Simply raising the rate, 510, 1520, bucks an hour is not what's going to make you the money that you need to and that's what I thought would be a fix, right? I'm not charging
enough when, in actuality, right? If it was 100 bucks more a day, 200 bucks more a day, I could easily control the time invested, or find a way to capture an additional hour or two of work each day that I was doing for free for the right client, for the right job, and that would be far more lucrative than just looking to charge another 1015, 20 bucks an hour.
Welcome back to another midweek, modern craftsman, pumped to have all of you guys and girls here today, I'm going to be diving into something that honestly took me way too long to figure out, and that is how to price my own time. And this is not just in terms of dollars per hour, but really value opportunity, cost and clarity. So early on, I gave away a lot of my time for free thinking that it would all come out in the wash. It didn't.
So in this episode, I'm going to walk you through how my mindset has evolved, what I charge for now, and why protecting your time is one of the most profitable things that you can do. I know I've mentioned this before, but Nick and I are looking to host a workshop, online workshop through zoom once a month. The schedule will be released through the newsletter. Those workshops are going to be free, whatever resources we'll be diving into or explaining those will also be
free. And the way to be informed about that schedule be able to sign up for them via zoom all through the newsletter. So make sure you are signed up for the newsletter. You can sign up through links on our Instagram, modern craftsman.co if you are absolutely 100% technologically inept as I am myself, you can shoot me an email, Tyler at TRG, home concepts.com and I'll help you get signed up for that newsletter, but we've made that
pretty easy for you. All right. So today I want to talk about really understanding my time and valuing my time has changed over the years, how it's evolved, and how this relates to you, because as builders, as contractors, as a carpenter, whatever, whatever your profession is within This industry, time is our most limited and most valuable resource, and unfortunately,
it's also most often the most under priced. So we all struggle with where to draw that line with what our time is actually worth, and I think especially starting out as you're new to the industry, as you you know, just open the doors to your company that this is something that you are constantly questioning. You know, you don't get a job. You question on my price is too high. People don't call you back. My pricing is wrong. You go on an estimate, you find out other people are
bidding that what do my numbers look like? Should I sharpen my pencil? Are my are my rates correct? So this is something especially early on, at the outset of your career, where you question your worth. You question what your time. Question what your time is worth, and and to me and a lot of smaller business owners, especially the owner operators, when you don't have people that you can attribute a cost or a line item to a project, a lot of that time just goes out the
window. It becomes a concession. You don't feel that you can capture it. So I'm going to talk a little bit about how I started pricing, what my pricing looks like now, what type of rates I'm looking to capture? Because at the end of the day, if you are a one man show, if you are you know, a sub based bottle where you are a management type of contractor, if you're just an owner operator, who has one employee, two employees, if it's just you, the amount of time that you can charge billable
hours are very limited. So, you know, there's a there's a cap to what you can charge. So you could pretty quickly, from a mathematical perspective, figure out how much money you can make in a year. And if you leave any money on the table, if you leave any hours on captured, you are going to be taking a massive hit on your bottom line, which is going to affect everything in
your life from a financial perspective. So when we first start our business, I like to call it the hustle rate we start out, and I've told people this on consulting calls, and I think it's a really great jump. Off point to understand what your rate should be for yourself, what your rate should be for employees, you need to understand the math. What's your overhead, what's your labor burden? How many hours can you charge for on an employee? You know what type of hours are
going in the trash? How much you losing? From an efficiency perspective, what's what's being accounted for for as far as rework, but you all obviously need to do this for yourself as well. The bigger you are, the higher your overheads going to be, but the easier it is to amortize the cost of that overhead over multiple employees. So the you know, the
cost per hour, or labor rate, or labor hour goes down. So for me, I make money being small, being lean, reducing the amount of overhead I have, not necessarily focusing primarily on increasing my volume of sales, but having a higher profit margin by controlling my expenses, controlling the amount of rework, capturing all of my hours, so my margins go up, my
profit margins, not my markups. My margins go up through the increased efficiency, through spending less money through systems, rather than increasing my sales volume, which also typically when that happens, your overhead goes up, the rework goes up. You're doing more work. Control is a little bit more difficult to manage. So you need to start off by doing the math. Whether you're one person, you're 10 people, you have to understand the numbers. How many hours can you work? How
many hours can your employees work? You know the burden, how? What's the efficiency rate? How much time are you losing to mistakes, rework? You have to understand all of that. But what you have to be careful of is you have to be careful that you are not approaching these jobs and pricing these jobs from the hustle rate, or the hustle mentality, which typically is rooted in fear, right? You're afraid that you're going to be too expensive. You're afraid that somebody else is going to
get the job. And so what you start doing is you you begin to sharpen your pencil, and you start conceding a lot of your time, and much of that is meetings with clients, emails, correspondence, material acquisition, if you're working nights, if you're working weekends, to catch back up. Typically, this is not done just to make a little bit more money. It's because you are behind, because you feel you're underwater, and because your 40 hours a week are not making you
the money that you need to make. So if you begin to do that, which I'll be completely honest, there a part of this is, when you start your business, you are going to have to learn. You are going to have to invest a lot of your time. There's going to be a lot of sweat equity that you may not be able to capture. You may not be able to charge, but you have to be careful that five years in, 10 years in you don't have that same mentality and mindset where this is just the
grind. At some point you should be working towards moving further and further away from that grind and getting to a point where you can work a normal hour, a normal amount of hours in a week and get paid for it. So what is the result of working all these hours and conceding so much time and not charging for estimates, not charging for material acquisition, for meetings with clients, meetings with designers, meetings with subs, all of this leads to burnout. It
leads to inaccurate margins, right? Because you're looking at your numbers at the end of the year, and you're basing it off of, hey, you know, this is a normal salary, 2000 hours a year, but you're probably working 3000 hours a year. So it's, it's leading to this false perception of what you're actually making. And I think that a lot of times, ego plays a big part in that, right, right? I made $200,000 this year, yeah, but you also work 3000 hours, so when you look at your hourly
rate, you might as well go work for somebody. So I'll be the first to admit I didn't simply undervalue my time. I didn't even have any idea what it was worth, and I just assumed that this is the time you had to put in. This is the way that it was you were going to grind. And it wasn't until I got to the point where I wound up in the hospital twice, and I was like, something has to change. It's not that my projects didn't have the budget,
but they just weren't the right projects for me. They weren't allowing me. They were they were with my systems, they were making me invest too much of my own time into these projects. So the budgets were there. Other people would have been able to probably make really great money with these but what was happening with me is I didn't have people on staff that could
handle the bulk of that. Work that could handle the design, the correspondence, the material acquisition, and I also didn't have people on the job other than helpers that were qualified enough to perform that work. So what I thought I was doing with these lower labor rates is, yeah, like, they're not costing me much. The money's still going in my pocket. But really what was happening is it was just it was consuming too much of my time. I was burning up and eating up all my hours with
employees, and I wasn't getting paid. Even though the budgets for the job were probably substantial, I would have been better off had I paid people to do and complete certain aspects of those projects, or more qualified people, where it didn't require my time, and I could, I could spend my my time doing something else, and then I'd have billable hours for the client that I could capture. So there was a lot going on, but I
realized that my my budgets for the jobs weren't wrong. There was an opportunity to make money, but I was just structured and set up incorrectly for years. This is the way that I operated, and I, again, I think it was a combination of feeling as though the budgets were substantial and it was just really hard to make money. It was over execution, and also it was not understanding that I had to capture the back and time
associated with projects. And when I started to do that and realize what these jobs should actually cost that dictated the type of jobs that I should be doing, the size of jobs that I should be doing, the length of these jobs, what I was structured and set up to do, I always thought, bigger jobs,
bigger budget, bigger profit. But in actuality, if you're not set up to be doing those jobs, and you don't have the appropriate help, and you don't have the back end structure, those bigger jobs, bigger budget typically resulted in bigger
loss, bigger headache. And it took me a really long time to realize that that there's a sweet spot with your business and with the type of jobs that you're doing in order to make the money that you need to another thing that I want to touch on, when you are pricing jobs, when you are determining what your time is worth, how much time you can capture, is the comparison rate when I initially was struggling to make money rather than realize I'm not set up. I'm not structured
correctly for these jobs. The idea was the simple fix. I'm just gonna, I'm gonna raise my rate, right? So the next job I bid, if I was bidding this one at 75 bucks an hour, I'll go to 80. I'll go to 90. But that's small pennies. When you look at the big picture, right? You're, you're looking to charge maybe 10 bucks, 15 bucks, even 25 bucks an hour more, right? So if it's $10 an hour, 80 bucks a day, you're charging more. But if you concede or over invest one hour each day, that increase
in cost is already a wash. So for me, just raising the rate, that's a good thing to do. You should, you should be competitive. You should ensure that your numbers are right. But simply raising the rate, 510, 1520, bucks an hour is not what's going to make you the money that you need to and that's what I thought would be a fix, right? I'm not charging
enough when, in actuality, right? If it was 100 bucks more a day, 200 bucks more a day, I could easily control the time invested, or find a way to capture an additional hour or two of work each day that I was doing for free for the right client, for the right job, and that would be far more lucrative than just looking to charge another 1015, 20 bucks an hour. I also think that changing your pricing, adjusting your rate, is is a reactive decision, right? You're doing that typically.
We're not doing that proactively. We're not saying, hey, insurance rates are going up this much year. We're that in tune with our numbers that we need to raise our rate a lot of times, it's reactionary, and it's because it something's not working out, and our mind says, well, we just need to charge more, when in actuality, that may be one aspect of it, but it's it's probably not the biggest driver of what's going wrong. You still are not charging for your thinking.
You're not charging for your coordination, for your strategy, and adding a few bucks an hour to your cost or your employees cost is not going to make or break you. It can help, but there are so many more critical aspects and steps that need to be taken to control and limit your exposure, exposure and capture your hours. So what really helped me was to shift to a more business owner mentality, regardless if it was just me, regardless if I had one employee, two employees, 10
employees, if I was managing a sub base model, it is. Having more of a business owner mentality when I had employees and I was paying them every hour, I was really, really cognizant of the amount of time that they were spending, right? I knew exactly what it was costing me because I was paying their salary every week, and I knew what I was getting out of them. I knew what type of productivity, but when it came to myself that all went out the window. I didn't track my hours.
I would spend 40 right? I would, I would be upset if an I had to pay an employee extra time on a job, right, if they work 10 hours for five days a week, and I had 10 extra hours that I had to pay them of overtime, I'm going to be upset and up in arms on that, not because of the employee, but because I didn't account for it, and I didn't charge for it. But at the end of the at the at the end of that week, I could have easily spent 3040, additional hours, and I didn't ever harp on myself for
that. I didn't ever question that. I didn't ever look inward at what the what the issue was, and that was maybe because I expected it. This is part of being a business owner. You have to invest in your business. When I was probably the root of the issue, right? I was not managing my employees to make sure that
there were efficiencies there. And I also just was not capturing my time, which would have raised my weight rates, which would have either caused me to say, hey, I need to charge an incredibly amount, a credible amount more of money for this project, which maybe I would not have got the project. We would have reduced scope, or I would have had to realize that I'm over investing. Or I need to create better systems, better efficiencies,
because there's just fluff, there's there's burden. I'm wasting a lot of money here, so I need to figure something else out. So what? When I began to start really tracking my time, and I moved towards a time and material or to a time and material contract, and I realized that I had to capture my hours as a single owner, operator and a sub based model, and that my markups on my subs and my materials were not
generating enough income. And when I started moving more towards a sub model and I was self performing less, I realized that, like I have even less hours to capture my time. So how do I make up these budgets? How do I ensure that I'm getting paid? And I realized that I could still generate 40 hours a week. I could still generate 60 hours a week of work if I wanted to, but not all of that was going to be swinging a hammer. So my entire career, for 1012, years, I only had build and only
felt that I could capture hours where I was swinging a hammer. I was not accounting for all of my time on the back end of the business, on accounting, on invoicing, on emailing, on on project management, on managing subs, on coordination and correspondence with designers, architects, clients, whatever it may be, running around and picking up materials. None of that was captured in an overhead that I was then applying to my
rate for the jobs. It just wasn't ever getting accounted for, and it was just assumed that that's what you had to do to get your rate for business. But it was never enough. I was never close. And again, I think that I had maxed out the budget for my projects, so I can't everyone just says, charge more, like I'm telling you right now, maybe up your rate. Charge more. But there is a cap, right? There is a cap to your market where you just can't charge more. So what do you have to do if you
can't charge more for these jobs? You can't capture more hours of these jobs. What can you do? You have to find the jobs that you can you have to realize that this invisible work, the work behind the scenes that clients don't see is somehow getting captured. If your rate is at a premium as the owner of that business, maybe you have to realize that you can't consume so much of that budget with your premium rate, and you need to put lower dollar employees or lower dollar
subcontractors on those tasks and then manage them. So for me, I can't get my owner rate, plus all of my back end rate, plus my premium, plus capture all of my overhead in an hourly rate for what I need to make in a year when I can only be on a job and swing a hammer for 2432 hours a week, right? I can't capture my rate would be astronomical. So how do I make these budgets work with my rate, in order to not price myself out of the entire
market? So I had to realize that if this budget is towards. The top of the spectrum of what I can charge. How can I manipulate that budget to get the hours that I need to charge for my back end work and to still not price myself out of the water? So I had to peel back some of the work that I was actually
executing and completing. I had to pay people to do certain aspects of my project, and then I would focus more so on the tasks that really require my skill set, my knowledge, my expertise, but not consume all of that budget with my hours, and I also want to get paid for the time that I'm spending on the back end of the project. So I realized my rates of premium, I need to offset my rate with lower dollar rate. So I started subcontracting out more work, and I started charging a
management fee, right? So instead of me performing a task, excuse me, that's 40 hours of my time, plus a helper at an astronomical rate, I can pay a sub to do that, and then I can have my markup on them and then capture my management rate, and that number will still probably come in lower than what it was when it was just me and a helper doing it. I'm still making my rate, and I'm actually not having to work 60 hours a week,
because I'm only spending 20 on the job and 20 on the office. So I'm still capturing my entire rate, but I'm putting more work in place by putting a subcontractor on that job and then getting paid for the work I'm doing, plus the back end, plus the management. So the numbers wind up being around the
same. I'm now able to put more work in place, and I'm still able to capture my 40 hours a week by actually working 40 hours rather than working 60 hours of tool belt work and only getting paid for 30 of it, because the numbers just don't work out. So one way that I've determined a way to kind of capture my time off of the job. If I'm T and M, right? I can't charge a client unless I have a specific overhead, but somewhat confusing. But with the TNM, you have loaded labor rates, so all
of your overheads are in those labor rates. So I don't have a markup like cost plus, on top of I have markup on subs. I love a markup on the entire job, right? So like a cost plus, you'd have, this is what painting costs, plus my 12 to 19% I don't have that all of if it's painting, I have to have my markup. All of it has to be in a loaded labor rate. So my loaded labor rate for myself, for an employee, has to cover all my overhead, whatever burden I have, whatever insurances I have whatever
workers comp, all of that needs to be accounted for in that. So when I present a rate that's a loaded rate, it has all of my markups and all of my money and time and the burden of myself, the burden of employees, built into that. So what I ended up doing is, when I did this math that we talked about earlier is I basically fatten my number by saying, hey, if this is what I need to make in a year, this how much work I can put in place.
Here's what my overhead is. Here's my hourly rate. Instead of basing the hourly rate on 2000 hours a year, which is a normal amount of time, right? 40 hours a week, 50 weeks a year, I am basing it on 32 hours a week, so 1600 hours a year. So for me, when I'm on the job working and I'm charging a client, I'm
actually charging a hourly rate. It equates to 1600 hours a year, rather than 2000 so my hourly rate is inflated to account for downtime, for meetings, for management, for phone calls for for a lot of time that I was not able to capture when I went on time material where they're like, Hey, you were on the job for eight hours, but we had a two hour meeting. And, like, rather than having the conversation, my hourly rate accounts for all of that. Or, Hey, you, you set somebody up,
or you are managing your like. It just it's easier for me to account for that on my rate than to try and have that conversation, or try and build those hours where a client doesn't see me working on a job. So that was a big, a big thing that I implemented, but at the end of the day, it is finding a way to account and be able to charge and capture for that invisible work. So the way that I price my time now is way different than how I price my time when I first
started. My hourly rate is substantially higher, three, 4x 4x higher, yeah, 4x higher than when I started. I'm spending less hours, though, right? So a job that I would have done when I first started would take me considerably longer, as far as the investment of time for the same scope I'm doing projects now that take more time because they're more detail oriented, but if I were to do the type of jobs that I did 15 years ago, I
would execute. Them, maybe three times faster, two times faster because of my experience, because my systems, the tools I have in place. So I need to account for that by having a higher hourly rate. My efficiency is much higher, and that's how I make money. I can put more work in place in the same amount of time. So that's one way to make more money. So,
yeah, my hourly rate is higher. I have switched my model to bring in people that I can manage or capture some of my own time on right if I bring in a drywall sub, and I need the drywall to a certain level, and I know that this sub can only get me to 85 90% I'm still going to execute 100% but I'm going to account for my premium to add an extra day of time worth of fine tuning after primer or before primer, or whatever it may be. So when I build out my budgets, I can save money by getting the
drywall sub in, because he's going to be less money. Because they do that every single day, and they're professionals at it, and they have people that they can pay accordingly, so they can get that work done quicker at a lower price. And then I put my markup on it, I get my management on it, and then I also put my time to fine tune that project. So I'm capturing the hours that I need, which are less hours than if I were to do it all myself. But my pricing is actually more competitive
because I'm bringing in somebody who specializes in this. So the work gets done quicker. I still create the amount of hours I
need. I can get done the jobs quicker, but the budgets aren't going up because it's just my premium as a business owner, capturing all of my overhead, capturing all of my burden, the cost of me doing business by putting up drywall with one or two guys so delegating tasks, finding people that can complete the work that you need done to the quality that you need, with enough budget that you can fine tune to execute your contract and what you've sold the client on. I've realized that there's
specific clients for this. There's clients who want this. It's it's a marketing practice and exercise just as much as anything else. But my numbers have changed. As far as how I'm charging, I've switched to time, material, what I'm charging. My
markups have changed. I'm charging for management now. But the whole goal behind this is to understand what you're making every single hour, and understand how you make money and and be able to control the budget so that you're not just blowing these budgets out of the water and not getting any any work. Yeah, there's a world where you can charge whatever
you want, and you can charge 2x what other people are. And if you have the value proposition to back, and you have the work to back it, which I spent a really long time doing, yeah, I can charge more, but there's still a cap on that, right? People. Every now and then you'll get a client who just has zero obligation to money, and it's whatever it is, it is, but you just you got to be competitive. At the end of the day, you won't get the project even return clients be like,
What the heck is this? This is way more than we anticipated, so you still have to remain competitive. So you have to find a way to do that and be able to capture your rate, your overhead, your hourly and get paid for the time the invisible work that goes into business the way that I'm doing this now, I'm fully transparent with my clients. They see my loaded rate. They see loaded rates for any employees, for any subcontractors. They see my management. It's all fully
transparent budgeting. It's well structured. There's there's no gray area. They have a working budget review. They have a working budget to ask me any questions, and we have a working budget and schedule and scope to base our project off of, right? That's the road map for our project. So when things change, when things don't go according to plan, we still have a budget. We can still work up that budget. We can borrow from
different places in that budget. But myself, my clients are guaranteeing that I'm making the money that I need to as well as my clients only spending what they want to, and maybe they don't get the full scope of work that they anticipated, because we ran into things that consume that budget like needing to re rough a bunch of you know, way they stubbed out with copper, right? They tied into galvanized water lines, and when we opened it up, they were old galvanized lines and leaded drains that we
didn't know about. And now we need to pay for that. If contingency doesn't cover that, Where's that coming out of? I can't foot that cost, the client can foot that cost. They can decide how they want to spend their money according to that budget, and maybe either borrow more money, take it out of scope down the road, reduce level of detail on certain aspects of the job. But they need to get those water lines replaced. They need to replace the leaded drains and the cap. Cast iron, whatever it
may be, but I'm not paying for that. So a bit of a review here. You have to understand your pricing from a math perspective, but it's not just the math. Most people I speak with on the consulting side of things, they don't understand the math. So that's first and foremost. But you cannot base your rate on math alone, because the numbers and what you determine, as far as numbers are as only as good as how you manage those numbers, I can determine, hey, I want to, I want to charge $300 an hour,
and I bid a job on that $300 an hour, and I get it. But if I don't manage the amount of time that I spent on that, and I spend 2x what I anticipated, I'm now making $150 an hour, where, if I were to build systems and infrastructure and manage that project, the amount of hours that's closer to what I anticipated, I'm going to make as close to that $300 an hour as
I intended. So the budget, the math, it doesn't really matter if you're not capturing the hours and if you're not controlling and managing the hours that are going into it, you have to have a consideration for what type of business you're building? Do you want employees? Or is your goal to have 12 employees? Is your goal to just be you and manage subs? Do you want two, three employees? All of this, all of your pricing, all of the way that you're going to capture your time is
contingent upon this? So for me, I always tell people like, let's figure it out, as if it's just you, and then when you're as profitable as you intend, and your systems all equate, and the numbers, number, the math, maths, at that point, let's add right? We add somebody. Now let's reevaluate, okay, now we've maximized our profitability with this, our
efficiencies with this, we built the systems out with this. Let's add another get to where you want to be, account for where you want to be, build the system and the infrastructure, and have the plan that gets you towards where you want to be, but understand that in order to move to the next step, I want you to maximize your profitability. Before you take that next step, you also need to consider, what type of life do you want, right?
It's not just about the math. It's not just about the numbers. What makes you happy? Does swinging a hammer make you happy? Does managing people make you happy? Does building a team make you happy? Does client interface make you happy? What do you want out of life? What do you want out of your business? What's going to make you happy? And what other opportunities do you need to account for and make space for? Right? My business right now isn't just swinging a hammer, right? I have the
podcast. I have social I, you know, I was just in Cleveland shooting something for loctite. So if I can make a rate doing that stuff, I have to understand that anything I take away from that, if it's higher than my building company, that that's
coming at an opportunity cost to myself. So it gets to a point where, if you have other opportunities or other tasks or trades or types of projects that make you better money, say I make 30% more doing kitchens and somebody wants me to do a bathroom, it would be foolish of you to just say, Well, I know I need to charge 30% less on these bathrooms, because that's just the going rate for them. You have to be confident in your
business. You have to be confident that you can drum up enough work that makes you money where, if you're going to take that bathroom, it has to be at the rate of all of your other opportunity costs. If not, you're shooting yourself on the foot. If not, you're jeopardizing your numbers. If not, you're jeopardizing your
systems. So right now, if I can make X amount doing podcasts, if I could do X amount making social I have to understand if I work for a client and it's less than that, there's a massive opportunity cost there, or I need to have the conversation with the client. Hey, this is what's on my schedule. If you want to pull me away from that, this is what it's going to cost. What's it worth to you if somebody can do it for less, or if you don't value what I do enough, maybe it makes sense to
go that path, that route. But if you do value what I do enough, and you really want to work with me, then let's have a discussion. And yeah, maybe it's going to be more money, but this
is the path towards hiring TRG at this point. Maybe it's not the same from now a year from a year from now, but you have to understand what the opportunity costs are, and you cannot reduce your rate, reduce your margins, create concessions within your business to serve people outside of the money that you need to make a quote is your time only becomes valuable to others once you decide it's valuable to you, and that's not only with regard
to hourly rate, but just the time that you're spending. And that's one of the biggest mistakes. Mistakes that I made for a real at least a decade of my career is that I was not valuing my time outside of swinging a hammer, whether it was personal time or as work on the business, or it was estimates, meetings, whatever it may be, I never accounted for
that. I never captured those rates, and that was one of the biggest shortcomings of my business, and when I switched up my processes and my systems, it created a much more enjoyable, lucrative, stress free business, which is where I stand today. So that's going to wrap up today's podcast. I did enjoy this one. If you want to check out the written blog posts, it's a little different than this. Hop onto modern craftsman.co. If you want to talk about this or more, I'm still doing one or two
consulting calls a week. It is first come, first serve. I try not to book out more than a couple weeks in advance, just because I don't know what my schedule may hold. So the goal is to be able to help as many people as possible with this, but I don't maintain our personal schedule as much. My wife does that, so I try not to book things more than a couple
weeks out in advance. But if you're interested in that, if you want to dive, you know, take a deep dive into your business or discuss this more in depth, how I make money, let me know. You could shoot me an email. Tyler at TRG, home concept.com we can dive into just what I talked about today, other issues that you are struggling with within your business, how I make money, questions that you may have. Tyler@trghomeconcepts.com I hope you all enjoy this. I will catch you next week, as
always. Thank you so much for hanging around, for listening and for all the support over the years. Talk to you guys soon.