The False Economy of DIY

A lot of people tell me they cannot afford to do only what they do best.  I think they are being seduced by the false economy of doing everything yourself, so I thought I would share a simple calculation to work out whether you should be outsourcing/delegating particular tasks within your business. I’m going to use conservative numbers in the examples – mainly because the numbers quickly get silly otherwise!

Here’s the formula (I’ll explain it in a moment):

((Revenue/Hours) / Utilisation Factor) x Efficiency Factor x Effectiveness Factor

Revenue & Hours

Start off by looking at the revenue you could create in your business if as much as possible of your time was spent delivering well-paid client work you love to do.

Don’t kid yourself that you can get to that by taking your hourly rate (not that I’d recommend doing time-for-money pricing anyway) multiplied by a 40-hour week.  Even if your business is going great guns, you’re not going to be spending all of your 40hrs a week on paid delivery. You need to take into account the time when you will be meeting with prospects and finding new customers, networking … even making yourself a cup of tea.

I generally reckon on no more than half of the possible hours being truly available for paid delivery, even when you’ve got things really buzzing.  So, taking that capacity constraint into account, work out how many clients you can serve and how much you’ll be charging them on average.

So, say you can handle 10 clients at £100 each, so that’s £1000 a week. If you’re going to work 40hrs a week, that calculates to your hourly rate being £25 per working hour.

It would be tempting to say at this point, “So £25 per hour is the most I should pay for someone to take over the work I don’t like.” And I’ll bet you’ve found that decent VA’s, bookkeepers, designers, web-developers, etc want to charge more than that.

Utilisation Factor

But remember we talked about that a ‘utilisation factor’ of 50 percent? What that means is that for every two hours you work, only one of them is paid for by customers. So that hour has to be worth twice as much to you – £50 in our example.  And every hour you don’t have available because you’re doing the wrong stuff is either not creating the paid hour, or not getting paid.  Which means an hour spent on something other than your Joyful Genius is costing you £50.

Getting more affordable, yes?  But there’s still going to be some work that you will struggle to get done for £50/hr.

Fortunately, that’s not the end of the calculation. There are two more factors to consider.

Efficiency Factor

When you are doing something that’s not your Joyful Genius, chances are you’re not doing at as quickly as someone who does it all the time and loves doing it.  Estimates vary, but based on experience I’d say it’s safe to expect them to be at least 25% faster than you.

Which means you can afford to pay a bit more per hour.  Using the £50ph figure and going 25% faster, that means you’ve now got over £60ph to pay for it.

That £40ph bookkeeper is starting to look rather attractive at this point!

Effectiveness Factor

And now we come to the real crux of it all. Specialists will always turn out better work than generalists.  So your books will be more accurate – and might actually tell you something useful about how your business is doing.  Or your admin will actually be organised so you lay your hands on that essential document, dramatically reducing your stress levels.

And when we move into the marketing, design or production side of the business, that’s where things get really interesting.  Properly-written copy is going to get you far more leads and customers that your best efforts ever could.  A well-designed web-page or leaflet is going to present your business in a far better light, and result in more of those leads converting into customers.  And a well-designed delivery process is going to result in better-served customers, quite possibly at lower cost too.

Putting a figure on this ‘effectiveness factor’ is hard, as it depends on so many things.  And for most of us, I’d say we can conservatively reckon that the results a specialist can get us will be at least 50% better than we could do for ourselves. Probably lots more than that.

What does that mean for our calculation?  You guessed it – it means we add another 50% to what it makes sense to pay to get it done right.  So in our £1k/week example, we’re now getting close to £100ph – that may not be lawyers rates, but it should be plenty to get done most of what you need to delegate.

Remember, it’s likely to be a false economy to continue to do work that isn’t your Joyful Genius for any longer than is absolutely necessary!

 

Here’s the numbers from our example:

Weekly revenue / weekly hours:  1000/40 = 25ph

50% Utilisation Factor: 25ph / 50% = 50ph

125% Efficiency Factor: 50ph x 125% = 63ph

150% Effectiveness Factor: 63ph x 150% = 94ph (nearly 4 x the straight hourly rate we started with)

.

From Busy Fool to Busy Cool Report

In this free report you’ll discover the 5 essential secrets to effective prioritizing to make your work a rewarding and profitable joy. Being busy is good for business of course, so why do we so often complain about being ‘too busy’? This exclusive report will give you the answer, and more …

We value your privacy and would never spam you

 
Andrew Horder

About Andrew Horder

Founder of Joyful Genius Coaching, Andrew has been working with business owners for many years, helping them find and maintain their unique focus – those activities and opportunities that they love, and will produce their success, what Andrew calls your Joyful Genius!
Andrew’s first book, The Busy Fool’s a to Z of Loving Work is available from Amazon
http://www.andrewhorder.com/amazon-azlw

About The Author

Andrew Horder

Founder of Joyful Genius Coaching, Andrew has been working with business owners for many years, helping them find and maintain their unique focus – those activities and opportunities that they love, and will produce their success, what Andrew calls your Joyful Genius!
Andrew’s first book, The Busy Fool’s a to Z of Loving Work is available from Amazon
http://www.andrewhorder.com/amazon-azlw

Comment on Facebook