Did this IKEA dresser cost $199 or $1,049?
I am at IKEA waiting in line to return a dresser. Why am I returning a dresser – well that is the subject of a different post on organization and company values, but I digress.
Sitting here got me to thinking about a topic common to professional service firms – how do I account for my time.
As a business owner, when you add up all your company expenses, do you include your own compensation or do you just assume that your earnings are the left over profit. If you do include your compensation, how do you value it? Do you include what you would like to earn or do you include what you would have to pay someone else to do your job.
Lots of options and no real right answer, which leads me back to IKEA.
A few weeks back, I purchased a 6 drawer dresser for $199, or $217.90 with tax.
But, to be honest the cost of that dresser really did not stop with what I paid for it. It took an investment of time to get that dresser ready for use. In this case, the investment of time was:
go to IKEA (30 minutes),
get through IKEA (1 hour at a minimum!),
load the car (15 minutes assuming everything fits),
drive back home (30 minutes) then finally,
assemble the item (2 hours)
Grand total: $199 plus 4 hours and 15 minutes of my time.
So if we are determining the total cost of the dresser, we know the cost of $199, but how do we assign a value to the 4 hours and 15 minutes it took to get that dresser in place and usable.
On the one extreme, we assign no value to the 4 hours and 15 minutes. Heck putting IKEA furniture together for some is a hobby or a challenge in most cases, and hobby time is fun time = total cost $199 plus the satisfaction of putting it together.
On the other extreme, we could assign this project the same hourly rate we charge our clients. In this case, assuming a $200/hr billing rate = total cost $1,049 ($199 plus $200 for 4 hours and 15 minutes).
A third option is to use our annual income (converted to an hourly rate of course). Assuming $75/hr = total cost $517.75 ($199 plus $75 for 4 hours and 15 minutes).
Again, lot of options no real answer.
The point is not to manage life by always comparing against the billable hour or hourly income because if that would drive us crazy (and, we would probably work way too hard as well). But I do think it is a good exercise to understand that there is value in our time and since our time is a finite resource, we should give very special consideration as to how that time is spent and if we are getting good value in return for time spent.
So the next time you are looking at your firm finances, consider how you see your own compensation and ask yourself if you are assigning the appropriate value to your time.