can do and for the dollar amounts we just stated, so the opportunity cost question becomes: why pay more? Why pay you your hourly rate when we can get all of those things done for less money? Once you’re freed up from the $10-$20 per hour work, you’re free to work on the $50, $100, and $1000 per hour work.
Remember, if you’re comparing the task to be completed to the fact that you have nothing better to do, you’re simply being lazy. If somebody else is doing all the $25 per hour and lower cost stuff, you’d be forced to use your brain to come up with things to replace for that hour. You could take a nap, but that wouldn’t be the best use of your time on a regular basis, so maybe you make one of those hours a prospecting and customer service hour where you just call all of your existing and prospective clients? Do you think that will lead to anything over time? You bet it will! If you spend one hour per week doing that kind of work, and you end up landing one client per year, here’s what the math looks like. One hour per week at $50 per hour is $2500 per year. Your investment in that activity is $2500 at your hourly rate. One new client that sends you one appraisal per month at $500 per appraisal is a $6000 per year client. $6000 minus $2500 leaves $3500 in gross profit on your time. If you divide that $3500 gross profit by the number of hours you invested, which is roughly 50 hours, that made all those hours $70 hours.
Here’s the thing though, they’re only $70 hours if you only have that client for one year and they only send you one order per month. What if they send you three orders per month? Now those hours are worth $310 per hour if calculated over only one year. If you have that client for 10 years at 3 orders per month, those hours of calling on clients was worth $3600 per hour. And this, my friends, is what we want to get to: a whole new understanding of the value of our time relative to the value of the tasks we’re doing on any given day. Take a nap? Or make $3600 per hour? The choice is yours.
Know the value of every task you do and that your business requires to be done so that you have ample information with which to make an opportunity cost decision. ‘Should I really be the one working on this thing? Or should I hire somebody else so that I can work on the higher value stuff?’ If you don’t know what the lower value and higher value activities look like, you’ll never know what to delegate and what to focus on.
This all leads to the fourth question, which is:
What should I be doing to increase my DPH (dollars per hour)?
Remember that there are limited hours in the day. You only have so many hours to get stuff done and create value, so it behooves you to maximize as many of those hours as humanly possible and in your favor. Once you know the approximate value of certain activities, you can start to put them in categories that will allow you to choose what to fill your hours with, what to automate, what to delegate, and possibly what should be eliminated.
I’ll say it plainly and simply: if you continue to do $10 and $20 per hour tasks and activities after learning what the highest and lowest value activities are, that’s called negligence. If you were a publicly traded company, you would be replaced by the board almost immediately for ineptitude and negligence. If you continue to do it in your own business simply because nobody can fire you, you’re being a poor steward of your time and your resources.
Your job as the company owner is not just to earn a living. It’s to create something of value, make it profitable, deliver more value than the cost to the customer, and yes, earn a living from it. If all you want to do is earn a living, you can certainly do that, but only up until the point where you can’t do that. You’re kind of like the professional athlete whose contract stipulates that they only get their pay and bonuses so long as they are capable of suiting up and playing. If they sustain an injury, do something stupid publicly, and are let go from the team, they don’t get paid. If you are incapable of producing income at some point, and for whatever reason, what now?
Know that value of your hours and tasks and try to shift the ratio over time of low value tasks to higher value tasks. Maybe you only ever get to a 60/40 ratio of high value to low value tasks, that’s still better than you doing 100% of all the low value tasks, which leaves you little to no time spent on the higher value stuff.
The final question I’ll leave you with in this episode is this:
What would the $1000 or $10,000 per hour me do?
This is a reframing question that helps pull us out of the day-to-day task switching that so many get stuck in and give new perspective for good decision making. Since almost everyone listening to this episode has goals, dreams, and aspirations of some greater future than the present, it only makes sense to do something called ‘future pacing’. This is essentially living into a desired future state before you’ve reached that state in the physical realm.
In this case, my recommendation is to think about a 10X version of your DPH (dollars per hour) and then ask yourself, “what would the $500 per hour Blaine do in this situation, or with this task?” The problem so many people struggle with is seeing and feeling beyond their current situation. If you can’t see it or even imagine something, it’s almost impossible to will yourself to achieve it. Once you know your average dollars per hour is $50, now you can imagine the day when it’s up to $100 per hour and possibly how you got there.
What I suggest you do, however, is to go big or go home and imagine you’ve 10X’d your hourly rate and now your average hour is worth $500. Do you think you would be doing data entry on an appraisal file? Do you think you’d be answering all of your emails daily? Do you think you’d be scheduling all of your appraisal inspections on your own, or even doing appraisal inspections anymore? I can tell you from personal experience that you would likely not be doing all of those things. You wouldn’t be doing those things because you would have leveraged your buyback rate to hire people to do the lower value, lower cost tasks so that you can focus on the higher value things that got you to your higher dollar per hour status.
Friends, you simply can’t keep doing all the $10 per hour stuff when you’re worth 5 or 10 times that to yourself and the company. It’s called mismanagement, poor leadership, and lack of vision. Ask these five questions regularly if you want to actually grow in any capacity and create more value for yourself and others going forward. If you don’t know your own business and the value of each one of your hours, you’re at a severe handicap against somebody who does, and you’re competing against yourself in almost every area.
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