I often ask audiences at schools and workshops if anyone pays themselves what it would cost to replace themselves. Very few hands go up and those that do are usually attached to the arms of Ranching For Profit School grads. Many justify not paying themselves a fair wage claiming that their ranch isn’t profitable enough to pay them. If your ranch isn’t profitable enough to pay yourself and other family members a decent wage, then it isn’t profitable at all. Fair wages, paid or unpaid, must be deducted as an overhead cost to calculate profit.
Most family ranches, regardless of scale, are subsidized with free or underpaid labor. There is nothing wrong with subsidizing your ranch if that’s what you want to do. But shouldn’t you at least know the extent to which you are subsidizing it? To know that, you’ve got to include the full cost of labor. That means showing what it would cost to hire someone else to do all of the work you currently do. Here’s how we figure the wage you ought to show on the books.
If you are like most owner/operators you have a lot of different jobs on your ranch. At times you are the CEO and should be earning $100 per hour. Other times you are the hired hand, earning $15 per hour. These are minimum wages for these positions and assumes you are also getting a benefits package that includes housing and health insurance.
At the Ranching For Profit School we suggest taking 2 mornings a week to work ON your business as CEO or business manager. The other 80% of the time you work IN your business as a hired hand.
Do the math:
$100/hour x 4 hours x 2 days/week x 52 weeks a year = $41,600
$15/hour x 32 hours/week x 52 weeks = $24,960
$41,600 + $24,960 = $66,560
If you’re spending two mornings a week working on your business, and the rest the time working in it, $60,000 – $70,000 is probably in the ballpark of what you ought to be paying yourself or at least recording on the books.
Of course, underlying these calculations is the assumption that you are a competent CEO and are worth $100/hour when you are working on your business. There is an easy way to know if you are worth $100/hour. If you are taking two mornings a week to work on your business and the business still can’t afford to pay you, then you should probably question your competency. Maybe it’s time you thought about investing in some business training, check out our current schedule.
For more on how to value labor fairly watch the video below:
