Business Owner Writing Down on Paper while using Calculator

EHR-Business Owner Productivity Measured In A Single Number

As a Business Owner do you know your Effective Hourly Rate (EHR)?

During my time as a Business Coach over the past 20+ years I’ve used EHR-Effective Hourly Rate across more than 70 different industries to give Coaching Clients, and myself a quick consistent measure for how productive they are at building a more valuable business.

It only takes a few minutes to gather a couple of numbers from the business to work it out.

In essence EHR is a ratio of how much profit a business makes versus the hours the business owner works.

I’ve also created an online EHR calculator here.

EHR is a good indicator of productivity … how leveraged the Business Owner is being with their people and systems, or conversely how reliant the business is on the owner to make sales and get the work done.

It tells a story of whether the business is being run like a ‘business’ or a ‘job’ in the short term and the longer term effect on the business value and what someone is prepared to pay for it when it comes time to sell.

Which is why as a Business Coach it’s the one goto number I use to gauge progress and productivity of a business and it’s Owner.

Calculating EHR: 

(Combined Revenues – Combined Costs)/Owner Hours
= Effective Hourly Rate

Notes: Exclude Owners salary and perks from the Combined Costs in your calculation for the top line EBOC (Revenues-Costs). Combined Hours are both ‘in’ and ‘on’ the business hours of the Owner.

I’ve also created an online EHR calculator here.

Why should your EHR number matter to you?…

Most Owners are looking to build a “commercial, profitable enterprise that works mostly without them”, and this single calculation speaks to that for sure.

The Revenue number gives us the ‘scale’ of the commercial enterprise. While the profit (EBOC number) gives us the ‘reward’ or Return on Investment as a shareholder/owner of our time, energy and money.

Finally, the EHR Effective Hourly Rate gives us a metric of how much time investment to give us that return; which is a good indicator if it is a business built on systems, and people, or if the enterprise is being run like a ‘job’ with the owner doing most of the work and business is adding little value itself.

Where to start if you want to increase your EHR a Business Coach’s perspective

There are only 2 places to start if you want to increase your EHR you’ll need to lift your profit (EBOC) or reduce the Owners hours.

Often the advice to which one should work on first will be different depending on if you are talking with an accountant or a business coach.

An accountant will start by taking a hard look at your expenses. While it’s easy to fall into the pattern of paying a bill year after year without questioning it. Chances are you can trim expenses somewhere; in my experience most Business Owners don’t have a lot to cut out that will really move the number.

Do it but keep it realistic; cutting necessary and reasonable costs isn’t going to positively affect your true bottom line in any sustainable way. Next, accountants will look at the revenues coming in to see if improvements can be made, but driving sales (and marketing) are generally out of their area of expertise.

As a Coach on the other hand if Revenue/EBOC are ok enough in an established business I usually start by focusing drop the owners ‘in the business’ hours. Most Owners know they are still doing way too much of the stuff they shouldn’t be doing but don’t have time to sort it out.

I use a framework for this which has the acronym LEAD (Leverage, Elimination, Automate, Delegate) with a few other tools to enable this fairly quickly in a month or two.

It is no coincidence that the most successful owners who focus ‘on the business’ and usually work less hours and make more far more profits as a result.

But initially we reinvest some of that time saving to further improve the skill and productivity of the people & the business systems using our 4 meeting framework.

The 4 key meetings consist of Daily Huddles, Weekly Leadership, Monthly Mentoring, and Quarterly Planning which can all be executed in less than a few hours per day.

In fact most of what Owners need to execute is done in those 4 meetings….and usually in 1-2 hours per day.

I take improving profit (EBOC) seriously in any business … I believe it can be done more sustainably if the owners have the time to drive the business and its people.

So while we are setting these up the Owner and myself as their Coach are usually ticking of the Sales & Cost improvements components mentioned in the first approach with the extra spare time we gained back through reducing the owners hours and engaging the team.

But knowing your EHR number is the first step … try the Business Owner EHR calculator online.

Free Coaching Program To Improve EHR

By the way, if you are serious about improving your EHR and building your business into a “Commercial, profitable enterprise that works mostly without you” take a look at our Free 30-Day Chaos to Control Challenge where I work with you personally to get you from Chaos to Control reducing your ‘in the business‘ hours by 20-50%.

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