We can spend time or invest time. The difference is in the timing of the outcomes.
Spending time has two immediate outcomes:
- we receive money or
- we experience joy.
Investing time has three possible outcomes:
- we receive money,
- we gain energy or
- we free time in the future.
So the most valuable activities are the ones that bring the biggest return in a balanced fashion.
Here are some examples:
- Spending time to receive money: a physiotherapist who treats a patient
- Spending time to experience joy: the activity you selected in step one
- Investing time to receive money: building a business to sell in the future
- Investing time to gain energy: going to the Gym to stay healthy and fit
- Investing time to free time: training your team member so they can take over your responsibilities (more on that tomorrow).
Sometimes the outcomes overlap.
What do you want?
Any activities that get you closer to what you want are valuable.
Get clarity on what you want and determine whether an activity brings you closer to what you want or takes you further away from it. Do only the things that take you closer, stop doing the things that take you further away.
That is the first step, but you still need to decide which of the activities that take you closer to do first.
Selecting the most valuable activity
The most valuable activity is the one with the highest return on your investment.
For most people, the main reason for running a business is a monetary return. However once that is achieved many owners are trapped in their businesses. It would not function without them. That’s when the return in time and energy (more joy, less stress, etc.) becomes more important.
For me the focus is on freeing time. The ultimate result would be to reduce the time I spend in the business to a day a week while living off the passive income that it generates.
Your hourly return
Calculate your hourly return: how much an hour of your time is worth. Divide the total hours you worked last year by the total earnings (profit of your business + personal salary).
The result is a monetary value for each hour you spend working (your hourly return).
Select Activities
Spend time on activities that give you a greater monetary return than your current hourly return. That will immediately increase your financial return, which is necessary to keep your financial position stable.
Invest time in activities that promise a time return (i.e. make you
redundant).
Review your clients
As with most things, the 80/20 rule applies to clients as well. 80% of your income is usually generated by 20% of your clients. And often the other 80% of clients take the most maintenance.
If you have a great number of clients, think of ways you can group your clients (e.g. paying cash or on credit, small purchases and large purchases).
Determine your best clients. Don’t just use guesswork. Go to your books and get the figures from last year: what was the turnover for each client. If you can extract the profit per client from your books, go on that. Otherwise determine the profit for each client by applying your profit margin.
Determine how much time you personally would have spent on each client over the year. Multiply your hourly return by those hours and subtract the result from the profit for each client. Now divide that profit (which values your time) by the hours you spent on each client.
Focus your activities on the clients with the greater profitability per hour. Reduce your time with the clients with a lower profitability per hour.
Taking this to the next level, determine common characteristics of your most profitable clients. You can use this to target your marketing.
Review your products and services
Determine the profitability for each product and service (or groups of products).
Repeat the exercise from above: determine your personal time
involvement in each, subtract the product of the hours you spent and your hourly return from the profit and divide that by the hours you spend on each product.
Focus your activities on the products and services with the greatest profitability and reduce it for the ones with lowest profitability per hour.
Again think of ways to add products similar to the profitable ones.
Review your marketing activities
Rather than just looking at the financial return of marketing activities, deduct your hourly return multiplied by the hours you spent on a marketing project.
Again, spend more time on the ones with a higher return per hour.
One caveat
The exercises above only tell you something about the profitability of your clients, products and marketing activities based on your time involvement.
Normally the profitability is determined on purely financial terms. Just compare the profitability of clients and products to their respective turnover, compare the profitability of marketing projects to their monetary costs.
Where the top results vary you need to find ways to reduce your time input without lessening the attention these clients, products and marketing activities receive.
This is where the last step comes into play: Invest time to empower your team.