An all to familiar scene is playing out at my house. My wife is searching craigslist for a job. I’m working on our other computer. She says, “what are you doing?”
“I’m working,” I say. “Are you making any money?” she asks. “Yes.” “At this moment?” “Not at this moment, no.” “When?” “Really soon, I promise, my love.” The dog jumps on my lap, her paws land on my keyboard inserting random characters in my blog post. If she could talk, she’d be saying, “play with me Daddy – you never want to play with me anymore.” I could sit with my wife and try to explain the thoughts that are going through my head about money and work and the value of time but she’s knows that we need money now and that’s one of the many things I love about her. She can focus and bring money in the door right now. I’m entirely in a philosophical debate in my mind. In that internal debate, I reach a mathematical formula to determine how to evaluate any monetary pursuit according to a value of one’s time. I had to make some assumptions in order to arrive at this formula.
First assumption: Any money earned (unless it’s gifted, inherited or compounded interest) is the result of converting a sales pitch. I hear the first nay-sayer now: But I have a job! I’m not making a sales pitch. Landing a job required a big sales pitch and there’s a continual pitch made each and every hour worked. A job is a 100% conversion rate of every hour worked.
Second assumption: The percentage of conversion is an estimate based upon past performance. If you’ve made a thousand sales pitches and had one hundred sales, the percentage of conversion is ten percent. A percentage of conversion can be increased or decreased based upon the skills of the person presenting the pitch.
Third assumption: Time is the most precious of human possessions therefore something that can be done using less of one’s time is inherently better than another.
With these assumptions, here’s the formula:
E = P x C x e/ T = V
P = number of pitches
C = percentage of conversion
e = earning per conversion
T = total time investment
V = value of time invested
If you’re analyzing the value of time for a job, that’s easy. If you make $15 an hour, V, the value of your time is $15. There are only two variables that you can increase to increase your earnings, how many hours you work and the rate of your pay.
Let’s look at this formula with a different kind of opportunity – appointment setting, for instance. Assume an insurance agent offers you $5 for every appointment that you set and you’re told previous appointment setters average ten appointments per one hundred calls. You’re also told that most appointment setters work 6 hours a day, five days a week and earn an average of $500 weekly. Assuming these are good estimates, here’s the formula at work:
$500 = 1000 x .10 x 5 / 48 = $10.42 To make $500 a week, you have to make 1000 sales calls, close ten percent of the sales at $5 per closing divided by the total hours worked, 48, for a value of $10.42 per hour. If you want to earn more, you can increase the amount of pitches (which increases your time), the earning per conversion (ask for $10 per appointment) and/or increase the conversion percentage which would naturally occur as you perfect your sales pitch. While, this might not have been the best example, at least there are more variables you can control than with a job.
For me, the formula becomes infinitely more fascinating when dealing with the sale of intellectual property. The creation of intellectual property; music, a photograph, a brand, a book, a website is time intensive to create but what makes it different from the above examples is, when it’s completed you’ve got the potential for your pitches to run an indefinite period of time and the amount of time required to maintain decreases significantly. Residual and passive income is the boon of the successful marketing of intellectual property.
The hard thing to explain to my wife (and I know she already gets it without my explanation) is that I’m either creating some intellectual property, increasing the number of sales pitches I’m making, crafting pitches for a higher percentage of conversion, or increasing the earning per conversion. This is difficult to explain when you should be working a job. The final factor which I cannot seem to express mathematically is whether you enjoy your total time spent. I’m not sure what E has to be to not enjoy what you’re doing – I guess that depends on just how much E you think you need.