If you struggle with prioritizing tasks in your business, this post is for you. In part three of my “What Task to Work On” series I explain the concept of Effective Hourly Rate.
Knowing the Effective Hourly Rate for different products and services in your business will help you to select which streams to focus on to grow your business.
Podcast: Play In New Window
In part 1 of the “What Task to Work On” series I introduced you to value-added, value-enabling and non-value added tasks in the hope that understanding the difference between the three would help you to choose where to work on what particular day in your conscious business. In part 2 of the series I shared one of my favourite tasks prioritization tools with you, the Value-Ease Matrix. Today we’re going to take it one step further and wrap things these concepts together with Effective Hourly Rate.
Effective Hourly Rate is a concept I learned from my mentor, James Schramko. He explains it in great detail in his book “Work Less, Make More”, a book I highly recommend you read!
What Is Effective Hourly Rate?
Effective Hourly Rate (EHR) is a metric that highlights how hard you are working in your business for the cash you’re bringing in. It’s the metric that measures your ability to scale and leverage your efforts and expertise. To be able to earn more by working less, it’s the one metric you need to change.
You can calculated your EHR by dividing your monthly profit by the number of hours you worked in the month.
EHR = (Monthly Revenue – Monthly Costs) / No. hours worked in the month
EHR = ($15,000 – $10,000) / 80 hours = $62.50
This example was a typical month in my first eco baby e-commerce store. At the time I was working around 20 flexible hours from home a week, mostly in the evenings around my baby and toddler, for an EHR of $62.50 with further opportunity to scale. This contrasted to my previous EHR of $43.75 in my $150K / year senior engineering role working long, intense hours at an industrialized site. I wish I knew about EHR before I made the decision to sell that first business.
If you’re EHR is around $20/hour you’ll be struggling to achieve financial independence – the mental freedom that comes from never having to worry about money. If you’re at or below an EHR now, don’t worry! Most entrepreneurs have been in your shoes! The good news is that you now know about EHR and can actively do something about it.
If you’re working a day job and building your business as a side hustle, knowing the EHR of both your business and job will help you see at what stage your business is out earning your salary. It’s an indicator that can help you go all in to your business!
How to Use Effective Hourly Rate To Prioritize Tasks In Your Business
Knowing the EHR for your business is almost as powerful as knowing the EHR for different streams or tasks in your business.
If you’re like me and have actioned multiple ideas in your business over the years, and you have multiple products and services as a result, knowing the EHR of each will help you prioritize which one to focus on.
Once you’ve determined the EHR for each stream, divert your time and effort to building the stream that has a higher EHR and watch your business grow as a result.
Of course, your business will struggle to grow if you’re doing this at the same time as working on tasks with a lower EHR, so the opportunity here is to eliminate those tasks or outsource / delegate them to a member of your team if they’re essential value-enabling tasks.
How to Increase Your Effective Hourly Rate
You can quickly increase your effective hourly rate by eliminating non-value adding tasks in your business and minimising the amount of value-enabling tasks you complete (through outsourcing, delegation or automation). You can also increase your EHR by taking control of your time and working more effectively when you do work. Note: this isn’t about how many hours you work, but rather how effective you are when you are on the job.
Here’s some example of ways to increase your EHR right now:
- Turn off all social media notifications (both emails and push notifications on your phone) and limit your time on social media to a set amount each day (aim for no more than one hour)
- Monitor how and where you’re spending your time (time management software can help)
- Work with your mobile phone on silent to avoid distractions
- Unsubscribe from any email newsletter that isn’t helping your build your business
- Block out deep work time in your calendar so you have uninterrupted time to grow your business
- Make portions of your time available to others by using a scheduling tool like Acuity Scheduler. I reserve Mondays and Wednesdays only for my client work, allowing me to focus on other business-building tasks at other times.
- Eat well, exercise and get enough sleep.
Knowing and understanding your effective hourly rate is game changer in business.
Understanding EHR and value-adding/enabling/non-value adding tasks and using a tool such as the Value-Ease Matrix to prioritize your tasks is a powerful combination to increase your personal effectiveness in your business and set you up to scale and make a bigger impact.
Over To You!
What is your current Effective Hourly Rate?
Calculate your current EHR and the EHR of you working in different streams of your business. Share any AHA’s below!
If you’re ready for personalised support to help your increase your personal effectiveness so your conscious business can make a bigger impact, book your Conscious Coaching Taster or apply to join my Conscious Business Circle today!