How Much Are You Really Making?

As the husband of a successful mom and entrepreneur, this is a topic near and dear to my heart. I've seen first hand how tirelessly Alexandria (also known as Clippo) worked to build her business.  Which is why I'm so happy I was able to help out early on to vet her business ideas to find one that paid her a decent wage for her blood, sweat, and tears.

I know, many people work for little or no pay. In some cases it’s a hobby, like blogging. In some cases it’s a volunteer position. Sometimes you do a job, not because it makes you money, but because of the money it saves you. Special cases aside, when you sit down to start a home business, you should have the potential to make money and enter into the business with an idea of how much that might be.

It can be tempting to think that your wage doesn’t matter; that if more money is coming in than going out, that’s all that matters. Don’t sell yourself short. You’re worth more than minimum wage! Your time is valuable. Hours lost to a business puts strain on family, relationships, and your mental health.

So, before you set off with a business idea, it’s important to answer the question: “How much am I really making?”

The concept is simple: factor in all the costs you have to incur and the money you’ll make, then divide it by the hours you’ll be spending, and you’ll get a rough estimate of how much you’re making per hour.

In essence, this is a simple business case.

Don’t try for perfection. This should start off as a simple exercise and grow as you go along.  I’ll show you what I mean with a couple examples.

When Alexandria reached the end of her maternity leave and decided not to return to work, she wanted to contribute to the family budget. She started looking at crafty ideas as a possible solution. We put those ideas to the test.

One of the first was custom underwear. Here is what I remember of that business idea:

This is about as simple as it gets. Sure, $12 an hour is not going to set the world on fire, but many people work for less. Now, without getting technical, start factoring in more elements of running the business: Time spent sourcing materials, buying a sewing machine, creating a website to sell them on, promotional costs, packaging and shipping. Without even adding them into the analysis, you can see how $12 an hour is going to get whittled down to nothing in a hurry.

One of Alexandria’s later ideas had real merit. Hair clips. For some of you, this business might sound familiar.

$34 an hour? Now you’re talking! These economics further improved as we found wholesale supply sources and improved production techniques.

When you press on with your business, you'll find that almost every part of your business has a time or expense element. Each new piece of your business can be added to your analysis.

For many home businesses a major activity is shipping. Shipping services, like UPS, can be an excellent way to improve your wage by lowering the time it takes to complete a sale. Home pickups and shipping label printing saves precious time that you can't usually charge back to the customer. Standing in line at the post office is usually unpaid time that draws down your hourly wage.

Click here to download a spreadsheet (in Microsoft Excel format) to help you start your business case.

If your plan doesn’t make sense when looked at this way, don’t lose heart, another idea will be right around the corner that’s going to work out.