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Use Your Goals to Guide Your Business Decisions: The 40 Cent Rule

When a guy starts a website about the business side of on demand delivery, you might get the impression he's a bit of a geek. The impression gets a bit deeper when he tells you that he can tell you what he's earning at the 8 O'Clock hour or his average hourly profit for each delivery platform.

It gets worse, people. I used to play one of those little arcade type games on my phone to the point I was pretty well addicted. The big thing for me was I HAVE to get a better score. I started setting a goal for the score – and each time I’d hit that goal I’d give myself a point, trying to see how many points I could get in ten games.

Told you I was a geek.

Okay, so I was getting pretty much that same score every time. Never really getting much more. So I wondered, what if I set the goal higher? I bumped it up like 50% – and at first I was rarely hitting the goal. And then, soon, I was… and it wasn’t long until I was hitting that goal as regularly as I had before I bumped it up. So I bumped it up again, now it was DOUBLE – in a range that I almost NEVER hit… and it wasn’t that long until I was hitting the goal again.

Sometimes just having something to focus on makes all the difference.

So that brings us today to something that’s a bit of a mix of what we talked about yesterday when we talked about measuring performance by measuring profit per hour. In episode 6 we talked about setting a goal or a benchmark that we need to hit, and that it needed to be a per-hour amount.

Notice the trend here? Per Hour. The idea is that to really measure and evaluate we need to compare based on a time-based rate. Per Hour is the best way to measure exactly how we’re doing.

This isn’t necessarily true of all entrepreneurial things. I hear Gary Vee talk about how he spent hours a day interacting on social media to build his brand. There was no money coming in for it, it was more of an investment into something long term that has since paid off in spades.

But for Gig economy applications like ours, we’re trading time for money essentially, and when that’s what’s happening, your most accurate measure is going to be time based.

Getting Practical

Today, we’re going to take that concept and turn it into something practical. We’ll turn that into something you can use to guide you in making business decisions. We’re going to talk about the 40 cent rule.

Here’s the rule in it’s most simple form: Your time is worth 40 cents a minute.

Wait, wait wait…. That’s $24 per hour. Isn’t that a bit high? What about 30 cents? That’s more realistic.

It’s maybe realistic, but is it enough? Go back and listen to Episode 6 or read the semi-transcript on the episode page at DeliverOnYourBusiness.com. We talk a bit more about how things like taxes and your expenses and benefits you’re not receiving add up. A good rule of thumb is that $18 per hour in earnings is going to be the equivalent of about a $12 per hour W2 job.

Is that enough?

Set Your Goals High Enough

And that’s the point of what I was saying in the intro about that stupid game. I had to delete that off my phone you know, just to get my life back.. sad…. But I want to encourage you to shoot higher. That’s part of the benefit of using the rule in the first place – because instead of just randomly throwing a number out there you have a guage to help you REACH that number.

I’ll be honest, I’ve seriously been toying with bumping it up to a 50 cent rule for me. $30 per hour??? Maybe I should go incremental here, just make it a 45 cent rule – $27 is more attainable. The thing is, part of the reason for choosing 40 cents over 41-1/6 cent rule is the math is just easier. I can see myself pushing the 30 cent rule just to see where it takes me. Stay tuned on that one, but for now we’ll keep it at 40

Putting the 40 Cent Rule in Action.

Here It is in a nutshell: Anything you do that brings in money should bring in 40 cents a minute or more. Anything that slows you down is KEEPING you from earning money, so it’s costing you 40 cents a minute. Every minute is worth 40 cents.

Using the 40 Cent Rule to Evaluate Delivery Options

I’ve actually posted three other times on the 40 Cent Rule, so that tells you that it’s a pretty central thing for me. So you can go back to the website and search for 40 cent rule and see those posts.

The 40 cent rule can help determine whether an order is worth accepting. There are those offers that are just no brainers, yeah, I’ll take that. There are the ones that are no brainers in the other direction – these are the ones that fit the #LowPayNoWay rule. No way I’m driving 33 miles for that $8 Doordash offer!

When you get a delivery offer, you can ask three questions:

How much do I think it will pay? With Grubhub it’s easy, you know. With others there’s various degrees of guessing. Don’t worry, play the averages, you’ll guess low one time, high the next.

How long will it take? Pay close attention to the customer location shown on the map (which is why it’s so important to know your market as mentioned in Episode 5). Estimate how much time you expect to drive to the restaurant and to the customer, how long do you think you have to wait at the restaurant?

How much will this pay per minute? Divide the dollars you think you’ll get by the minutes. That’s your estimated pay per minute. Is it at least 40 cents? Take it. Is it close? Maybe take it maybe don’t, use your gut. A lot less than 40 cents a minute? No. #LowPayNoWay.

Using the 40 Cent Rule to Evaluate Delivery Routes

You have a direct route to the customer. You have a longer route that loops around on the freeway but gets you there faster? Which do you use? You evaluate your cost of the extra miles verses the cost of time. So you know the cost of your time now: 40 cents a minute. You have a good idea of the cost of the extra miles. In yesterday’s episode we suggested 35 cents. You know what? 35, 40, they’re close enough that I’m going to say let’s just say for this exercise a mile is about the same as a minute. If the route takes a minute longer but saves a mile, it’s about a wash. But if the route saves you 4 minutes but takes 2 miles longer, you pick the 4 minute savings. Yes, you pay more for that trip, but you save more in time by taking the faster route than you pay. Make sense?

Using the 40 Cent Rule to Make Purchases

We are going to talk about equipment in our next post, but there are times you might make purchasing decisions based on the 40 cent rule. There are times where you have to ask, is what I’m about to buy going to save time? How much time? Sometimes you can justify that decision using the 40 cent rule. A delivery bag that saves you time and gets you in and out of restaurants faster might be worth that extra money if it’s shaving time off your deliveries. Maybe it’s a question of parking at a meter or getting the free parking 2 blocks away. Is it better to pay the 25 cents at the meter, or lose the $2 in time for the 5 minutes you have to walk to the free parking?

I mentioned in one of the other articles a time where I forgot to check the order for a soda. This was a big ticket delivery on a platform that did tipping after the fact, and on top of it I just felt responsible, so I said I’d go get that. Instead of taking the 15 minutes to go back to the restaurant and come back I stopped at the convenience store a block away and bought the soda. The $4 in time was worth more than the buck and a half out of my pocket.

There’s a gas station that’s cheaper than anything else around about 10 minutes from my place. Unfortunately it’s 10 minutes in the opposite direction from where I like to go for deliveries. Do I spend the 20 minutes to save 10 cents a gallon? So I’m ready to give up $8 in time to save a buck 40? See how that works?

Time is Money

Sometimes you just know what to do. But sometimes it’s just that close that having something like the 40 cent rule gives you a basis on which to make a decision.

You’re going to hear me talk about the 40 cent rule a lot. That’s because time is money. When we are trading time for money, when we have a limited amount of time, we need to place a value on the time. This is where the 40 cent rule can be a key to a lot of business decisions around your deliveries.

Could this help someone else? Please share it.