Measuring value is an extremely challenging topic for anyone to undertake. The most popular value is to measure by hour. Whether professional services or employees, each comes with a cost for every hour of time. The algebra for this method is straight forward and, (dare I say) fun. The 2018 federal minimum wage worker ($7.25 per hour) can work for an entire eight-hour day and earn $58. At approximately $4 each, that will purchase 14 ½ Big Mac sandwiches.
Consider the plumber billing at $70 per hour. A full days’ billing will net him 140 Big Macs, or nearly 10 times as many. The attorney at a rate of $250 per hour allows her to purchase 500 Big Macs for a day at the office.
While we all recognize the difference in earning potential, the exercise allows us to “common size” the income with Big Macs. This provides us with the purchasing dynamic across the spectrum of earning power.
The interesting part of this equation is when we reverse the method of earning and instead focus on the cost side of the bill rate.
You Spent How Much?
The difference when we related the bill rate with spending is now there is an opportunity cost of the time being used. Opportunity cost is a term used in economics and is defined as the loss of potential gain from other alternatives when one alternative is chosen.
From our example above, an attorney working at minimum wage would present an opportunity cost of $250 – $7.25 = $242.75 per hour of work performed. Choosing the lower paying task presents an opportunity for much higher “gain” is measured as the cost.
Let’s apply this to an everyday task: paying a bill.
The paper, envelope, check, stamp and ink all cost the same regardless of who prepares the bill, however the cost will vary dramatically depending on the person performing this task.
Let’s assume the entire process of selecting a bill, double checking the purchase, printing a check, tearing off the perforation, signing the check, addressing the envelope, and applying postage requires five minutes.
Continuing our example above in time alone this would cost the business:
- $0.60 at federal minimum wage
- $5.83 at the plumber’s rate
- $20.83 at the attorney’s rate
The difference here is enormous. The same task performed by different skill sets have a dramatically different cost.
Divide and Conquer
Effective management moves resources where they are most beneficial, placing higher value people in the correct roles. The logical extension of this exercise is to shift low value tasks to low value resources to contain the costs of these processes. The highest value resources need to make as many Big Macs as possible for the organization.
Thorough adoption of this process leads to delegating $10 per hour tasks into the appropriate hands and tackling projects that earn $1,000 per hour.
What’s that you say?
How can you earn $1,000 per hour?
Focus on Tasks Generating $1,000 an Hour
Perry Marshall wrote the book 80/20 Sales and Marketing focused on the value of tasks related to sales and marketing. Based on the Pareto principle which states that 80% of the effects come from 20% of the causes, the book analyzes and values the tasks performed by employees.
He claims that when broken down into tasks, specific tasks you perform are worth $1,000 per hour or more. These tasks are part of the 20% of your tasks creating 80% of your results. While they may not happen often, the results of a meeting, dinner with a client, negotiation or successful presentation have led to business worth more than $1,000 an hour (that’s 250 Big Macs per hour!).
An effective leader’s job is to separate out the day by grouping tasks into the appropriate “bucket”. The highest value work is completed by the highest producing employees and all other tasks are pushed down and delegated. Salespeople closing large deals need to be freed up to chase and close and not document and manage. Managers, paid to delegate and manage, need to make sure that is happening.
If you look at your responsibilities, which are generating the most results?
How can you spend more time on those and less on low-value tasks?