Sunday, February 24, 2008

Don't give up your day job

Don’t give up your day job, well not unless you value your time correctly.

This is a basic commercial post this time, the focus is on how you value your time.

What do you need to earn for the year. There are two figures to consider here;

Your annual ’turnover’’ from fees and your specific ‘’take home’’ before tax. As a simple rule of thumb those of you comparing your income equivalent in a day job should look at an annual turnover at least double your potential professional salary. In most cases it needs to be double plus + 25% the 25% factors in lean running costs.

You should then divide the grossed up figure by 100 days and you get close to your day rate. As you play with this you can start to get clear on what you need to earn as a benchmark each time you sell what you do.

See if you can follow the calculation below:

Example: Peter the profit guru!

Peter can earn $145,000 a year working as a business development manager for a major financial services firm.

Double his day job equals $290,000 in fees (2 x $145,000)

Lets then add the 25% (25% of turnover) for a lean operation running costs.

He now has a calculated budget turnover of $362,500

Divide this by 150 saleable days a year equals a day rate of $3,625.

Now here is what usually happens!

Pete or any other guru moves out of a day job and starts to think all I need to do is replace my salary – seriously bad move!! They then divide this by around 220 days a year.

That’s seriously hard work for very little money. In Pete’s case he would have a day rate of approx $650!

Don’t let anyone tell you that your day rate when compared to an employee is way too high. The on costs and base costs in a business will smash you every time. As an aside smart doctors share resources to drive down the base costs.

If you don’t value your time correctly 3 things will happen

  • You will find yourself earning lots and taking home nothing.
  • You will work way too hard and not have any time to develop new business
  • You will constantly think you should go back to a day job

In a practice based income business model take-home is king not turnover!

So pay yourself first and don’t sell yourself cheap!

No comments:

Post a Comment