What’s Your Hourly Rate?

WHAT'S YOUR HOURLY RATE?

You need to know your hourly rate. Angel investor Naval Ravikant decided at an early age to set his hourly rate at $500/hour. At the time, probably in his early 20s, he wasn’t really worth that much (or at least no one would pay him that much).

However, the market is two-sided. Because he decided he was worth that much, that was, in one sense, what he was worth.

Why would he do this? Simple: he wanted to prioritize only high-value work.

The Hourly Rate Scavenger Hunt

Let’s say you think your value is $5/hour.

Someone tells you to go on a scavenger hunt where you would find a dollar bill every 12 minutes. The scavenger hunt is worth your time (60 minutes/12 minutes = $5).

If you were good at your job and managed to find a dollar bill every 10 minutes, then your effective wage increased to $6/hour. You found a good deal.

If you were worth $100/hour, you would laugh at the prospect of getting $1 every ten minutes. It’s not worth your time.

Similarly, you do tons of “work” that’s not worth your time now. I have plenty of clothes that don’t fit. Some of them are new with the tags still on (which I ordered online). If I decide my time is worth $500/hour, why would I spend even 20 minutes trying to return a $50 shirt? I just invested $167 for a return of $50. That’s a net loss of $117.

Instead, I have a box I put my extra clothes into. It takes me less than a minute to deposit something. I can hire someone to go through that box and sell those items for me on LetGo or eBay. Clothes lose re-sale value, so let’s say my new $50 shirt now can only sell for $15. 1 minute of my $500/hour time is $8.33. So the minute I took to deposit a shirt was worth my time because it nets me $6ish dollars.

This is some rough napkin math (not counting shipping costs, time and money costs of hiring someone to take care of listing the items, etc.) but I hope the point is still clear.

When you value your time enough, you stop wasting them on things with a poor return.

This doesn’t mean you stop having fun, or never shitpost on Twitter. It means you stop investing dollars to get pennies back.

If you’re buying something online, spend one minute looking for a discount code. Do not spend five. Better yet, join Honey* and have it search for discount code for you. FYI, this link is associated to me, so you and I both get points for a gift card if you sign up with it.

Freelance Rule of Thumb

Let’s say you work full time as a copywriter making $30/hour. Someone approaches you to take a one-off copywriting job for their business. What’s a fair wage to ask for?

This one is tough to answer because most freelancers don’t discuss this since no one gives away their secret sauce.

Below your current rate. You may ask for less than $30/hour because you simply want the extra work. If you’re desperate, sure. Not recommended.

At your current rate. You ask for $30/hour. This is fine—but all you’re doing at this point is effectively working overtime but without any overtime pay.

Above your current rate. You ask for more, ideally a minimum of 1.5x your full-time rate (coming out to $45/hour). This way the job is certainly worth your time, and it’s giving you a new floor to negotiate from in the future.

Realistically, the right answer is whatever you can negotiate. But for 80% of people, that means shoot higher than your current rate. This is true even while you’re entry-level.

One more time in case you missed it. When freelancing, ask for a minimum of 1.5x your normal full-time rate.

RELATED: Switching Jobs is Better Than Getting Promoted

The Long-Term Benefits

Okay, $45/hour is nice, but it’s not life-changing nice. But $500 is so unrealistic, why would you set such an unrealistic level?

The real benefit of pricing yourself out is you only work on high-value problems. Ravikant suggests on his podcast that Elon Musk probably doesn’t work any harder than a grocery store owner. In fact, the owner may even work harder.

Owning a business, especially a high-volume, low-margin business like grocery is tough work. But Musk’s time is worth so much more than a grocery store owner’s because he’s delivering more value overall.

While Musk doesn’t have a salary per year like the rest of us (most of his wealth is gained through asset appreciation) he is a multi-billionaire, and for a few days he was the richest person on earth.

Let’s arbitrarily set his “salary” equivalent to $1 billion/year. Translated to a wage per hour (lol) we take 1 billion, divide it by 2080 (40 hours a week times 52 weeks in a year) which comes out to $480,769.23/hour.

Can (or should) anyone hire Musk at an hourly rate of almost half a million dollars? At this point, he’s probably unhireable. (At that level, you can still get someone to work with you, but for clout and fun, not money). You have a better shot asking him to be a guest on your show for free instead of offering to pay.

When you set your value high, you only work on problems worth your time. Will a grocery store itself give an owner a million dollars a year ($500 * 2080)? Probably not. But would a new brand + business model for grocery eventually give the owner $1,000,000/year? Eventually, it definitely could. People who value their time are happy to work on “menial” jobs when they see the long-term payoff as being worth their time per hour. This is the whole premise of startups: work on ugly problems for no money and no attention until one day you “magically” run into exponential growth and it all pays off.

Assess Your Current Hourly Rate

Quit any work, even “profitable” work, that’s not worth your time. Who cares if you’re saving $5 hunting down grocery store coupons when your long-term potential is worth hundreds per hour. If it has to get done, hire someone else to do it.

I like washing dishes. The monotony is similar to being in the shower or driving in that it allows me time to think. However, I hate cooking because it takes time and doesn’t offer me much. So I outsource it as much as possible (easy meals, ready-made healthy meals, etc.).

Treat your time like it’s worth something. Solve problems worth solving.

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