Over the past few years I’ve noticed an alarming trend – many web developers don’t track their time effectively. Of course there are lots of experienced web designers and programmers who are terrific at logging and tracking their activities. But a surprising percentage track their time using incomplete or inaccurate methods, or don’t track their time at all.
Why is this so important? The answer is simple. If you can track your time effectively, you can measure your profits effectively. After all, your biggest asset as a human being is your time, and you have made a decision to use that time to generate money. If you had a job, you’d be ‘trading’ your time for a pre-determined amount of money. However, your decision to go into business for yourself means that there’s really no limit to how much profit you can make in a single hour. Why not measure this ‘hourly profit’ and make sure that it’s increasing as your business grows?
Even if you already know your hourly rate, it’s very useful to understand how much you profited on each particular project. By tracking your time and expenses carefully, you can determine the actual profits after marketing and operational expenses and your time. Once you have a clear understanding of how profitable your projects really are, you’ll make better decisions overall. You might even find that bigger projects aren’t always better.
For example, take the following three hypothetical projects:
Project 1: Total project value $5000, total expenses $600, total time you invested (including sales, administrative, legal, and the actual work!) 50 hours.
Project 2: Total project value $8000, total expenses $900, total time you invested 90 hours.
Project 3: Total project value $10,000, total expenses $1,900, total time you invested 113 hours.
Imagine that you could fill all of your available time with a never-ending supply of projects – would you want them to match project 1, 2 or 3?
The answer is simple because you know how many hours it will take to service each project, and subsequently you can determine your hourly profit for each. By calculating the total project value (the gross) less expenses (the net) then dividing by the hours you invested, we can determine the actual hourly rate for our efforts.
It comes out like this:
Project 1: $88/hr
Project 2: $78/hr
Project 3: $71/hr
Big difference! If you chose project type 1 over project type 3, you would make much more profit over time because you could handle more projects at the higher rate, despite the lower per-project value.
Given the choice, I’d accept two projects like #1 instead of one project like #3. The total project value is the same ($10,000) but the profit would be over $700 more. The best part is that your increased profit will be earned in less time! It would take 100 hours to handle two projects like #2, and 113 hours to handle project #3. As you can see, calculating the hourly rate gives you better decision making power, and that’s good business.
This is just one example of the value of accurate time tracking. It’s also incredibly useful to understand your hourly profits when formulating your project proposals, prioritizing your work schedule, deciding which clients to pursue, or figuring out what work to outsource and which to keep in-house.
Once you start tracking your time accurately, the results might surprise you! Many developers are shocked to find that their larger projects are actually the least profitable when using the hourly-profit method of comparison. Other developers will learn that their internal estimation of how long an average project takes was off by 50%-100% (this is very common).
Almost all developers will benefit, though, from a clear understanding about which tasks and projects make them the absolute maximum profit – you might even change your business model as a result.