Here’s an interesting exercise to do. It’s easy, and only requires basic math and some record keeping and it answers a very important question that all business owners need to ask themselves.
The question is this: How much do you earn, net, per hour of work? Or put another way, how much cash lands in the bank account that is yours, divided by the time that you put into your business?
To figure out this calculation, you’ll need two to figure out how much your net income was and get your time sheets to get your total time spent on the business.
If you don’t know your net income, get last year’s W-2, look up the gross income and subtract all of the taxes on it. Also be sure to add retirement contributions that are reported on it too. After all, this is your money too.
Then get your time sheets. If you don’t keep time sheets, then create an estimate. A simple one would be 2,400 hours (48 work weeks of work x 50 hours/week) or go through your calendar to get an idea of when and where you were, how much time you put in, and how much time you took off. And for the future, it might be worth doing something simple like keeping a log on a spreadsheet. It’s easy to do, and in my experience will help reveal work patterns and habits that need to be changed.
Once you have net income and your hours, do the math:
Net Income ÷ Hours
“Am I Earning Enough?”
Now, I believe that we should make as much as we are capable of. It’s not a matter of greed—it’s a matter of being rewarded for our contribution to the economy. But if we’re not making enough, it suggests that something is wrong with our business. Perhaps we are under pricing. Maybe it’s not having the right product mix. And possibly it’s a matter of not being efficient with our time. Whatever the cause is, this calculation is a very real and personal way to stimulate our thinking about what we’re making and what to do to make more.