As a professional service provider, I’m guessing that you enjoy pretty good profit margins in your business.
I know that, for me, past some small overhead in the form of technology infrastructure, and some marketing expenses, my service business is virtually all profit.
So pretty much everything I make, I keep.
In a situation like that, it’s easy to fall into the trap of measuring your success by measuring your income. While that might make sense, I think that determining your true level of “success” requires that you get just a bit more complicated with your measurements.
Here’s the reason why:
Using your level of income as a barometer of your success leaves out any mention of your most valuable asset (and biggest expense) as a service professional.
That asset is your time.
What’s the Cost of Your Time?
The short answer is, I have no idea what the cost of your time is.
Time is valuable. Actually, its value is beyond measure. And trying to figure out its “cost” isn’t something I’m going to attempt.
Instead, I’d recommend that you start measuring the amount of return (money) you get for each unit of time invested. In other words, as time goes by, are you making more per hour of work invested or less?
Measuring your income simply isn’t enough to know if you’re making progress in your business.
I’d take a business generating $400,000 a year working 3 hours a day over a business generating $1,000,000 per year working 19 hours per day.
Working 19 hours a day sounds like a terrible way to live. (If you can even call that living.)
By having a clear picture of your return on each unit of time you invest in your business, you know whether you’re getting somewhere or if you’re just stuck in a rat race.
Charging For Your Time is a Dead End
It should come as no surprise that charging for your services in time based units is a dead end. I’m not going to say I’ve never done it, but I am going to say it’s never been a smart move.
I’ll save the big lecture about why charging for your time is a crazy pursuit for another day. Just understand that if you’re looking for a lifestyle that is far worse than being a 9-5 slave in an office cubicle, just go out on your own and start charging for your time.
You will quickly learn how suffocating that can be.
The simple reason is that in order to increase your income, you have to work longer, or raise your rates.
This is not a smart position to put yourself in.
Even though I wouldn’t recommend charging for your time, at the end of the day, we all do have a value placed on each minute of our day.
Want to figure out what yours is?
What’s Your Time Worth 101
To figure out what your time is worth, ask yourself this question: “How much revenue did I generate today? And how much time did me take to do it?”
This kind of question isn’t always so easy to answer in a service business. Especially if you sell a project one week but don’t deliver it until well into the future.
Even though it might get a little bit messy, it’s a good idea to figure out what each hour of your time is worth.
I’m not talking about what you want to charge for each hour, I’m talking about what you receive per each hour invested in your business.
Do you know what that number is?
For me, I know that when I’m performing at my best, doing the thing I do best (writing copy), I’m able to generate upwards of about $1,000 per hour of work invested. (For example, one salesletter at $10,000 with 10 hours of work to create it.) Sometimes it’s less of course, but that number represents the best case scenario right now.
It’s Not About How Much Money You Make, It’s About How You Make the Money
The reason that getting a number like this in your head is so important is so you have a clear idea about whether you are moving forward in your business or backwards.
To do that, you have to measure your results and know whether your “number” is growing or shrinking over time.
In my case, if my “number” is still $1,000 per hour of work invested next year, I have a problem.
My amount generated per hour invested should be increasing over time. So should yours. That’s the goal.
If you haven’t stopped to figure out these types of things for your own business, do it today.
If you’re in a situation where you are charging for your time, make a plan to stop it ASAP. You deserve better.
In the end, you need to know which direction you are going in your business so you can make smart decisions.
Without this knowledge, you have no idea whether your business is serving your life or you’re using up your life in service of your business.
[Ed. Note: Jason Leister is an internet entrepreneur, direct response copywriter and editor of “The Client Letter,“ the daily e-letter from ClientsSuck.net, where he helps independent professionals create success. You can contact him via his website at JasonLeister.com.]