For better or worse, I am an underachieving overachiever. I am constantly looking for ways to make myself and my business better, more efficient, higher performing. To get there, I’m completely obsessed with reading small business books. I have probably read every small business book you’ve heard of and many you haven’t: “The 4-Hour Workweek,” “The 7 Habits of Highly Effective People,” “Rework,” “Crush It,” “The Purple Cow.” I want to say that all of these were a wonderful use of my time, but that just isn’t the truth.
Then one day I shacked up in bed with Laura Vanderkam’s “168 Hours: You Have More Time Than You Think,” and it was truly life changing. It helped me restructure my business model, increase my profits, and trained me to think of my minutes as currency.
When I started my business, my business model was simple. As a freelance bookkeeper, I would show up at a business or art studio, put in my time, submit my invoice and get paid. I only clocked time in increments of 15 minutes to keep the math simple. It seemed cheap and unseemly to bill my clients for every minute worked, and, not to mention, it was a pain to calculate (in the days before smart phones!).
Then, I got better at my job. Much better. And my typing speed increased to ridiculous levels (my nickname is the Keyboard Ninja). I started working from home to take care of my newborn, and I realized that the value of the service I was providing was far greater than what I was charging. At that time, my rate was $50 an hour. But sometimes, on a good day, I could complete several months’ work of bookkeeping in a few hours (again, typing skills). There was way more value to three month’s worth of bookkeeping to the business owner than the measly $150 invoice I was submitting.
So I switched to a retainer model and starting charging a project fee. And this was great, for a while. I sold old clients on the value of what I was offering, instantly upping my fees, and I sold new clients, too. (“Hey! This is an all-inclusive, awesome thing, and you’re getting it for a flat rate!”) I didn’t have to track my time either, which was nice, because I really hated doing it. I knew I was making out ahead, and if my baby woke up or tantrumed, I didn’t have to punch a clock.
But then several years later, my business changed again.
I began building a team — and while they were great, they didn’t work as quickly as I did because they didn’t have the same years invested in skill building. Also, it was 2008, and business was unpredictable. It had become nearly impossible to gauge if a client’s books were going to take three hours or eight hours a month. I didn’t want to rock any boats, ask for more money and lose clients. So even though I knew my retainer model wasn’t working anymore, I was hesitant to change it up again.
But one day I remembered the book I loved, “168 Hours,” and it finally sunk in. By avoiding the change back to a time-tracking invoicing system, I was no further, professionally, than I was a decade before. I was undervaluing my business and my time. I was cheating myself, but I was also cheating my family.
So, I went back to time tracking — meticulous time tracking — using professional software. And what I thought to be true, was. I was greatly undervaluing what my team was bringing to the table, and in some instances, it was almost as if I was paying my clients to work for them (after I accounted for the money paid to employees, my overhead and my own time).
For example, I had one client whose business had grown 800 percent. Of course, her bookkeeping needs changed to reflect an increase in transaction volume, and a project that was once taking me three to four hours per month was now taking close to 10. The problem was that she was still only paying for the retainer we originally agreed to. I nearly cried when I realized my business was only going to earn about a $1,000 a year profit from working with her. What’s the problem with that? To make $250,000 a year, I would have to have 250 clients just like her. If 250 clients eat up 10 hours of time, that is 2,500 man hours per month needed. And if there are 40 hours in the work week, 160 work hours in the month … well, I would have to have 15.62 people working full time. Clearly, this wasn’t a profitable business model.
I had to eat my fear. I had to risk losing clients in order to grow, and I had to go back to the drawing board and ask for more money. I armed myself with information, nearly a year’s worth of time data collection, to explain the cost increases, and my clients were understanding. I could show them exactly how much time their business was taking per month. (The client with an 800 percent increase to her business? She scoffed at my new per-hour prices and left — and, really, that’s OK.)
I also explained my business values: I enjoy personal relationships with each of my clients. In order to allow for that sort of intimacy, I curate my client list, only taking on people and businesses that are a good fit. But in order to maintain those relationships, I needed to enact monthly hourly minimums to ensure the business was sustainable. Paying a minimum to retain top talent, a bookkeeper you trust, was just good business for them.
This is not to say that per-project pricing isn’t a viable business model — because it is. For instance, it may be hard as a designer to pitch a new client by saying you’re going to create an amazing brand identity for them for a rate of $1,000 an hour. Clients would never buy it. However, they’re more likely to agree to a $20,000 investment in a brand identity if it’s properly proposed. (And they don’t need to know it will only take you 20 hours to complete!)
No matter which model you think works for your business, take the time to complete the valuable exercise of tracking your time for a while. You may be surprised at what you’ll find.
Today, I track time for administration, marketing, bookkeeping and financial management for my own business and IT work. Frankly, I should probably start tracking my social media time as well because I know it’s eating up valuable bits of my 168 hours each week — time I can spend on my business, my family or writing articles about time.