How To Value Your Business Decisions

As a business owner, you need to quantify the actual dollar value that you represent, per hour, for your business. This information is essential because you will base every decision about workload and responsibility on the result of this assessment.

• Determine the gross annual revenue of your business
• Determine the percentage of this revenue that you generate
• Multiply this percentage times the annual gross revenue and you will have quantified your annual revenue contribution to your company
• Divide your contribution by the number of days you work per year
• Divide this number by the average number of hours you work per day

Example:
• Gross revenue of a small business: $500,000
• Owner generates 80% of the revenue
• $500,000 multiplied by .8 = $400,000
• $400,000 divided by 300 (example of a business owner’s number of work days per year) = $1,333
• $1,333 divided by 10 (example of hours worked per day by a business owner) = $133
• This business owner generates $133 per hour for their business

The importance of determining this dollar value is that this business owner now knows that every hour they are working, they generate $133. Now, if the business owner knows that they are only spending 50% of their time generating revenue, the more accurate representation of their value will be double this amount or $266 per hour.

Every single business decision that this business owner makes should now be measured against this dollar value. Examples:

Hiring:
• It costs this company $266 per hour for the owner to read applicants’ resumes
• If an employee reads the resumes it costs the company perhaps $25 per hour
• It costs the company $240 per hour for the owner to read resumes

Ordering Inventory:
• Owner: $266 per hour
• Employee: perhaps $25 per hour
• It costs the company $240 per hour for the owner to order inventory

As a business owner, list the daily tasks that you are responsible for. Label every task as either RG (Revenue Generating) or D (Delegatable). Create and stick to a plan that optimizes your time and your contribution to your company’s revenue. You will quickly see that you aren’t saving your company money by doing some of these tasks yourself, you are costing your company money. Make smart, informed decisions, your business will live or die as a result of these decisions.