Big Nick didn’t laugh often, but he was sure laughing now.
His big belly shook as he roared at me. Leaning back against a stack of dirty tires, he held his cigarette at arm’s length so he wouldn’t burn himself. I felt dumb, but I loved watching Nick laugh, and I knew there was a valuable lesson coming.
We were standing just inside Nick’s auto shop. The summer sun was beating down hard outside, but the concrete floor kept everything cool. The smells of motor oil and Nick’s cigarette mingled in the dark space. My first mentor ever, Nick Palumbo, was laughing because I’d just told him what I earned per hour at my gym.
“Never, ever … ,” he cracked up again before he could finish.
Then he pushed his curly gray hair back from his forehead with greasy fingers as he got control of himself again. He took a deep breath.
“Never, ever figure out your hourly rate.” He said. “You’ll quit!”
Then he pushed off the stack, shaking his head as he walked deeper into the garage.
Entrepreneurs and Investing
Nick was my first business hero. But he was wrong. You should know your value.
Nick belonged to that older class of entrepreneur: the kind of people who live above their bakeries, the kind who are happy just to have bought themselves a job, and the kind who accept the 70-hour-work week for 30 years as a fair trade for money. I don’t.
Your time is worth more than money. But only if you invest it properly.
Some gym owners earn more than enough. They have freedom of time and money.
There are also many gym owners who would actually make more money driving an Uber and paying for their own gym memberships.
In this series, I’m going to tell you how to grow your business by spending your time better. Everyone knows what “ROI” means; here, I’m going to tell you how to maximize ROT—return on time spent.
We’re going to start with the bad news: a calculation of what your actual time is worth right now.
Calculate Your Effective Hourly Rate
One of my business mentors, Dan Martell, uses a formula he calls “effective hourly rate” (EHR) to determine where an entrepreneur should be spending time:
“Every entrepreneur has a thing I call the EHR. Your Effective Hourly Rate. The easiest way to get to that is just to take the gross revenue in your business and divide it by 2,000. That’s about the hours that you work in a year. Figuring 100,000 in revenue divided by 2,000, that’s $50 an hour. Once you know your EHR, and if you’re doing a million, it’s 5,000 an hour. There are real numbers involved.”
Don’t worry: This is only a starting point.
Start by totaling the hours you worked last week. Include all your “work” time: cleaning at 4 a.m., opening at 5 a.m., closing at 9 p.m., scrolling Facebook groups about gym ownership on the weekend, programming—even include the parts you enjoy. If you’re at work, it counts (even if you’re exercising). If you’re on a laptop, it counts.
Now, look at your paycheck for last week.
Divide your total take-home pay by the number of hours you worked. Cover one eye and squint if you have to.
For example: you made $700 last week, net. And you worked 54 hours.
$700 / 54 hours = $12.96 per hour
“But it’s a labor of love!” right?
Maybe at first. But as you mature as an entrepreneur, your business has to grow up with you. Spraying down barbells at 9 p.m. when your kids are going to bed loses its luster pretty early.
Or maybe your hourly rate is excellent:
You paid yourself $2,000 last week and worked 30 hours. Great! That’s $66.67 per hour. Pretty good. The challenge now is to focus only on the work that pulls you forward instead of sticking your hands in the machinery.
Either way: This is just your starting point. You’re moving on up!
Do This Now
In the next installment, I’ll tell you how to grow your business by investing your time better.
So take a moment to calculate your EHR. Do it now.
The answer might be scary—it might even be tempting to go find a minimum-wage job instead of plugging away at your business—but we need to know this number so we can build on it.