Use this equation to calculate the true value of your time and how much you should be paid

  • Learning how to calculate your time as money can be a valuable tool, especially if you need to determine your rates as a freelancer or consultant.
  • Focus on finding an in-demand solution or service to clients that has potential to scale and increase in value over time. 
  • Then, you can divide your earnings by how much billable time you've put in to accurately calculate your hourly rate. 
  • This equation works both for freelancers as well as business leader and employers trying to determine if an independent contractor's rate is fair.
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In business, if you've heard it once, then you've heard it a thousand times — time is money. But just how much money? If you're freelancing or consulting, how do you figure out just what you're worth to other people?

The alternative to the comparative, hourly default

To start, you might be tempted to just use a per-hour rate. You might look at what others make for similar work to set that rate for yourself.

However, this isn't a great solution. You'll quickly hit a ceiling in terms of production, because there are only so many hours in a day to do the real work and all the un-billable, behind-the-scenes tasks involved like marketing. And let's not forget that some clients like paying only a flat fee based on whether you finish a specific task, and that some projects will vary widely in terms of what's required of you. 

To accommodate different situations and make sure you don't limit yourself to only selling your hours, you want to focus instead on finding something that's both scalable and in fantastic demand by a huge number of people. For example, I once did an analysis that looked at billionaires and how they're distributed — this showed that the biggest wealth or demand areas are housing, clothing, food, energy, and computers. 

Now, the products or services within those areas might look very different in the future. But those basic categories aren't going anywhere. So, find a niche within these groups where you can scale and scale and scale — the cloud is a great example. As you keep scaling up over time and your sales increase, your monetary value will get higher, too. And, to find that value at any given point along the way, all you have to do is divide your earnings by how much billable time you've put in. 

Let's look at an example. Let's say you're the CEO of Company Awesome. You're pulling in $100,000 a year. And let's assume that you're lucky to get 1,000 billable hours per year out of the 2,000 you could work. Doing the math ($100,000/1,000 hours) means you're worth $100 per hour. Similarly, if you're running a $200 million company and get in 1,200 billable hours, then your value is $200 million/1,200, which is a cool $166,666 per hour.

Every minute counts

Now, let's step back for a second. Yes, this simple formula lets you figure out what you could stand to earn. That's great for financial planning and living the way you want. But the bigger lesson is that every minute counts. When you understand what the true monetary value of your time is, you're not going to waste the hours of your day. It's easier to see that fooling around or being inefficient really does cost you, and that it's monetarily beneficial to be as professional as possible.

The value of your team and experts

You can apply these ideas to your workforce, too. For instance, if you can attribute $500,000 in gains to somebody on your team and they worked 1,000 hours for you, then they've got an hourly value of $500. Don't shortchange them. Every worker, regardless of level, deserves to understand what they're worth to the business, and you should reevaluate pay regularly to ensure that you're treating everybody fairly based on how the company's doing. If that value doesn't go directly into a paycheck, then they need to be able to see how you are reinvesting on their behalf to provide real security, safety, and personal opportunity. Otherwise, they might assume that you're simply lining your own pockets.

In the same way, when you bring in an expert and their rate looks absurd, take a pause. Think about how their work has translated into profits, market share, or other assets at other businesses. If that yield is high, they might be well justified in asking for a particular rate. Or conversely, if you do your homework and find out that the yield is just ho-hum, you might be justified in negotiating a lower rate or just moving on to somebody else.

The only truly limited resource that everyone has in common is time. Every moment you have matters. When you understand the worth of those moments based on earned yearly income and billable hours, you can keep yourself more accountable and advocate for yourself financially with confidence. And when you know the value of others' time, it's easier to treat them with fairness and respect, too. So, do the math. The equation is simple, and the unquantifiable benefits are free.

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