086 – How to Work Less & Make More as a Music Entrepreneur – with James Schramko

Are you working yourself to the bone? Do you have time to step back and enjoy life? Are you being effective with your time, or are you in an endless pursuit of productivity? In this episode of The New Music Industry Podcast, I talk to James Schramko and tease out some amazing insights into building a business and life you love. Download the PDF Transcription Podcast Highlights: 00:14 – Introductions 00:45 – What is Effective Hourly Rate (or EHR)? 09:31 – Overcoming mental blocks around building a team 18:03 – What holds business owners back from creating an offer that converts? 27:26 – How do you transition from hourly pricing to value pricing? 28:48 – Profit Formula Template 29:33 – Customer Lifetime Value 32:24 – How to generate referrals 35:29 – Ascension model vs. Chocolate wheel 44:11 – The recurring subscription business model 48:27 – What do you feel has contributed to the success of your book? 53:13 – How do you stay up to date in your industry? 54:05 – Closing remarks Transcription: David Andrew Wiebe: Today I'm chatting with the founder of SuperFastBusiness and author of Work Less, Make More: The Counter-Intuitive Approach to Building a Profitable Business, and a Life You Actually Love, James Schramko. How are you today James? James Schramko: I'm doing spectacularly well. Thank you, David. David: Thank you so much for joining me on my podcast. I'm really excited to talk to you. James: Well, I'm just very excited to be here. It's the morning here so you've got my maximum energy. David: Oh, fantastic. So, you're all fresh. James: Yeah. David: Well, I'm going to start right in with what I think is going to be a pretty straightforward question, but still an important one and something our audience may not really know about is what is effective hourly rate and why is it so important for business owners to understand? James: Effective hourly rate is a benchmark or a measuring system that I like to use to help people to start to get an understanding as to how they spend their time. If you want to calculate your effective hourly rate you would take your revenue for a certain period, let's say in this case we're talking about a year. Effective hourly rate is a benchmark you can use to get an understanding of how you spend your time.Share on X You take your revenue for a year. You subtract all of your costs, which are generally made up of fixed and variable costs. That leaves you your profit. This is like a profit before tax. Now, you divide your profit by the number of hours that you worked to get that profit and that is your effective hourly rate. So, if you had a job, let's say you worked in a music store and you had a salary, then that's pretty much your profit, because you don't have any real costs as an employee. Unfortunately, not that many deductible ones unless you work outside maybe you can deduct sun cream but that's about it. You divide that by the number of hours you work. That's what we all know as your hourly wage. Whatever is on your pay slip is probably your effective hourly rate if you have a job. But for entrepreneurs, most people have never actually sat down to work this out. Where it becomes a very effective tool is when you start breaking it down by different product lines. Let's say you are a session guitarist and you are getting paid to do studio time, then you could work out how long do you spend in the studio and how much you get paid. Then you might think, "Well, I might start a music business. I'll start a label." And then you might sink a lot of time into that trying to find artists and set up the label. Then at the end of the year it might make a small profit, but you might have spent hundreds and hundreds and hundreds of hours to build that up, so your effective hourly rate would be quite low. In this case, you'd want to be doing a fair bit of session time to bring up your income while you're building that label on the side. So, it's a good way to know where to spend your time. Now, it's not the end all measurement because it doesn't take into account things like building an asset or the sale value of what you're creating. However, it does help you work out simple stuff like should I be answering support tickets, should I be building my website, should I be mowing my lawn? Because if you can hire somebody for a lower amount than your effective hourly rate, then it's usually a good deal to do that. David: Right. And I think in the example of the session musician, what's interesting about that is I think that many wouldn't really think of this as being part of the calculation, is the amount of time they spend practicing and preparing to go into the studio or going on stage to perform. Then your effective hourly rate kind of instantly goes down, because it's not just the time that you're on stage and it's not just the time that you're in the studio. James: That's right. It's like in my industry if someone's an expert speaker or they do keynote speeches they might say "Oh, I got $10,000 for a keynote speech for 60 minutes in front of an audience of 3,000." And then you think okay, but you had to travel there. You had expenses relating to that gig. You spent probably a week in advance preparing a keynote presentation and rehearsing it in front of a video camera. All of that time should be considered for that activity. Now, there are subtleties here that could be by products maybe practicing for a session guitar also helps if you're in a band or also helps you if you're doing a how-to-play-guitar info product. You might be able to split that time up between those multiple activities. That's a case in my business when we had a coaching business, an SEO business, and a website development business among others. When I go to a conference, I would actually split the travel costs for that conference between the three different divisions. Then it was a fair sort of situation because I was representing all of them. David: I ended up buying two copies of your book and then I gave one to my friend and she started reading it and then she calculated her EHR at $5 an hour and I just thought "Wow! That is intense." James: Are you still friends? David: Yeah, still friends. James:  Thank you for buying the book. David: I introduced her to your book, as well as Ezra Firestone on the eCommerce side, and she's loving that. She's actually getting a lot of value from it. But I think now she's thinking in terms of effectiveness and not just productivity. All the time that we spend, not just the time she spends in the technical aspects of things but also the time spent at home marketing or sending out emails or entering data into you know things that you wouldn't necessarily want or should necessarily be doing as a business owner. So, I think it's been enlightening for her. James: I think that the thing that makes it powerful is it's something you can actually measure because there's plenty of things you can't measure that are having an impact on your business. Like it's hard for you to measure what your customers are saying about you right now behind your back. That's what we might call marketing. It can be hard to measure that. But it can be easy to measure time. You could literally write down what you're doing. There are tools that did this if you are using a computer for your work. It can tell you where you spent your time. Having an awareness of it is a big step towards being more effective. I use that word over productive. The other aspect to it is that you can take advantage of Parkinson's Law, and this one is fantastic. This is that last night of homework phenomenon, where activity will expand to fill the time available. Activity will expand to fill the time available.Share on X If you give someone five hours to do a job, like a retail clerk. If you say, "Can you stock the shelves?" They might take all day to do that. If you said, "Look, the boss from the regional office is coming. We need those shelves stocked within the next 20 minutes or we're all going to get fired." Then amazingly, you could do the same job in 20 minutes. So, as soon as you start measuring this, it gives you a powerful tool to increase your effective hourly rate. And, now every time that you sit down to do work or stand up in the case of a musician probably, then you are going to get paid more per hour. That's how I sort of arrived at this idea that you don't need to work more hours. You just need to get paid a little bit more for every hour that you work and then you can choose how many hours you want. You could actually still have a life. You don't need to work more hours. You just need to get paid a little bit more for every hour that you work.Share on X David: Yeah. Because one of the ways you said you could instantly increase it is by working less which is counterintuitive just like the book title says but very true. James: If you can do the same job in less hours then you will actually make more money. Or the same money working less. You could work the same hours and have a higher effective hourly rate then you can make more by working the same. If you can do the same job in less hours then you will actually make more money.Share on X But you can also dial the mix whichever way you want. You could work more and make a lot more, or you could actually work less and still make more if you get that mix right. David: And you mentioned software. I recently installed RescueTime on my computer. I've used it before, but I just haven't been using it in a while so I'm looking forward to calculating my EHR which, I hope is not $5 an hour. James: To me I used it in the beginning to get a sense of how long I actually spend on the computer in a week. When I do this for clients, it's actually quite eye opening....