How to increase your hourly rate

Let’s be honest, you’re not paying yourself much.

Not when you consider the financial risk you took in starting your business, the long-hours, grumpy customers and staff headaches. Sometimes, you think it would be easier to just be an employee.                 

Getting paid what your worth wouldn’t make all your problems disappear, but it sure would go a long way to making business ownership more enjoyable.

There are many ways to increase your businesses financial performance and consequently your compensation, but a great starting point is calculating your current hourly rate. 

Not only will it send your dissatisfaction through the roof (a key ingredient for change), but it will also provide you with a clear line in the sand as to the tasks you need to prioritise. 

Calculate

The first step is to calculate your current hourly rate - the amount of money you’re being paid to perform your particular function within the company along with the compensation for ownership.

Business owners often pay themselves from drawings on an as and when needed basis (a poor practice in my opinion) but more on that in another article.

If you are paying yourself on an ad-hoc basis, take a look at your tax summary for the last financial year or just make an annualised approximation. Then add in any additional profit you made on top of your salary.

The next step is to calculate the number of hours you are working. Again, an approximation is fine. Start with an average week, then multiply this by the number of weeks you work in a year.

The final step is to divide your total annual income by annual hours worked. The equation should look like this:

(Owners Salary/Drawings + Profit) / Annual hours worked

Commit

Now that you know your hourly rate, it’s time to commit to changing it. 

Peter Drucker once said, “Unless commitment is made there are only hopes and promises, but no plans.”

Here are 4 ways you can increase your level of commitment:

1.     Set a new target – what figure that would make you feel happy about your pay?

2.     Understand your driver – why is this figure important? What impact will it have on you personally?

3.     Set a date – when will you reach your target? Be specific.

4.     Tell someone – introduce some positive peer pressure by telling someone your new target hourly rate, and when you will achieve it by 

Change

With an established a baseline for your earnings, you now have a clear mental marker for the value of your time.

The bottom line is that if you want a pay-rise, you need to do more of the types of tasks which have a value above your current hourly rate.

For example if your current hourly rate is $75 then replacing a task worth $25/hour with a task worth $95/hour will have an instant upward effect on your hourly rate.

Start by replacing your lowest value tasks first - answering phones, e-mail, data entry and accounts are all easy to outsource or delegate and are typically only worth $20-$30 an hour.

On the other end of the scale, tasks that involve working ON your business like building systems, improving team culture, developing strategic alliances etc. are often worth $100’s and sometimes thousands of dollars an hour.

Now you’ve got the recipe, it’s time to get into action.

Calculate, commit, change.