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« Ingredients for a win- win negotiation | Main | Do you have the Entrepreneur spirit? »
Wednesday
Aug062008

What are you really paying yourself?


Entrepreneurs, remember when you worked for Corporate America and made your typical salary each year?  I bet you never really thought about what the actually dollar value of that salary was to your employer.   Then you left it all to work for yourself.  Of course, in the first year or two you didn't expect to make that much, but did you ever really figure out just what you truly need to make per hour  to make the same money?   Unfortunately, if  you are charging the same amount you made per hour  back then, you have cut your true earnings by half.

Pricing is one of the most challenging areas we face.  Typically, small business owners work many hours per week, but when your realize that only 30% of your hours are billable, you find how important it is to set your pricing correctly  It's called the 30-60-10 rule.  Thirty percent of the time you are performing billable work, sixty percent of the time your are marketing, selling, networking, etc. for new clients, and 10% of the time you are invoicing and spend your time trying to get paid and take the money into a financial system. 

Maybe you figured at $30.00 an hour at 100 % productivity  ( 2080 hours per year) your potential was to make $62,400 gross. Now look at the real billable hours and you find you can only bring in $18,720 at that rate.  If you are great at marketing and only need 25% of your time there, you might increase your billable time to 55%, and that would net you $34,320. Then comes taxes and expense deductions.   This might be the answer to the question, "Why don't I have good cash flow?"

So next time you review your service charges, keep these factors in mind.  And as a business owner don't begrudge someone their hourly rate if you think about it in these terms.


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