Sep 24, 2020
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How To Stop Trading Time For Money

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Illustration by Steve Wasterval STEVE WASTERVAL How you think about the money in your enterprise will determine how much of it you get. Most small businesses consider revenue as the full amount of money they brought in and profit as whatever is left over after expenses. That s a really basic way of gazing your financials and quite honestly it leaves quite a few room for error

 

I lately spoke with a shopper that was self-employed had no outside office or employees and had almost no business expenses. She sold her expertise (i. e. knowledge and time) and considered everything she made as profit. But think about that for a moment: if everything she made was profit what was her time worth? What value did all her learning education and experience hold? That is the opposite direction to examine your financial situation and it s keeping you stuck in a loop where you will always ought to work more to make more

 

Good news: There s a manner out of this loop starting with how you measure profit versus revenue. Trading Services and Time for Money PROMOTED UNICEF USA BRANDVOICE | Paid Program
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Manuel Pastor And Amelia Ransom Most self-employed people who sell services mistakenly equate revenue with profit. You ARE your enterprise and may have very few expenses built into whatever you charge. So for the main part you might consider everything you’re making to be profit. But there s a large difference between profit versus revenue and that difference is harder to determine with service businesses where you sell your time in preference to products

 

As an example a shoe store receives money in exchange for shoes. Their profit is the money paid for shoes minus the price of goods and operating costs (e. g. store rent utilities insurance etc. ). This math is far harder when the product is your time the price of goods is your time and the overhead is generally your living expenses

 

Where do business expenses begin and end? To further complicate matters what if you sometimes work one more hour or two here and there since you think it s not really costing you anything? You re only earning more profit right? (Side note: Those extra hours cost you more than you think—more on that during a minute

 

) Service-based businesses come with challenges when calculating profitability. Since it s not black and white most people fall into a common trap: They installed as many hours as possible and check out to make as much money as they could then count the life they have plus whatever is left in the bank as how profitable they are

 

But the ones who think this manner are missing a key ingredient—their free time. When I talk about profitability as it relates to selling services your time is a key factor in the equation. Actually I determine profitability in both dollars and hours to get a real gauge of ways profitable a service business is

 

To be clear revenue is simply the money you take in whether it s $100 000 a year $200 000 or more. But your service is your product and your time is the price of goods so what matters is how much you keep finally AND how hard (and long) you had to work for it

 

How You Should Be Doing It Let s investigate two scenarios: Frank brings in $200 000 a year in revenue but he works nights weekends and rarely takes off for the holidays per annum and hasn’t ever had a proper vacation. Let s say he has $50 000 in the bank at the end of the year as well

 

Stan brings in $100 000 a year but he works 40-hour weeks for 6 months out of the year and spends any other six months traveling and enjoying his life. Let s say he doesn t have any money in the bank at the end of the year. Which one would you consider more profitable? If you didn t say Stan you haven t been paying attention

 

Stan is wildly more profitable despite not having any money in the bank. His loss of funds isn t because he can t earn more cash but because he’s choosing not to. If Stan wanted to he could work one more three months and get $50K in the bank but instead he s enjoying his time freedom

 

If he worked year-round in the same 40-hour week fashion he d have $100 000 in the bank AND and would still be working lower than Frank. Alternatively if Frank worked the normal 40-hour weeks that Stan works he wouldn t have any money in the bank. See the difference? The money isn t what determines profitability but rather how much revenue is brought in compared to how much you work

 

You didn t go into business just to have a fat bank account. You also wanted creative flexibility time freedom a bet to do things your way and work by yourself terms. But if you re too busy chasing down cash none of these other benefits of self-employment will ever be within reach

 

How to Find Your Profit vs. Revenue Sweet Spot So as to have a profitable business that hums and allows you to enjoy your life I believe that is imperative that you structure your enterprise so you are making money like Stan using a maximum of 50% of your time to make the revenue you need

 

For that to happen there’s a certain price point you would like to charge in line with how long you take to deliver your services. That s why I came up with the 50/25/25 formula to find the cost you would like to charge for freedom. It s an easy formula that helps you figure out exactly how much your services ought to be so as to be profitable without you getting confused about the revenue

 

You are able to the way to use it and find your price here. Once you figure out your sweet spot you might realize you re nowhere just about charging that much! Resist the urge to think Oh no person is going to pay that much! or There s no way I can break out with charging that much since it only costs me X hours of work! This kind of negative thinking can have you continually spinning your wheels and you ll stay stuck in that trap of working more to earn more

 

Knowledge is power and knowing your ideal number is step one to building a business that you KNOW is profitable with no need to take a seat down and math it out. You ll be confident that you are able to get off the hamster wheel where you’re always hustling to make more money without result in sight

 

Take control of your numbers to find freedom on your business—you ll wish you d done it sooner

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