What’s the value of
It’s a simple question, and the answer can help you with a variety of business decisions, from maximizing your productivity to deciding which tasks to delegate or outsource.
But although the question is simple, it can be tough to come up with a good answer. Looking up how other people value their time won’t help you much, because it’s a very individual calculation. The result will vary widely depending on what kind of work you do, where in the world you live, how much you earn, how much you expect to earn in the future, and more.
So in this tutorial, I’ll show you exactly how to calculate the value of an hour of your time. We’ll walk through the process step by step, and we’ll also discuss what you can do with that information and how you can use it to make better decisions.
This tutorial is
mainly aimed at small business owners, but the method I’ll show you will work
no matter whether you own your own business, work as a freelancer, or are a salaried
So if you’re ready, let’s get started!
1. Why It's Important to Know What Your Time Is Worth
Your time is a finite resource, and how you use it makes a big difference to your life and your business. Knowing how much each hour is worth can help you make the right choices.
For example, I recently wrote a tutorial on when small businesses should hire an accountant. The value of your time is a crucial component in making that decision. If you spend 10 hours doing your tax return and you value your time at $50 an hour, then the cost of doing it yourself is $500. So it makes sense to hire an accountant to prepare the tax return for you, but only if the service costs less than $500.
Without knowing how much your time is worth, there’s really no rational way to make that kind of decision. You’ll have to make the call based on your gut instinct or guesswork: whether the accountant’s price sounds too high or too low. Often, your instinct will be to save the money and do everything yourself, which can easily lead to overload.
A similar principle applies to a range of different decisions, such as making a website, designing your marketing materials, and much more.
Knowing the value of your time can also help you decide whether to take on more work and how to prioritize your tasks. If you have the opportunity to write an article or speak at a seminar for a fee of $200, you can decide whether it’s worthwhile based on the number of hours it will take and the value of your time.
Of course, it’s important not to take this too far. Not everything in life has a monetary value. Attending your kid’s piano recital may not contribute much to your financial bottom line, but that’s not a reason to skip it and spend an extra hour at work. Even the most ambitious entrepreneur needs to spend time with loved ones, or just relaxing and reading a book or watching a beautiful sunset.
Similarly, many business owners like to contribute time to charitable events and other things with a positive community impact, and knowing the dollar value of your time shouldn't prevent you from doing that. Calculating the value of your time can be incredibly useful in a lot of business contexts, but it’s also important to switch the calculator off sometimes.
2. How to Calculate the Value of Your Time
OK, so let’s get to the calculation. I’ll take you through a simple method first, and then later we’ll go through some of the situations in which you’ll need to refine it.
First of all, you’ll need to calculate how much money you earn over a particular period: per week, per month, or per year.
Use whichever period makes the most sense for you. If you get paid a monthly salary, the monthly figure probably makes most sense. If you own a business, it’s probably better to look at a whole year of data. If your income fluctuates a lot, then take an average over a long period of time. If you’re just getting started and don’t have much income yet, don’t worry—we’ll deal with this issue in the next section.
What you're looking for is your after-tax income—the amount you actually have available to spend, after tax has been deducted. For salaried employees and freelancers, this number is pretty easy to come by. But if you own a business, it’s a little more complicated. You’ll have your salary and any other direct compensation you take from the company, but you’ll also need to add in your share of any profit the company makes, even if it isn’t directly paid out to you. After all, this is value you’re adding to the business, and we want to take account of that.
So if your company made $100,000 in net profit this year, and you’re in a partnership where you own 25% of the company, then your share of the profit is $25,000. Add that to your salary to come up with a total.
Now, how many hours did you work during that period? Include not just time spent in the office, but time spent on things like travelling, answering emails at home, and so on.
Ideally, you’ll have some accurate figures to use here, from using a simple online time tracker like Harvest, or perhaps from old-school methods like a paper planner. If you don’t already track your time, I’d recommend trying it, at least for a week or two, to get a clear idea of where it all goes—the results can be surprising!
But if you don’t want to do that, just try to make your best estimate by thinking back over your schedule for a typical week. Bundle in all the time you spend on anything related to work—the total will probably be much higher than your official working hours or “billable hours”.
Now simply divide! Here’s the formula:
Value of time = Total net earnings / Number of hours worked
So if you work 50 hours a week and earn $1,000 a week, the value of your time is $1,000 / 50 = $20 an hour. If you work 2,000 hours a year for an annual salary of $100,000, the value of your time is $100,000 / 2,000 = $50 an hour.
Keep in mind that this is just a simple, rough calculation at this stage, and it may not seem right to you. Don’t worry—we’re going to refine it in the next section.
3. Refine the Calculation
The above calculation gives you a baseline. For some people, it may be pretty accurate as it is, but for others, it may need some refining.
For business owners, it can be particularly tricky, especially in the early stages of a new venture. If you’re an entrepreneur with a new startup, you may not have generated much profit yet, but you may expect that the time you’re spending now will generate profit in future. Even with a more mature business, the idea is that the actions you’re taking now will lead to growth in the future.
So in that situation, you may need to make some adjustments. You could refer to your business plan or financial model and use some of the estimated profit figures for future years instead of the historical ones. Or you could increase your current net earnings by your expected annual growth rate. For example, if you made $50,000 this year but expect to grow at 10% a year, you could increase your earnings by 10% to $55,000.
If your business is at a very early stage, consider using some of the valuation techniques in the following tutorial:
Even if your income is
quite stable and predictable, you may want to ask yourself some questions to
help you refine the figure you arrived at in the previous section and make sure
For example, how much would you pay someone to do what you do? What’s the going rate for that kind of work in your industry? Do you think that, if you worked an extra hour, you could increase profits by the amount you’ve valued your time at?
You can find more help in this online calculator. After you’ve calculated the basic value of your time, it will take you through various thought experiments to help you refine that number.
Essentially, use the result of your calculations in the previous section as a starting point, but don’t be afraid to make adjustments to it until you arrive at a figure that makes sense for your particular circumstances.
4. How to Use the Information
So now you know what an hour of your time is worth. What can you do with that information?
Start by taking an inventory of everything you do right now. Come up with an accurate hourly breakdown of the tasks you undertake in a typical week.
Now research the cost of outsourcing those tasks. If you can hire someone to perform those tasks for less than your own time is worth, it’s a good investment.
For example, let’s say you spend five hours a week on general administrative tasks that could be performed by a virtual assistant (VA). If your time is worth $50 an hour, then any VA who charges less than that hourly rate will be a good investment for you. (Don’t forget, though, that you’ll still need to spend a small amount of time assigning tasks to your VA, checking their work, answering questions, etc.)
You can also apply the same principle to any new one-off tasks that come up in the future. For example, if you need a new logo for your business, think about how long it will take you to do it yourself. If it will take you five hours, at that same $50 rate, then the cost of doing it yourself is $250.
Then look for providers who can do it more cheaply. For example, you can find plenty of logo designers on Envato Studio who will complete the whole task from start to finish for between $50 and $150. Given the assumptions above, you’ll save significant money by outsourcing.
Follow the same process for a range of other tasks, like building a website, writing product descriptions, designing business cards, and so on. If someone else will do the work more cheaply, and if you’re happy with the results, then it’s a good investment—you’ll have more free time to work on important things that will contribute to the growth and health of your business.
Similarly, apply the same criteria to new opportunities that arise. Think about how much you’ll make and how much time you’ll need to invest, and if the hourly rate comes out higher than what your time is worth, it’s a good opportunity; if not, you may want to say no, unless there are other important benefits.
In this tutorial, you’ve learned how to calculate the value of your time. You know how to assign a dollar value to each hour, and how to use that information to make better business decisions.
As I mentioned earlier, there may be non-financial factors that come into play—perhaps the task you’re evaluating will make you happy, contribute to a good cause, etc. You can still take those things into account when you’re deciding what to do.
What you’ve learned today gives you a good way of making decisions with more clarity about the financial impact. But you can always override that or adjust it to take account of things that, despite having no monetary value, are still important to you.
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