A colleague recently made a strong case on why he should spend a few hundred extra dollars to fly into a more convenient airport, and his argument was so effective it helped me realize how much money is wasted in efforts to save money. In particular, people often undervalue (or do not value at all) their own, employees’ and colleagues’ time. As someone who started his career as an entrepreneur, I find myself even more guilty of this mistake.
Although everyone understands their time has value, we often do not realize the extent of this value or think to apply it to many situations. It is, however, pretty easy, to look at the cash value of your time. Let’s say you earn $50,000 a year. Without overcomplicating the equation to take into effect holiday, overtime, etc., you can divide 50,000 by 52 to estimate a value of $961.50 per week. You can then divide $961.50 by 5 to get $192 per workday. Then divide that number by 8 to get your hourly value, in this case $24. If your salary is $100,000 double the number, $150k, triple, etc. You should also perform the same calculations for members of your team (I would also keep the data handy).
If you are an entrepreneur, you can estimate what the salary would be to get someone to do the same work (of course, they would never be as good as you but at worst you are then just creating a conservative estimate of the value of your time). Once you understand how much your time is worth, you can then look at different activities and make more rational decisions.
The first area where understanding the true value of time has a major impact is business travel. There are two different ways this analysis should impact your travel: it can help you choosing routes/schedule and whether to travel at all.
First, as in the situation I mentioned above, it may be a better value to choose a more expensive ticket. If you have a salary of $100,000 and route A costs $500 gets you into the office at 9 AM, and route B costs $350 and gets you in the office at 2 PM, route A is the better option. Yet many companies travel policy and just overall company philosophy might push you to route B to save $150. The problem is, that $150 is costing you $240, based on the calculation above, so route B is actually $90 more expensive for your company. You are being frugal by selecting the more expensive travel.
Second, you need to decide whether the trip is worthwhile. Rather than simply looking at the cost of the trip versus the expected benefits, add in the cost of your being out of the office. This can simply be travel time if you expect to be 100 percent productive while traveling or it can be the full time of the travel. Thus, if you are thinking about a three-day business trip where airfare is $500 and hotels are another $500 but you won’t get any work done other than the business conducting by traveling, you should not consider the cost of the trip $1,000 but instead about $1,600 (if you are at a $50,000 salary). Measuring the cost in this manner makes many business trips counter-productive.
An extension of the travel equation is determining whether to attend a trade show and how many members of your team to bring. Often, people look at the cost of buying admission and travel costs as the full costs of attending. Many shows give away admission, so the perceived cost of attending the show seems relatively low. This impression is particularly strong for those who are offered free admission, possibly in exchange for speaking at the show. Once you factor in the value of your time, however, even a free show can have a huge cost, even more if there is substantial preparation required for a speaking engagement.
Another costly mistake is bringing too many people to a trade show. Companies will often get a discount for bringing multiple employees yet again the hard costs are only a fraction of the actual expense. Even if travel is free (let’s assume the show is in your base city), if you bring 10 employees for three days (assuming an average salary of $50,000), your costs are about $6,000 (plus any other expenses). Once you begin factoring travel expenses, trade shows frequently have a sharply negative ROI.
One other area where people miss the value of time is in meetings. A one-hour meeting with an executive team, say 10 people each earning an average of $100,000, is $500. For all-hands meetings, the cost gets high fast. To remedy this situation, first you need to make sure the meeting has value. Then you should judiciously look at who is attending and trim the list to only those who are needed.
Your personal life
Even people who understand the value of their time in a professional setting sometimes neglect to value their personal time. If your time is worth $200/hour, are you better off spending two hours mowing your lawn or pursuing another activity. You may be able to hire someone to mow your lawn for $50, so it is actually $150 more costly for you to mow it yourself. A couple of caveats:
- If you enjoy mowing your lawn, the value may be higher and your cost less.
- If you are much more productive professionally than personally, i.e. you have nothing better to do with your time.
One way to think about it, and act, is if the activity is something you do not want to do, think about hiring somebody to do it and spend the time working. While it may not be reflected directly in additional compensation (though many of the readers of this blog are founders or senior level), it will make you more valuable to your employer and should result in higher comp or bonuses in the future.
- Your time has a monetary value. Keep this value in mind when choosing between options that take up different levels of time or activities that have no hard cost but take time.
- One area where understanding the value of your time is critical is travel. You may have a higher expected value taking a more expensive yet more convenient route or you may find the travel overall has a negative ROI.
- Keep the value of your time in mind when choosing between personal activities; spending two hours doing something somebody can be hired to do for $10 is not a good use of time.