We believe we understand time until we have to assign a value to it. As we consider how much our time is worth we also have to decide how to spend it. Your time is a critical business resource and as a business owner, you will have to be judicious in how you invest it. Those decisions are both personal and professional as there is a fixed budget of hours that have to be allocated across your life. No matter what you do, there will always be only 24 hours in a day. You can multiply time by adding more resources but you cannot add more hours.
Let’s look at how time impacts our business decisions by examining three key business metrics.
Client Acquisition. How much does it cost you to acquire a client? Are you generating leads through inbound sales? Do you use marketing automation software? Are you speaking, publishing or networking to generate leads? Understanding how much it costs to attain a client will help you to evaluate how to spend that time resource. This can help you refine the client the and size as well as how much time is allocated to different business development strategies. For example, if it takes you 20 hours of time to acquire a $5000 per month client via an RFP but 5 hours to acquire the same client size via a webinar, you may opt to focus more on webinars.
Your profit margin. Your gross and net profit margins are important to forecasting and judging the financial health of your company. Gross profit margin is your revenue minus the cost of good to produce your service/product, divided by revenue.
Gross profit margin = (revenue – cost of goods) / revenue
Your net profit margin deducts the cost of goods, expenses, interest and taxes from revenue and divides that number by revenue.
Net profit margin = (revenue – cost of goods – operating expenses – other expenses – interest – taxes) / revenue
Net profit margin is a much more accurate measure of your profitability. Looking at this number can help you evaluate your pricing and efficiency. If your operating expenses or costs to produce your services are high, there may be opportunities to reduce your costs and put more money in your pocket. When considering time in this equation, consider the following questions:
- Is the financial payoff of a given task or project large enough to justify the investment of your time?
- Is this task/project an expense or investment?
- Does this use of time contribute to my profit goals?
Your business concentration. Concentration is a measure of the amount of business you are doing with a specific client or project. The prevailing wisdom is to avoid over-concentration. For example, if 75% of your revenues are from a single client, a loss would eliminate the majority of your income. This may be a worthwhile risk to take depending on the client type, industry and more. For example, if you have a 2 year guaranteed contract, it may be worth the risk to over-concentrate in the short term with a plan to diversity prior to contract end. As you evaluate how your business is concentrated, you will want to consider the following time questions:
- Am I using my time in a way that energizes me?
- Does this use of time contribute to my revenue goals?
- Does my business concentration line up with company’s mission, vision, and values?
- Are my resources (including your time and that of contractors and/or employees) appropriately allocated based on my business concentration?
Whether you plan to maintain a solo consultancy or grow into an agency, time is a critical business resource. Time factors into the number and types of clients you choose, pricing, outsourcing, hiring and more. Critical evaluations about how you spend your time will ensure that you maximize both your profit and your happiness.
How do you value your time? Feel free to add your thoughts in the comments or via social media using #solopr.
Photo via Unsplash / Tristan Colangelo