The Game with Alex Hormozi - Hourly Rate Magic | Ep 240

Episode Date: September 29, 2020

The more skills you've got, the more money you have. Today, Alex (@AlexHormozi) breaks down how we can find our actual hourly rate, and gives advice on how we can enhance both our skillset and how much we earn if we continue practicing.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:58) - Formula for calculating actual hourly rate(1:48) - Use hourly rate to quantify activities or value time(3:11) - Quantify purchases in reverse in terms of time(4:53) - Skipped money-making activities due to ego and cost(7:26) - Entrepreneurial journey: practicing higher-level skills with leverageFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

It gets kind of sobering when you think about it like that. But the reason that I like to bring it up is because there's two ways you can use that number to quantify what activities you want to engage in. Welcome to the game where we talk about how to get more customers, how to make more per customer and how to keep them longer and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. What's going on everyone? Happy Tuesday. I've got a fun mental activity for us planned around hourly rates. So one of the interesting things about being an entrepreneur is that we don't always know what our hourly rate. rate really is, right? We like to say we make extra hour or whatever it is, right? But do you really

know what your true alley rate is? It's not your revenue, right? It is your profit. And so a quick back of napian formula can get you to what your true hourly rate is. And so if you ask an entrepreneur or small business owner, hey, how much do you make? Some of them just respond with revenue, which is funny. Others will respond with profit. And then they have some sort of caveat of like, well, I invested a lot back in the business this year, blah, blah, blah, right? And the reasons why it isn't as high as it should be. But let's just talk about reality. But let's just talk about reality, not fantasy. So in your last 12 months, if you look at what you made, right, let's say you made $50,000 in the last 12 months, right? Now, if you take that number and divided by 2000,

which is roughly a 40-hour work week, now here's where it gets interesting is that if you think that you work 80 hours a week, then it actually doubles and you're making per hour cuts in half. And so let's just use that example first with 40 hours a week, which is 2,000 hours, roughly, right? That means you make $25 per hour. Now, if you work 60 hours a week, you make something like $17.5 per hour. If you work 80 hours a week, then you actually make $12 an hour. It gets kind of sobering when you think about it like that. But the reason that I like to bring it up is because there's two ways you can use that number

to quantify what activities you want to engage in. And so the first is I see a lot of entrepreneurs sometimes even earlier on kind of boosts. their egos and saying, I'm not going to do that work. That work is beneath me, right? The thing is, if you actually look at their numbers, it's actually not beneath them. It actually might be higher than what they're currently making. And so being fundamentally aware of what you currently make per hour, I think, is a first step at least quantifying how much the value of your time is. The next thing is it also allows you to draw a line in the sand and say, over time, I want to decrease the activities that I could replace with someone else doing this for me for less than what I currently make per hour.

And over time, the level of my activities should rise, right? Because if you're fundamentally not stopping working anytime soon, right? Then what you're doing is you're sending up the ladder of skill set, right? Right now, like the first thing that many people have to outsource in a baseline service is just the actual low level fulfillment of what they're doing, right? Right after that, the next thing they outsource will probably be some sort of administrative activities that are associated with that. The next level of that might be financial and billing and collections and all that kind of stuff. And then above that, you might have sales, right? And then above that, you might have marketing and marketing-related activities and prospecting.

And so all of these activities that you're doing have a certain quantifiable value that you can ascribe compared to your hourly rate. Another fun thing about the hourly rate is that you can also start quantifying your purchase it in reverse in terms of time. And so I know that when I was starting out, I would think like, I actually remember this specifically. I worked at smoothie king, and I was making $6.75 an hour. I was 15 or 16 years old.

And I remember that all my coworkers would always go right next door to Quiznos, actually was called COSI, and get lunch. And they would drop between, you know, 10, 15 bucks on lunch. And the thing is that our shifts were six hours. And so we would make, let's say, 40 bucks top line, right? And then after taxes, we'd make even less than that. Let's say, you know, they took 25% of that, right? And so we're now only making $30 for this whole shift, right?

And half of that, every single one of them would use when they go and bought lunch. And so I'm like, if I go here and I get lunch every time I'm here, then I'm literally only making $15 for six hours of my time. This doesn't feel worth it to me. And yet, I see entrepreneurs do this stuff all the time. And so if you look at your purchases, if you look at your real hourly rate and then you look at the purchases that you make, would you then say, I would spend four hours of my time working to get that? a lot of times it's sobering and you're like, no, I actually wouldn't do that. And it'll help you keep your budget in check for when you're looking at spending money. Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything.

And so the only ask that I can ever have of you guys is that you help me spread the words so we can out more entrepreneurs, make more money, feed their families, make better products and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I ask you do is you can just leave room. review, but take you 10 seconds or one type of the thumb, it would mean the absolute world to me. And more importantly, it may change the world for someone else. The other real interesting piece about this is kind of what I was touching on earlier related to ego, is that a lot, it's just so many times we don't want to do activities that we know

will generate money because we have some sort of ego associated with it. And I think one of the reasons that we've, that we've been able to do well was not being egotistical about the work that I was willing to do. right and so when I had my gyms and I had six of them I still was selling every day because I knew what I mean per hour and I knew that on average per hour I'd make $500 an hour when I was selling and so I wanted to maximize as many hours of my time selling because I knew I was making less than that doing anything else and so I see people right now who don't want to take sales calls way too soon because like they're

not like you you don't have the bandwidth you don't have the margin you don't have the padding to outsource your sales so soon. Instead, outsource everything else that's not revenue generating so that you can focus all of your time on that thing until eventually you acquire the next skill set that you can bring someone else in and you have enough margin, you have enough padding, so that you can take a decrease in sales because when someone comes in the most expensive part of sales is them not selling.

That's the cost of getting someone new and is the lost opportunities, the revenue that you should have made that you would have made if you had been selling. selling. And so I like just putting this in a big bow in terms of number one. First quantify how much you actually make per hour in the real world. Number two, and you do that first on 2,000 hours, but then you can do second on how many hours you actually work, which is probably more than that. Next, reverse quantify your purchases. Quantify your purchases in terms of how much time it would cost you to get that thing and are you still willing to put that much time forward to get that thing. A lot of times you're not. And the next piece of this is making sure that when you

look at all the activities that you're doing, an easy way of doing this is doing a time study, which every time I've done a time study, I always tell myself I'm going to do it again every month and I don't, but I end up doing one like once a quarter or twice a year. But what you do is you just have an Excel sheet and you print it out and you have the times of day broken into 15-minute increments. And you just write down what you did for each of those 15 minutes, right? And you can see what types of activities you're spending your time doing. If you think this will take you time, it will save you so much time of productivity.

I promise you that the 10 minutes of actual writing that it will cost you. will cost you far less in the amount of time that you want to now get credit for working well and working efficiently. When you do that, you're able to see what types of activities you do and then more readily outsource the ones that are lower. Because ultimately, if you think about the entrepreneurial journey from a spiritual standpoint, from a skill standpoint, is that all we're doing is practicing higher level skills with more and more leverage.

First we're doing the things, then we're managing people who do the things, then we're leading people who manage people who do the things. and then we're simply thinking and guiding things strategically. And at this level, what you're really doing is guiding the culture and attracting talent that is going to be able to do the things for you at a high level. And ideally at a higher level than you could even do them. And that is where you can get to the level of like true ownership, chairman of the board, shareholder, investor, because that is where you're doing the highest skill activities with relation to your time.

And so anyways, understanding the magic behind your hourly rate is a great place to either sober you up to the reality instead of always posturing about how much money you make and simply be like this is what I actually make anything that's below this I shouldn't do but anything that is above this I should do right and then over time outsourcing the activities from bottom to top of what you can replace at market value for an equivalent level of service so anyways hope that was value before you if you think that was useful please drop a comment or like show friends and all that good stuff so have an amazing Tuesday because you guys soon lots of love and la