“Actual” Hourly Rate? What’s the difference?
As business owners, employees and freelancers, we’re accustomed to thinking in terms of hourly rates: We could bill clients on an hourly basis, and it’s safe to assume that anyone you hire would expect to be paid for the hours they spend working for you.
However, not all time is created equally. Sure, you might charge £100 per hour for your time spent working with a significant customer, but is an hour spent going through your email inbox also worth £100? Does the work you perform for yourself to file, copy, and post on social media also pay you £100 per hour?
It’s quite rare that every action you do would yield an equal financial return. Every aspect is out of proportion. And in this situation, being aware of your REAL hourly rate might be quite beneficial.
That’s where this free hourly rate calculator comes in – showing you what every single hour you spend at work is actually worth!
How to Calculate your Actual Hourly Rate:
- Determine how much cash you took out of your company last year. Include your salary, dividends, bonuses, pension contributions, and so forth. Don’t include expenses because they are just refunds for purchases you made on behalf of the company and aren’t money that goes into your pocket.
- Calculate your average weekly hours worked during the past year. Tell the truth about your average. If 80-hour work weeks are typical, 80 hours a week would be your typical week. It doesn’t significantly lower your average to have a few weeks where you “only” worked 40 hours. Include any weekends spent working as well as evenings spent “simply checking emails” in front of the TV.
- Calculate the number of weeks you worked. For the majority of people, this simply involves subtracting the number of vacation weeks you took from the maximum possible – 52. For example, you would enter 48 if you had 4 weeks of leave.
The formula for calculating your actual hourly rate is then simply the total amount of money withdrawn from your business in a year, divided by the total number of hours worked in that year.
Can you increase your hourly rate?
Once you know your AHR, there are two ways to increase it: Squeeze more money out of every hour you work (become more productive), and/or work fewer hours for the same money. Could you earn the same annual salary, but work towards a four-hour workweek?
After all, not every hour is created equal – or has the same value. You may hire individuals who enjoy doing the tasks you detest for an hourly charge or a monthly salary, whether you can believe it or not. Most of the time, for a lot less money than you could make in that hour or that month – especially if you use that time properly by working at or over your AHR.
I used to cut my own grass, for instance. It would take me about an hour, and once I was done, it would look quite horrendous. Half-cut in some areas and bare in others. But as soon as I calculated my Actual Hourly Rate, I instantly hired someone else to cut my lawn.
I then did the same with bookkeeping, house cleaning, car washing, admin and even posting on social media – all tasks that I could pay someone less than my AHR to do (and who often could do a better job than me, and in less time!), freeing me up to work on tasks at or above my actual hourly rate.
Without knowing my actual hourly rate – which I now review on a monthly basis by running my numbers through the hourly rate calculator again – I wouldn’t know how to get the maximum ROI out of my time investment at work.
How to use the Hourly Rate Calculator
Once you know the three variables (amount withdrawn from your business, average weekly hours worked, and number of weeks worked per year), you enter the data into the calculator, and receive the results instantly – with no email signup required.
For example, if you worked an average 40-hour week, took 4 weeks leave, and earned £58,000, your actual hourly rate would be £30.21. However, if you left work an hour early every day, took an extra week off, and grew your income by 10%, your AHR would skyrocket to £38.78 – a 28.3% increase!
Or, if you’re Gary Lineker, earning £1.35m a year, working 8 hours a week (Match of the Day is usually around 90 minutes long, but I’m allowing Gary some preparation time!), for 40 weeks of the year, then your AHR would be an eye-watering £4,218.75!
Knowing which jobs to outsource gets a lot simpler once you are familiar with your AHR. It’s a no-brainer if someone else can complete a task to an equivalent or higher standard than you can for less than your actual hourly rate, especially when freeing up an additional hour or more actually raises 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).
So that you may concentrate on duties that will increase your hourly rate (AHR) and roles that only you can perform, let go of all tasks that you can outsource for less than your true hourly rate.
Time really is money…
It was founding father Benjamin Franklin who famously first said “time is money”. In his 1748 essay “Advice to a Young Tradesman”, Franklin wrote:
“Remember that time is money. He that can earn ten shillings a day by his labour, and goes abroad, or sits idle one half of that day, though he spends but sixpence during his diversion or idleness, it ought not to be reckoned the only expence; he hath really spent or thrown away five shillings besides”
By emphasising the fact that when one gets compensated for the time spent working, decreasing non-working time also lowers the amount of money lost to other pursuits, the statement is meant to communicate the financial cost of laziness.
When you know your true worth – your actual hourly rate, you too will know whether your time is well spent – or thrown away!
