What’s YOUR Actual Hourly Rate? Use our FREE Hourly Rate Calculator to find out…
Actual Hourly Rate
As business owners, we’re used to thinking in terms of hourly rates: We may bill clients by the hour, and certainly, anyone you employ will be looking to be paid for the hours they devote to you.
But all time is not created equal. Sure, you may bill out your time working with an important client at £100 an hour – but is an hour spent working through your email inbox also worth £100? If you’re doing your own filing, photocopying and posting on social media, do those activities also earn you £100 per hour?
It’s highly unlikely that everything you do has an equal monetary return on investment. Everything is disproportionate. And that’s where knowing your ACTUAL hourly rate can be very helpful.
That’s where our free hourly rate calculator comes in.
You may realise that your time is far more valuable than you previously thought – or you may suddenly become aware that you’re such a “busy fool” that, although your headline salary might look attractive, when you take into account how hard you work for it, you’re barely making minimum wage.
How to calculate your Actual Hourly Rate
Calculating your AHR is actually pretty simple (especially if you use our free hourly rate calculator):
1. Calculate how much money you withdrew from your business last year. Include salary, dividends, bonuses, pension contributions etc. Don’t include expenses (as these are simply rebates on purchases you’ve made on behalf of the business – they’re not profit in your pocket.)
2. Work out how many hours you worked (per week), on average last year. Be brutally honest about your average. If 80-hour weeks are the norm, then 80 hours is your average. Just because you had a couple of weeks where you “only” worked 40 hours, doesn’t bring your average down very much! Don’t forget to include any weekends worked, as well as “just checking emails” in front of the TV at night.
3. Add up how many weeks you spent at work. For most people, this is simply a case of working out how many weeks of holiday you took and deducting from 52. If you had 4 weeks’ leave, and no extra days off for good behaviour, then you would enter 48.
Once you know these figures, you can calculate your Actual Hourly Rate, using the following formula:
Amount of Money withdrawn from your business in a year
total number of hours worked in the year
So, if you withdrew £50,000 in salary, dividends etc last year, working an average of 25 hours per week, and took 4 weeks annual leave, then your AHR would be £50,000 ÷ (25 x 48) = £41.67 per hour.
If you earn £50,000 per year, working 20 hours per week, 44 weeks a year, then your Actual Hourly Rate is £56.82.
And if you earn three times the headline salary – £150,000 per year, but work 60 hours per week, 46 weeks a year, then your Actual Hourly Rate is £54.35.
And that’s before taking into account the higher rate of tax paid on the £150k take-home, compared to the £50k. Another tick in the box for the lifestyle business owner.
You can also use the Hourly Rate Calculator on this page.
Meet Sarah. Sarah used to be a primary school teacher. Sarah was on a good headline salary in her job – around £26,000 per annum, for a supposed 20-hour workweek.
The problem was, Sarah never actually worked a mere 20-hour week. Not even close. Most weeks, she worked an EXTRA 40 hours a week for free. She still had that nice headline salary of £26k for a part-time job. But her “part-time” job wasn’t very part-time. She’d leave home at 7am to get an early start, arrive home shattered at 7pm, and do a couple of hours marking in front of the TV. Her work/life balance consisted of having the choice whether to work through either her Saturday, or her Sunday.
When we ran Sarah’s figures through the hourly rate calculator and worked out her AHR, she was earning £8.53 an hour – as a university graduate with two decades of experience. Discovering after a quick search on a jobs website that she could earn more per hour as an entry-level employee at Mcdonalds’ was the final straw – she quit her job, and she’s now running her own ambitious, lifestyle business – and in control of her actual hourly rate.
Two ways to increase your AHR
There are only two ways to increase your Actual Hourly Rate:
- Earn more money from each hour you work.
- Work fewer hours for the same money.
When you look at the results from the hourly rate calculator and realise the simplicity of the AHR formula (Amount of Money withdrawn from your business in a year ÷ total number of hours worked in the year), you should also realise something very powerful: YOU have the power to influence both sides of the equation.
You can increase your AHR by making more money – by taking more profit out of your business, whilst maintaining the same working hours.
Or, you can maintain your current level of drawings from your business, and simply work fewer hours – knock off an hour early, and watch your AHR increase. Stop working weekends, and take an extra week’s holiday (without the laptop!)
Both will increase your Actual Hourly Rate.
However, there’s a third way which will increase it even faster, and that’s to earn more AND work less. Sounds as improbable as a “four-hour work-week”, doesn’t it? Well, the truth is, it CAN be done – and key to achieving it, is simply being aware of your AHR at all times (keep playing with the numbers in the hourly rate calculator), and use it in your daily decision-making.
A simple rule to constantly improve your AHR
Once you’ve run your numbers through the hourly rate calculator and know your Actual Hourly Rate, there is a simple rule you can deploy in your daily routines, to ensure that your AHR will only ever increase:
Only work on tasks that earn you MORE than your current AHR. If you can pay someone less than your current AHR to do a task, do so.
That’s the headline rule. Now, of course, there are some complexities to consider when applying it in the real world.
There are more than likely tasks which earn you less than your current AHR (maybe even possibly zero!), but which only you can do.
Outsourcing everything below your AHR sounds brilliant – but will the person you hire, do as good a job as you? If not, that may affect the level of profit you can withdraw from your business.. which, of course, drags your AHR down – not up!
But, as a rough and ready rule – this has served me well. Knowing that my AHR is around £100 an hour, I don’t think twice about paying someone £20 an hour to take something off my plate – I’d need to be FIVE times as good as them to be out of pocket, and have it negatively affect my AHR!
Fancy an extra NINE weeks’ holiday?
Contrary to logical thinking, working less can actually increase your AHR – especially if you can cull your less productive worktime.
If you shaved just 90 minutes off your workday, taking the average 37.5-hour workweek (which for many small business owners seems in itself like part-time hours!) down to 30 hours, that would free up a cumulative 45 extra work-free days per year.
45 days a year. That’s like an extra NINE week’s holiday! And if you shave those 90 minutes from the less productive part of your day, where you’re pushing paperwork around a desk, scrolling social media, or generally doing low-value AHR tasks, then those extra 45 days will make a HUGE difference to your AHR.
Don’t believe me? Put the figures into the Actual Hourly Rate Calculator, and see the difference for yourself!
All hours are not created equal
Believe it or not, there are people in this world who love to do the things you hate – and you can hire these people for an hourly fee or a monthly wage. Usually, for far less money than you could earn in that same hour, or that same month – especially if you invest that time wisely, working at or above your AHR.
For example, I used to mow my own lawn. It would take me about an hour, and it would look pretty bloody awful once I was finished. Bare in places, half-cut in others. Plus, when my lawn mower broke, I had to buy a new one. Once I worked out my Actual Hourly Rate though, I very quickly outsourced my lawn mowing – to a company that specialises in mowing lawns.
Now, it takes them around fifteen minutes, and looks amazing when they’re done – there are stripes and everything! They scarify it in the winter, put new seed down in the spring, and feed it every few months. They charge me £20, which might seem a lot for fifteen minutes of work (and AHR of £60) – but remember fifteen minutes is how long it takes them. For £20, they’re actually saving me an hour of sweating and swearing, trying to push a lawn mower in a roughly-straight line (an hour I can devote to tasks at or above my £100 AHR) – and doing a far better job than I ever could, even if I had all day to spend mowing my lawn.
I can’t do any of those things if I’m mowing lawns, ironing shirts, or doing my own bookkeeping.
I used to coach a lady who was very proud of her hourly rate – billing clients at £95 per hour. But when I questioned why she wasn’t billing more hours, she told me that she “couldn’t” bill any more hours, because she didn’t have time.
“What are you busy with?”, I asked. “I’ve got to clean the house, do the ironing and all the other little jobs around the house. I spend all day on a Thursday doing that.”
I suggested that she outsource this to someone else. “I can’t afford to” was her response.
It wasn’t until I asked the following question that the lightbulb went on in her head:
“Would you pay someone £95 an hour to push a hoover around your house?”
“Of course not!”
“Well right now, that’s exactly what you’re doing. Your AHR is £95 per hour, and you’re pushing a hoover around your house.”
She had never considered, that she could pay someone £15 an hour, or £20 an hour to do her housework, and then sell that same hour for £95 to a client – talk about a lightbulb moment!
“No one is going to value you more than you value yourself. You just have to set a very high personal hourly rate and you have to stick to it.
Ever since I was young, I just decided I was worth a lot more than the market thought I was worth, but I started treating myself that way.
Always factor your time into every decision. How much time does it take? Oh it’s gonna take me an hour to get across town to get this thing. I value myself at $100 an hour; that’s basically throwing $100 out of my pocket. Am I going to do that? You buy something from Amazon; they screwed it up, and you have to return it. Is it worth your time to return it? Is it worth the mental hassle?
Keep in mind that you have less work hours, you have less mentally high-output hours.
Do you want to use them to run errands and solve little problems, or do you want to save them for the big stuff?“
All tasks are not created equal
Once you have your AHR results from the hourly rate calculator, the target range for tasks you should be working on becomes crystal clear. If your AHR is £100 an hour, you shouldn’t be doing £10 an hour jobs. You should be doing £100 an hour tasks, and maybe even £1,000 an hour (or greater!)
Sure, I could sell more of my books by posting daily on LinkedIn, but I know my Actual Hourly Rate is around £100 an hour, and in order to maintain that at a high level, I need to spend time doing tasks that earn me that rate (or higher).
I’d need every one of my LinkedIn posts to sell 28 books, in order just to maintain my current AHR.
That’s why (in general) I write blogs and books, not posts and tweets. I still set aside time for networking socially (what social networks were actually intended for in the beginning!) – which is a much higher-value task than creating free, disposable content for a silicon valley tech company.
So what of the mythical £1,000 an hour jobs I spoke of earlier? Are they possible? You bet your arse they are. They’re not that common, and you will have to hunt for them (hint: they’re normally found by doing a lot of 80/20 – or even 64/4 analysis), but adding one or two £1,000 hours to your workweek can make a significant difference to your AHR.
Want to embed the Actual Hourly Rate Calculator on YOUR website?
Simply copy and paste the code below (click to expand)
<script src=”https://bigidea.co.uk/calc/ahr-calculator.js” id=”ahr-calculator-widget”></script>
Books to increase your Actual Hourly Rate
Big Ideas…for Small Businesses is my blueprint for running a successful lifestyle business. Everything I know from more than two decades of running more than sixty small businesses. If you’d like a better work/life balance, to work less and earn more – this is the book for you.
This easy-to-read, highly practical book, by Australian entrepreneur James Schramko, focuses on both sides of the AHR equation – increasing income AND reducing hours spent at work, thus maximising your Actual Hourly Rate.
As detailed below, Evergreen Assets is my system for growing my own Actual Hourly Rate long-term, centred around permanent, ‘do the work once, reap the rewards again and again (and again!)’ evergreen content marketing assets that enable you to work less and earn more.
Synonymous with lifestyle design, and increasing personal productivity, this classic book from Tim Ferriss isn’t about literally only working four hours a week – but rather identifying ways to drastically reduce the number of hours you DO work. Outsource, automate, delegate – all with the same goal in mind: working fewer hours, and enjoying life more!
When it comes to time, a few things are important. Most are not. Effort and reward are only loosely linked. The 80/20 Principle is about calming down, working less, and targeting a limited number of very valuable goals where the 80/20 principle will work for you rather than pursuing every available opportunity.
Routine Machine shows you how a ‘normal bloke from Plymouth’ achieved more success than he ever dreamed, by following a simple, everyday plan to achieve his goals. A plan that required neither superhuman effort nor natural-born talent. And a plan that he’ll share with you to help increase your Actual Hourly Rate – including the daily, weekly, monthly, quarterly and annual planners
Want some more book recommendations? Check out my top 100 business books of all time!
Could you MASSIVELY increase your Actual Hourly Rate (long term), by lowering it in the short term?
The following is an excerpt from my bestselling book Evergreen Assets, showing you how creating “evergreen products” (such as courses, downloads, memberships and product libraries) can grow your AHR over the long term, despite going “underwater” (often creating for free) in the short term.
For example, it takes me around 1,000 hours to write a book. After a year, I may have sold 8,000 copies and made £30,000 in royalties, giving me an AHR of £30. Well short of my £100 target, and certainly nothing to write home about. But if my books keep selling at that rate, after five years, my AHR from the one-off book-writing task is £150. After a decade, it’s £300 – and rising every single day!
That’s the power of Evergreen Assets.
Here’s the excerpt:
In 2021, Netflix spent more than $17 billion producing its own content, after investing $11.8 billion in 2020, and $13.9 billion in 2019. Every movie, and every TV series that Netflix creates, is another Evergreen Asset that is added to the Netflix ecosystem – to attract new viewers, and to retain existing ones. Netflix is doing the work of creating the program once, and reaping the rewards of having subscribers pay for access to the ecosystem again and again (and again).
Could you be the Netflix of your niche?
Creating Evergreen Products means that you are no longer the product, selling live access to you by-the-hour. Instead, people can pay to access the information, knowledge and expertise that’s in your head – or to share the assets that you own.
Dean Samed used to be a freelance digital artist, specialising in creating amazing bespoke book covers for the horror sector – including commissions for the likes of Stephen King. Frustrated with selling his time for money, and the “don’t work? Don’t earn.” nature of freelancing, Dean started building his own Evergreen Products – a digital library of stock images, that people could licence from him.
Now, Dean could do the work (a photo shoot) once, and reap the rewards (licence the images) again and again (and again). It wasn’t long before Dean realised that creating Evergreen Products was infinitely more scalable, and that it was actually costing him money to accept the freelance roles. He now focuses entirely on his Evergreen Products ecosystem – constantly creating more digital assets, as well as branching out into other Evergreen Products such as a “How to earn with your art” guide for fellow freelancers, and a Core Skills Photoshop training system.
Dean removed himself as the product, and turned himself into Netflix for Digital Artists.
Pivoting from live work to creating Evergreen Products has one major drawback: When you’re creating, you’re not earning. In many cases, you’d have to actually turn away paid work in order to carve out the time needed to create the Evergreen Products. Do an hour of live work, and you get paid for that hour. Do an hour of Evergreen Product creation, and you’ll only get paid if and when you sell that product.
After one hour, you’ve sold nothing,and earned diddly squat. After a month, you might have sold one product, and your hourly rate (for that same solitary hour of creation) might be £10 or £25. But imagine if after six months you’ve sold £200 worth, a year later it’s £500, and after a few years, your total earnings from one hour of creation could be several thousand pounds.
With Evergreen Products, the return on investment is delayed. Netflix aren’t going to recoup their $17 billion investment in Evergreen Products in a quarter or two – although with more than 200 million subscribers paying anything from £5.99 a month to £13.99 a month, it isn’t going to take long! You’re going to turn away paid work in the short term, earn very little in the medium term, and really reap the rewards (again and again, and again!) in the long term.
Why are Netflix continuing to invest so heavily in original content? Because they understand that the greater the library of content, the more ROI they can expect over the long term. They know that the lifetime value of subscribers will continue to rise (I returned in 2013, and can’t see me leaving anytime soon – I’ve got a watchlist with at least twenty shows I want to watch!), even if they put the prices up (as they did last year – by 20%). The more Evergreen Products they add to their ecosystem, the more valuable my Netflix membership becomes to me.
Information products such as courses, ebooks, downloadable resources, guides and how-to manuals lend themselves really well to be converted into an Evergreen Product ecosystem. If you can create them yourself, and deliver them digitally, then even better – you’ll have no suppliers to deal with, no inventory sitting on your shelves tying up your cash flow, low (to no) overheads, and much less customer service. You can deliver your products anywhere in the world – instantly.
And best of all, you’ll enjoy freedom of time – you choose when to create your products, and your customers can buy them whenever it suits them.
Evergreen Products enable you to be the Netflix of your niche.
They remove “you” as live produce, being sold by the hour – and instead licence the information, ideas, and experience in your head as replicable digital assets. The more assets you can add to your Evergreen Products library, the more valuable the entire library will be.
If you enjoyed this excerpt, you can get a FREE chapter of Evergreen Assets here.
Work out your actual (or desired) hourly rate. Divide the income you actually take from the business (or would like to take), by the number of hours you actually work.
So if you earn £60,000 a year, working a 100-hour week, you’re on £11.54 an hour, but if you draw £50,000 a year and work 20 hours a week, you’re taking home £48.08 an hour.
Of course, the more holidays you take, and time you spend away from your business (leaving your laptop at home, and not taking work calls), the higher your actual hourly rate (AHR) goes.
Remember, you can calculate your Actual Hourly Rate, using the hourly rate calculator on this page, or manually, using the following formula:
Amount of Money withdrawn from your business in a year
total number of hours worked in the year
Once you know your AHR, knowing what tasks to outsource becomes so much easier. If someone else can do a task to a similar standard (or better) than you, for less than your actual hourly rate, then it’s a no-brainer – especially as freeing up another hour (or more) of your time actually increases your AHR (either simply from earning the same amount from fewer hours worked, or from reallocating that hour to more income-generating tasks to increase your earnings).
Let go of all jobs which you can outsource for less than your actual hourly rate, so that you can focus on AHR-increasing tasks, as well as those roles that only you can do.
In his bestselling book, Good to Great (my #1 Business Strategy book of all time!), Jim Collins refers to “profit-per-x”, a simple calculation that the world’s most successful companies used to know whether they were growing, or stagnating. Collins called it “the single denominator that had the greatest impact on their economics.”
Knowing (and growing) your Actual Hourly Rate could well be the single denominator that has the greatest impact on YOUR economics.
WORK OUT YOUR ACTUAL HOURLY RATE HERE, USING OUR FREE HOURLY RATE CALCULATOR:
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DON’T YOU WISH GROWING YOUR BUSINESS COULD BE LESS STRESSFUL?
Could you improve your business by just 1% this week? Note: I said “improve”, NOT "grow" your business - growth might not be what you need.
More customers, more leads, more staff, more stress might be the last thing you need.
You might actually need more profit. more margin. more leverage.
More time, less stress, and a business that relies less on you as the "font of all knowledge and the godlike genius through which everything must flow".
For you, the answer could be a smaller team, less customers, and fewer products.
The One Percent Club won't help you grow your business. It'll help you IMPROVE it - 1% at a time. Baby steps. Steady, predictable improvement - towards the kind of business you wanted when you first started - one that delivers a fantastic lifestyle, and serves you rather than you serving it.
John released his first book “Big Ideas… for Small Businesses” in 2017, and it shot straight to the #1 bestseller list for Small Business and Entrepreneurship on Amazon, outselling books by Richard Branson, Alan Sugar and Duncan Bannatyne combined.
Since then, it’s sold thousands and thousands of copies all over the world, and attracted more than 100 five-star reviews. But more importantly, it’s changed the lives of small business owners all over the world, who now understand that running a lifestyle business isn’t a bad thing.
I think you’ll like it…
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