How Much Should You Pay Other People To Take Work Off Your Plate? Here’s the Formula

When is it time to hire an assistant? To build out a team? To stop doing so many things yourself, and start paying other people to do them — because, in theory, spending money on them will help you make even more money?

It’s a question that Dan Martell gets all the time. He’s the CEO and founder of SaaS Academy, a coaching company for CEOs of software businesses, and author of the new book Buy Back Your Time. He argues that “we don’t hire people to grow our business — we hire people to buy back time out of our calendar. So I call it calendar over capacity, because if we do that, we end up building a business we don’t grow to hate.”

Martell spoke recently on the Entrepreneur podcast Problem Solvers, where he told host Jason Feifer how to make the most important calculation of your career: When can you really spend money to make money?

Listen to the conversation, or read the unedited transcript below.

Jason Feifer:

Dan, the reason I wanted to talk to you was because I really want your answer to this question. I think it’s one that entrepreneurs grapple with all the time, I personally have and continue to grapple with it, which is when you know whether spending money will make money. I don’t mean that just in business, but rather particularly with hiring. Let’s start with the most simple version of this possible. There is a person, they have a lot to do. They are wondering whether to get an assistant, maybe they got an assistant, now if they’re wondering whether to get somebody to do some part of what they already do, the thing that people keep running into, and I’m sure you’re very familiar with it, I speak again from personal experience, is that I know that someone else could do some of the stuff that I’m doing, and I know that if I paid that person and trained that person, I wouldn’t have to do it myself, and therefore I would have more time.

But I don’t exactly know how I am going to monetize that time, because I am so busy that frankly I haven’t set up the opportunity that is available to me to spend that new time on. That describes my life, Dan, right now, because I do a lot and I do have an assistant that I pay and I don’t know what else I could give him or whether I should hire someone to do some other stuff and whether they could do this stuff. And if I have that time, what am I going to spend? So I would really appreciate you walking us through how to know that, because part of it feels like a weird leap of faith, but I am sure that there is a more strategic way to approach this very problem.

Dan Martell:

Yeah, it’s a great question. The first thing I would ask somebody is to understand what I call their buyback rate, which is essentially the amount of money that they currently make in their life in an annual basis. So if you just take your income, and I always say if you’re a salaried employee, that’s easy. But if you’re an entrepreneur, it’s usually like what you pay yourself, maybe your profit, any distributions, and then throw in the expenses you put through your business. You probably shouldn’t put through the business that aren’t like not core, but nobody wants to pay taxes. That income divided by 2,000. That’s essentially your effective hourly rate. This is how much money you produce on an annual basis. The buyback rate is actually taking that number and dividing it by four again, because I want to get people four times ROI on their money and then knowing whatever that rate is. If it’s $100,000 a year in income, that’s $12 and 50 cents, if you do the math. Right? Anything—

Jason Feifer:

Wait, wait, wait. Wait, wait. Wait. Do that math part again, because I am an idiot. And as soon as you start throwing numbers at me, I get lost. So why am I dividing? I’m basically rounding up how much money I make. Lots of different ways to think about what that money is, but let’s just say we have a number. First of all, why am I dividing it by 2,000?

Dan Martell:

It’s the amount of hours in a year. So you take the, let’s say 100,000 a year income that you make, if you’re an entrepreneur might be 500,000, let’s say 100,000. Two thousand is the amount of hours on average, most people work, that’ll give you essentially how much money do you make per hour based on the hours you work. And then four, dividing it again further by four allows you to kind of get a four times ROI. On that time. If you’re making $50 an hour, you wouldn’t want to trade it for another $50 an hour. You want to trade it for $12.50 an hour task so that you could then go do more of the $50 an hour type activities, if that makes sense.

So step one is to figure out what your buyback rate is. How much should you be paying other people to take stuff off your plate? Then what I would suggest is we look at what’s called the buyback loop. So the buyback loop is, okay, I want to grow. I feel like I’m at a ceiling. Sometimes I call it the pain line. Entrepreneurs will not grow into pain, and when you hit the pain line, you have to do what’s called the audit, transfer and fill. You got to audit your time. Where are you spending your time? And all my clients, I recommend a time and energy audit, and it’s a very simple process. You literally log every 15 minutes what you did for two weeks, and then you take a highlighter, green and red, and you highlight in green things that give you energy and in red things that take your energy. And then you use a dollar sign on that task, and you say: If I had to pay somebody else to do this, is this is $ task — kind of like, expensive or not expensive, like a restaurant on Google. Or is it a $$$$ task?

Maybe writing code might be a $$$ to $$$$ thing, but responding to email is a $ thing. Once you do that audit, then you have literally a bucket of things that take your energy and that would only cost $ — very low to have somebody else support you on. That’s your opportunity to buy back your time. Then you transfer it. The transferring is unique in my world because I teach people to use this thing called the camcorder method, which is literally recording yourself doing the work, not hiring somebody, and then training them after the fact. You literally record yourself doing the work. And when you hire them, then you give them those recordings, usually three to five typically, and then they create the SOPs.

Jason Feifer:

You’re narrating yourself doing the work, I suppose.

Dan Martell:

Yeah.

Jason Feifer:

Because most of my work is-

Dan Martell:

Yep, I talk out loud, but I’m recording my screen.

Jason Feifer:

Okay.

Dan Martell:

So I literally will just open up Zoom. For example, if I’m on my computer, I’ll open up Zoom, share my screen, record, and if I’m processing emails or doing creative work or even creating a pitch deck or whatever, I’m just talking out loud and I’m talking about why I’m choosing things. It’s like I use this image because of this and I did this because of that. And the cool part about that is it’s not extra work. I call it net time, no extra time taken. It’s just you’re doing it and you’re recording it, and then you actually have the outcome that you had to create and you have the recording so that when you hire somebody to do that piece of work, you can just send them those three to five recordings. So that’s the transfer side, and then fill will just-

Jason Feifer:

Sorry, before we move on to the next. So that’s really interesting because you’re capturing, it’s a great way of training without taking up the additional time because it’s funny, a lot of what you’re describing here, part of me thinks that’s very interesting. Another part of me thinks I don’t have time for that. So the idea is part of the problem with my own assistant is that I haven’t figured out how to set aside the time to show them how to do something, and therefore I just keep doing it myself. Probably a very common problem. But from the perspective of, I assume that in addition to teaching executives to do this, you have probably seen what it’s like on the other side. If someone is an assistant, they can absorb what you need them to do without laid out instructions. Do they find it more useful to have this? What is kind of a meandering, possibly hours long screen recording frankly sounds terrible to watch, but-

Dan Martell:

I guess that’s a belief set. You have a belief about that wouldn’t be good for them. But the truth is that’s better for you. And if you’re buying back your time, you should optimize for you. And so my philosophy is that… So even sales calls, right? It’s like you can record your sales calls, give it to a salesperson, they can listen to those calls, and then they create the SOPs. So even editing videos or editing social media, if you’re doing it today, just record yourself doing it and then if you are doing it, but you’re talking through why you’re making certain decisions and here’s the tool and the settings, and I always set it to this. And so you’re verbalizing what you’re doing. And for most part, people typically enjoy it because they’re learning a new skill. And the reason why I do this is because it also, when they create the sop, the standard operating procedures, they’re reflecting to you that they understood it and you can see their understanding based on what they documented.

Jason Feifer:

And I just also occurred to me as you were describing that when you are sharing what you’re doing and the reasons that you make the decision, then what you’re really doing is actually creating some kind of flexibility in people’s understandings of tasks. Because it’s one thing to say, start at A, then go to B, then go to C. But then if somebody sees something and it doesn’t follow that exact pattern, then they don’t know what to do and they have to come back to you. But if they understand how you would logic your way through some kind of alteration to the pattern, then maybe they’re more likely to just be able to figure it out themselves. Is that right?

Dan Martell:

Yeah, I call that principles over process. I think too often SOPs are very linear and rigid, and the challenge is that’s great if it’s a financial thing that never changes and should always be done that way. But when you hire team members, you want to teach them principles behind the decisions we’re making so that they have that flexibility. So that’s how I transfer stuff off. And then the fill part is, to your point earlier, how do I know I’m making more money? Well, at the end of the day, whatever you currently do to generate income, you want to do as much as that as possible. Rob Dyrdek, is a professional skateboarder and also the host of Ridiculousness, and he talks about this and I love it because his income generator is shooting those Ridiculousness episodes. If you go to MTV, I think it’s like 90% of the programming is that show. He’s doing 336 episodes new per year, and all he did was figure out where can I squeeze out time so that I only do that and it actually works out to only be about 4% of his year spent recording those shows.

But now he did that to optimize his production of him making money and everything else that isn’t doing that, he buys back his time so he can have other people support him in different areas of his life and his businesses. So once you’ve optimized where you currently make money, then it’s filling your time with things that teach you new skills to move up the ladder. So maybe you’re currently doing stuff and it’s like, “Okay, well the next level to charge more or the next level to grow my business, I need to learn this new skill.” The other one is mindset, because I think business is all about mindset. So actually proactively deciding like, “Here’s where I want to be in the next 12 months. What are the beliefs and mindset investments I need to make? Is it seminars? Is it books? Is it training?” Fill your calendar with things like that. And then the third is relationships. Because at a certain point in business, it’s a who not how problem. I don’t need to learn how to do things anymore. I just need to have the relationships and the contacts to be able to solve problems. And that’s usually the three areas that we want to fill to continue moving up the replacement ladder and buying back our time.

Jason Feifer:

You just mentioned the replacement ladder. I know you’ve talked about that a little bit, but let’s just step back and make sure that people really understand what you’re talking about there.

Dan Martell:

So the replacement ladder is the sequence. So if you think about the first principle of spending money to hire people in your company, you’re always wanting to spend the least amount of money to produce the biggest return in your business. And when I looked at this from a pure mathematical point, there’s really this natural sequence for all companies. And the first level is any administrative task. We’ve talked about the executive assistant or administrative task, and the key there for me is inbox and calendar. So in my world, I do not manage first replies or filtering any emails that come into my world and I don’t manage my calendar. I have somebody else do that so that I’m only doing things that only I can do. So that’s a level one kind of replacement ladder. Level two, is anything on delivery. So it doesn’t matter what the business is, if I own a plumbing company, I might be the plumber, but when I say delivery, it’s well bringing on a new customer, following up after the service is done, doing the invoicing, anything around the onboarding of the customer or supporting the customer should be done by somebody else. That’ll allow you to do more of the thing that only you can do, that’s the delivery. That’s level two.

Level three is marketing. So at a certain point, all businesses when they start off, the CEO, the owner is doing all their marketing, but as you’re buying back your time and you’re doing more of the work, having somebody else or even part-time or an agency be responsible for generating leads is the level three of the replacement ladder. And you want them focused on campaigns and traffic. Those are the two key outcomes they want to focus on. Level four is sales, and sales is a cool one because you start to get this level of freedom, but with sales, you want somebody else being responsible for calls and follow up. And that’s a tough one because a lot of business owners think, “Well, I can’t have somebody else do the sales call because they’ve been referred to me.” But my accountant, he’s a great accountant, but when I refer people to him, he always loops in as sales guy because he should be doing accounting stuff, not doing a bunch of calls and trying to answer questions and qualify people and following up with proposals and all that stuff.

So all of a sudden now the accountant gets paid the most for his accounting, somebody else does all the sales. And what’s cool about that level four, if you get those in place, now you actually have a business that makes money while you’re sleeping, because you have somebody generating leads, you have somebody selling, you have somebody helping with onboarding new customers. So that’s the most efficient way to deploy money, to hire people, to get to a place where the business starts to feel like you’re getting some freedom. And then level five, this is when you start focusing on leadership, right? Hiring people to own outcomes of departments. Maybe that’s where you hire a part-time operations person to help you with operating the business and the teams and the finances. So as a CEO, you’re focused on visionary type stuff, but when I analyze all businesses and what’s the most efficient way you can spend money to hire people to work your way out of doing stuff, those are the five levels.

Jason Feifer:

I assume you are a level five replacer.

Dan Martell:

I’m a level five across multiple companies. I mean, I now buy companies and hire CEOs to run them. So it’s a different. I’m definitely operating a different level. But I coach so many entrepreneurs that are just starting off and they have three employees and very little revenue because if I was starting over, Jason, just from today, if you took everything away from me and I was starting a new business, first hire and I would borrow the money to hire this person, it would be an executive assistant because there’s no way with my relationship to knowledge that I should be doing anything other than phone calls, emails, messages, contacting people, and then anything that comes from that activity should be handled to somebody else to keep it moving forward so that there’s no delay. If you just think of the efficiency of pulling forward opportunities in a year where if you’re doing all your own emails and all your own scheduling and it takes you three or four days to get back to somebody and versus an executive assistant who’s doing it in the same day, that should pay for that investment itself because you’re probably pulling forward three or four months worth of activity into the calendar year to monetize just by not being the bottleneck for follow up and et cetera.

So yeah, I’m definitely…. Yeah, I take this stuff pretty seriously.

Jason Feifer:

Yeah, sounds like it. So let me just ask you finally, it is very interesting. This whole thing is very interesting. Something you said as you were describing the replacement ladder and you were talking about sales and you said, “Yo, you might get to this place where somebody reaches out and they got connected to you, and you feel like, well, therefore you’re the person who’s supposed to talk to them.” But actually it’s really a salesperson’s supposed to talk to them. I think that people, as they are figuring out how to replace themselves and how to bring other people into their systems, they feel like some part of this, they have to do, it either won’t be done the right way unless it’s them, which I realize can just be a training problem or that for the betterment of this relationship, it has to be them involved, that there is something that requires their time that should be offloaded to somebody else. And I wonder what you say to those folks and how much of that is true and how much of that is perhaps an inflation of our own sense of self-worth and how on earth to know the difference?

Dan Martell:

Yeah, I mean there are scenarios like if you are a specialist doctor, you have to do the operation, but if you’re also the same person that’s doing accounts receivable in your firm or whatever, it makes no sense. The way I think about it is I’m always trying to… That’s why I like the fill part of the buyback loop, audit, transfer, fill, it’s about skills. Because sometimes I need to learn the skill to delegate or I need to learn the skill to lead or I need to learn the skill to communicate better. And then the mindset is because I have beliefs, some people have some serious controlled belief challenges where they have physical, I’ve had clients that have adrenal fatigue, stress levels, anxiety levels, having somebody else do something they would normally do, and we have to talk through this, right? Because their default is to jump back in and control it.

But the truth is nobody’s ever going to do it as good as you, but 80% done by somebody else is 100% fricking awesome. And that’s my philosophy. And if you don’t have an executive assistant, you actually do, it’s you, and you are a very expensive executive assistant. So there’s these mindset beliefs, and that’s why it’s second on the fill side that I work with clients to try to understand. Because if they can overcome those beliefs, at the end of the day, wherever you want to be in your business, if you have aspirations to be further and grow more, you have to learn how to become the person who can deal with more. Problems never go away, you just increase the quality of the problems and you become a person who can deal with bigger problems. I call those factors of 10 problems.

It’s like when you’re small, getting an extra $10 overcharge on your cell phone bills is a big deal. It’s like, “I didn’t like that. I’m going to call to ask for a discount.” But eventually you get to a place where $100 problems or don’t phase you $1,000 problems. And I mean, if you’re Richard Branson or Oprah, I’m pretty sure like $100,000 problems, they don’t lose sleep at night over it. Whereas for a lot of small business owners, it would be psychologically very tough for them to deal with, and that’s the game that we’re playing, right? We’re always trying to learn how to buy back our time so that we have more capacity so that we can develop our skills and our mindsets and our relationships to be able to build. That’s why the subtitle of my book is Get Unstuck, Reclaim Your Freedom and Build Your Empire.

I actually want to teach people how to do more of their craft because the end of the day, if you’re a talented entrepreneur, I want more of your entrepreneurial output in the world. I don’t want people to get to a place where they shut down their company or sell it because they hit the pain line and they grew business that they hate. And that’s typically what happens. So it’s like teaching this philosophy of trying to do things that light you up and making more money is just a healthy way to build a business.

Jason Feifer:

Well, Dan, I am glad that I was part of your day that you had to do yourself unless you somehow outsourced this and I’m talking to a bot or someone dressed as Dan.

Dan Martell:

Not yet. It’s coming though. I can see it in the world.

Jason Feifer:

Anyway, Dan, this has been really great. I really appreciate your time.

Dan Martell:

It’s an honor. Thanks, Jason.