A company owner was burned out and questioning whether he should stay in business. He loved the business but hated the hours that he was working for the money he was making. What was wrong?
When I analyzed his financial statements, I discovered that his company was earning 34 cents for every billable hour. The business owner was shocked. He looked at me and said, “What am I doing this for?”
Don’t let this be you too. Listen to my interview with Kevin Price to avoid this…or keep reading:
Calculate your net profit for each revenue producing or billable hour. The formula:
Net operating profit divided by total billable hours.
It’s that easy.
If your company is earning less than you could earn at a fast food restaurant, please ask yourself this question: “Is the stress, blood, sweat, and tears worth it?” Probably not.
So what should you do?
The first step is realizing what your company is actually earning. Second, decide the net profit per hour you want to earn.
Then decide how to earn that dollar amount. It might be increasing the productivity of your employees or increasing your prices. It might be adding value so you can increase your prices.
Or, as it was in the owner’s case in this real life story, it might be as easy as billing for every hour that you work on a client’s project. His employees and he would give a customer a flat rate for a project and invest hours more than estimated. They delivered more than promised and spent hundreds of unpaid hours doing it. The clients were delighted because they got a great deal for the dollars they spent.
Did he lose any clients when the project prices/billing increased? No. The clients valued his company’s work and expertise. Many commented that they wondered how the company could provide its products and services so cheaply.
Calculate your net profit per hour. And, if you don’t think you are earning enough, do something to increase it.