Your Effective Hourly Rate

There’s a lot of talk about revenue and profits and how much business owners and creators make. But what I don’t hear is the much more enticing, much more achievable goal of setting an effective hourly rate that matches YOUR particular needs…

It’s not as sexy as saying “a 6-figure or 7-figure business” but in my experience, the process and the outcomes are much more scalable, sustainable and joyful.

Recently, I met with my CPA. For some context, I’ve done all of my own bookkeeping and accounting for years and even when I was in senior leadership but working for someone else, I had a role in the day-to-day finances and goal-setting.

I really like using a gap analysis for tracking income, leads and everything else – and if you don’t know what that is, be sure to go back and listen to some of my back episodes of the Rising Tide Talents Show. I break it all down…and also, shameless plug alert, I have a digital product that actually gives you the template and tutorials to use this in your own business. You’ll find that at rising tide talents dot com.

I said I’ve done my own bookkeeping for years but in 2022, I decided to make a shift in my business structure. I created Make Media Over as an LLC years ago – and always operated as a sole proprietorship. But when it started generating more revenue…I discovered that it would benefit me to operate as an S-Corp instead.

This is NOT an episode all about that transition, thank goodness. I know enough to know what I don’t know and I do NOT know the inner workings of tax laws, entity structures, etc.

So, I now work with a team who basically runs my business as my virtual CFO, tax expert, accountant, etc.

Point is, instead of me now balancing my own profit and loss statements each month, I have an expert who does that on my behalf. And when I met with her to look at my Q1 and Q2 statements, I realized two really important things:

  1. I have now officially surpassed the salary I brought in Q1 and Q2 of the year before – when I was working full-time for someone else – and not by a small margin.
  2. I did that while working fewer than HALF as many hours.

More money. Less time spent.

That’s kind of the dream, right? And I’m living it, so don’t think I’m not also pinching myself, knocking on wood, keeping up with my abundance and manifestation journaling, checking my birth chart and more.

For years, people have told me – and they’ve probably told you – that the real measure of worth or value is TIME, not just money. If you have to work 100 hours a week to get to the revenue goal you’ve created for yourself, is it actually worth it?

The concept I now think is as important as any other metric for success is your effective hourly rate.

Here’s what that means: take the income you currently earn and divide it by the number of hours you work. It’s that simple.

Example – if I told you that I was making $200,000 a year in a salaried job, working 50 hours a week with 50 working weeks, my effective hourly rate would be $80.

If I made the same $200,000 a year running my own business, working 30 hours a week with 48 working weeks, my effective hourly rate would be $139.

There are of course nuances – we don’t all stay at the same salary for a full year, and we may not have a strict number of working hours in any given week. We may take more PTO or vacation one year compared to another.

But in general, I hope you can see that by changing ONLY the number of hours worked in a year, but keeping the income the same, your effective hourly rate increases.

But let’s apply it to where you want to go – because that may help you set your rates for your services, your offer or create sales goals for how much you want to bring in vs. the amount you want to work. 

Instead, let’s say that I want to bring in $300,000 a year in business income, I want to work 25 hours a week and do that across 46 working weeks. In other words, I want to work fewer hours each week and take more time off for vacations and sabbaticals.

Now, I just do the math backwards. If I want to make $300,000 in 1,150 working hours a year – that’s 25 hours a week times 46 working weeks – my effective hourly rate must be $261. Now, I have something I can work with!

I can:

  • Update my done-for-you services to offer packages and work that matches my EHR
  • Consider a new group coaching offer or digital product that sells for $250-$300 and sells at least one copy for each hour I take to promote it
  • Create a new one-time offer, like a VIP day or a one-time consult, that matches my new EHR – so a 60-minute coaching call for $300.

The nuance here, of course, is that you can set your rates or prices however you want…but if the market isn’t demanding your work or isn’t willing to pay what you’re asking, you’ll end up disappointed. So use this as a guide but be cautious!

You’re probably mathed out at this point – I know I kind of am! – so I won’t keep going on the topic of really diving into what you NEED to make to have a fulfilled, joyful, beautiful life…

…in my experience, that number is actually much lower than many of us think, and our “6-figure and 7-figure” dreams are based on comparison traps or believing the hype from other creators or coaches. Knowing what number YOU need to make to feel 100% happy in your life and business is a game-changer, so stay tuned for a future episode all about that.

For now, I hope you’re at least a little inspired to revisit your EHR – your effective hourly rate – and use it to make sure you’re not underselling or undervaluing the work you’re doing…and to dream bigger in terms of what your journey could look like in the months and years ahead.