But when you are not capturing and accounting for all of your back end time, all your meetings, all your invoicing, all your estimating, your material, acquisition, pickups, takeoffs, all of that stuff, you are running a business that is unsustainable and more than likely not profitable. Welcome back everyone to another midweek modern craftsman. Today, I'm going to be breaking down one of the most overlooked but critical aspects of running a small construction business.
Again, I'm speaking to the owner operators, the small, 2345, men, women, shows, but it's capturing all of your time. I'm going to share why this is so important to track and account for every hour, not just the time that you're spending on site, and how failing to do so eats away your profitability and
your sustainability. I also am going to dig into some strategies for setting your rate, managing the optics behind this rate, and building a lean, efficient business model that supports both your bottom line and your well being real quickly before I jump into that Nick and I just recently launched a new course on scaling your business, handful of templates in there, some really great, quick videos, less academic setting. The past few courses, we put out a ton of videos behind it where you're
having to invest the time. The point with this course was to get this information to you really quickly, really efficiently, super seamlessly, and just give you everything that you need. So if you want to check that out, go to modern craftsman.co there is a course page, and it's scaling, the new scaling course. But I'm sure you know, a lot of you are probably tired of doing everything yourself. This course is for builders, remodelers, basically owners, who are juggling every hat stuck in the
weeds. And it's going to help that you understand how to grow without sacrificing quality, profit or and, most importantly, sanity. So check that out. If you're online and reading the blog, have a link there, but again, I'll post that to our Instagram. But also modern craftsman.co hit the course link. You can check it out there. If you have any questions regarding that, shoot me an email. Tyler at TRG, home concepts.com, you guys can also check out the written blog post on modern craftsman.co.
I write a blog for all of these, and that's what I used for my conversation here with you. So a lot of times I can't cover everything on here. There's more specifics. It's it's a more dynamic conversation online. Rather, I know that that's convenient listening to it via podcast, but check out the online written form on the website of the blog post again this week, I want to hammer home critical priority for you small business owners, which is capturing every single hour of
your time and why that's so important. Again, this was spurred from a recent conversation with a consulting client and speaking with him and just being reminded of how for so long, I was only billing for my time swinging a hammer on the job, and realistically, I wasn't even capturing all of those hours. But say you miss a few hours swinging your hammer.
That's one thing, but when you are not capturing and counting for all of your back end time, all your meetings, all your invoicing, all your estimating, your material, acquisition, pickups, takeoffs, all of that stuff you are running a business that is unsustainable and more than likely not profitable. We lie to ourselves and tell us that, yeah, we're making this
much money. Or, you know, I made 150 I made 200 $250,000 this year, whatever it may be. But when you break that down to the actual amount of hours that you're putting in place, you're probably making a very small hourly wage, and for me, that equates to an unsustainable business model, and you're not being true and honest with yourself. So if you're running this one to three to five person operation, your most limited resource is going to be time I'm going to speak to a one man
operation, but it's really no different. When you have a small business, you're not making a ton of money on your the volume of labor that you're putting in place, right? You don't have 100 employees that you're making a 10% margin on. You have one. 234, you just you're not making massive margins on them, and you're not putting enough work in place to really depend on
volume or economies of scale. Again, one person team, you have such a small amount of hours that you can invoice throughout the year to cover not only your salary, but your overhead, any slag, any inefficiencies, the burden, the cost associated with doing work, your liability, your taxes, your risk, everything. It's a very small number, and most of us are going to say, hey, you know we can work around 2000 hours a year, which is 40 hours a week, 50 weeks per year, we're going to take two weeks
off for vacation or sick time, whatever it may be. But realistically, if, if you're a tool belt on contractor, you there's no way that you're going to be able to put 1600 hours of work in place a year without working to x that I found, you know, if I wanted to be able to invoice for 2000 hours a year, that I probably have to put 3000 hours into the business, tool belt work and back end work. And I wasn't accounting for any of that back end work. I just thought, you
know, that was part of business. You had to concede that time. And I thought that I was covering my rate there, but I was not at all. And what made me realize this was basically, if I wanted to grow, if I wanted to scale, if I wanted to bring somebody else on or right, say I only wanted to swing a hammer, how much would I have to pay somebody to do all of that other
work, and how much time was involved with that. So at this point in my life, I look at, hey, if I want to get paid for 2000 hours a year, I want to invoice and not invoice, but I want to make 2000 hours worth of rate per year that I could probably only put 1600 hours of true billable time in place. And I even had the conversation with this client where it's like, Hey, you're running jobs by yourself. Assume you finish a job on a Wednesday, and it was a two, three month job. Do you
think that you're starting your next job on Thursday? Absolutely not. There's downtime between projects. You have to set up, you have to break down, you have to clean that job. You have to get home, unpack your truck, a lot of staging. You will not work eight hours per day, five days per week on a job without working six, seven days a week. It's just impossible to do so from a client optics standpoint, most clients, I found, are not going to pay your rate for time that you're not spent directly
working or swinging a hammer on their project. So if you want to try charging your clients, right, you show up to the job at 10am and you invoice them, you leave before whatever it is, you work eight hours, including your time picking up materials. If you try and invoice them for that time, there's probably going to be a conversation about, Hey, you didn't show up till 10. You're charging us for eight hours, and while I was running around picking up materials, this that the other
thing, I find it hard to capture those hours. It's not worth the conversation, so I bury those hours in my rate, in my overhead again, and I do this by charging my rate based on 1600 hours of
billable time a year. So if I show up at 10am and I'm only swinging my hammer for six hours that day, I'm getting paid for my eight so I account for eight hours every week of time that's spent off the job that I put into my hourly rate, which is also covering my overhead, my labor burden, my my my liabilities, my risk, my salary, everything associated with my company is is the downtime, the inefficiencies. It's built into
that rate so that I don't have to have those conversations. If I show up to a job and a client wants to take an hour of my time speaking and walking through some details, the clock is ticking. I'm getting paid. I don't now have to stay until six to get done what I wanted to get done. I can leave at five and know that I got paid my time. The hard truth, and what I've realized speaking to a bunch of people, is that we are not
charging for this time. Most of you aren't even realizing that you can, or just assuming that, that you know that's that's a a rate that's associated with business, that you have to
concede that everyone is doing. But I'm here to tell you that you are wrong, and you should be accounting for that, and you should be paying for that, and maybe it's not your tool belt on swinging a hammer craftsman rate, but there needs to be a rate associated with that that you need to be baking into the cost of you doing business, the same as if you hired somebody to do that work each and every week. What would it cost you
build it into your rate. Again, I take that cost over the whole year and I just extrapolate that, um. Into essentially what I'm looking to capture as an hourly rate. So I am averaging that and building it into my overhead based on how
much work I put in place. And my work that I put in place is not necessarily it's very easy to figure out what it is from a sales and a revenue perspective, but I'm doing it more from an hourly perspective, so I don't run into hey, if I didn't sell as much work, those numbers aren't aren't working out because it's not based on revenue, it's based on my time, because my time is super valuable, and it's a very small number, and any hour that I do not capture of my time winds up
being a direct hit to my bottom line and coming out of what I make in a year. So I have to understand that. I have to be cognizant of that. If you're not, you're going to wind up working 3000 hours a year trying to make 2000 hours worth of wages, and that is a dead end, not only for your business but your health, and also for the broader construction market. Everyone is doing that. It's making it a more competitive
market. It's driving the prices down, and the sooner that we can realize that that's a cost associated business, and it needs to be integrated into our businesses, just like bigger companies, larger companies that have estimating staffs, that have job site runners, that have delivery men, truck drivers, it's all it's all packed in and rolled into their their cost of doing business, and we need to do the same. We cannot be offering competitive advantage because we're doing that for
free. So what ends up happening this, the smaller your company, the harder it is to capture your true cost of labor, downtime and overhead, because you are amortizing all of those costs across one single person. So what happens with the rate when that when that overhead rate that you have an overhead for running a single person company, you add another person, that overhead is not necessarily going to 2x there's certain
aspects of your business that might go up. There's certain aspects that might not go up. When you add another employee to the mix, it actually drives down your overhead per labor hour. So the hardest way, in the hardest model, to capture all of your overhead and all of your time is with the single person
operation. But there's many pros to that, if you can do it right, if you can find out the work that suits that model and you can support that, you're actually going to have the highest profit margins, because everything's going in your pocket. Your overheads low. You are not paying out a higher overhead. You're not paying out labor. When you look at a margin of profit based on total revenue, you're going to have a much higher profit margin, more money based on volume, with
lower margins. The biggest struggle for us smaller contractors that we either do not realize how to account for these costs. We worry that once we understand the costs associated with business, we will price ourselves out of our
market. We'll scare away clients. The result of that is that we face constant pricing objections, because at our small scale, we lack those economies of scale that the larger companies have as a small contractor, say, you want to stay small, you want to scale your business through efficiency, you want to scale your business through reduced overhead you want to take on be able to you want to be able to execute more work without necessarily driving your
overhead up. What are your options? You can keep working for free. You can grind 6080, hours a week simply to survive, right? You can continue to make that 100,000 150 $200,000 a year, putting in 3000 hours a year, and think that your business is successful, you know, which is something that I
did for a really long time. You can add employees to increase your output, increase increase your revenue, increase the amount of billable hours that you are able to put in place each and every year, assuming that you're ready for that most of us are operating a business that's not sustainable with one person. So we do not have systems in place to operate a profitable business at the smallest scale. So why adding to
the mix is going to solve that problem is crazy to me. I also tried that foolishly, it would have worked, had I understood my numbers, had I understood my clients, had I understood how to manage the project? Had I had the systems in place for scaling? But I didn't. I simply tried to just increase my workload and sell more projects with the existing systems that I
had, which is a recipe for failed scaling. You can continue to scratch your head trying to justify your quote, unquote high prices to price driven clients, but honestly, none of these paths are going to offer a sustainable business or lifestyle. So here are the few things.
That I would recommend you do again as a small scale contractor, in order to be able to capture these hours, in order to create efficiencies, in order to make the money that you need to make, being able to put a smaller amount of hours in place, having lower revenue and higher margins, understand and know your numbers, know what your overhead is, your salary, your taxes, the true cost of doing business for yourself, for any employees that you have, then you can calculate how many
realistic billable hours you have each year. For me, I've accepted that 1600 hours of on site, hammer swinging work is my limit for a balanced lifestyle, and again, that basically equates to four hours on the job each and every week for 50 weeks a year. You need to adjust your rate. When I calculate my hourly rate, I just don't factor in my on site hours. I'm including the eight plus hours a week that I spend running the business, I
have to recover that cost. I wish it was as simple as billing the clients for that time and having a line item for that but typically, that's going to be a struggle for smaller contractors when you don't have an overhead or a percentage fee that you can add on top as a line item or, you know, administrative fees. I think that if you're a one man show, a two man show, and you try and charge clients for administrative fees, they might
look at you funny. That's not because it's wrong. That's just because you're competing a lot against a lot of people who aren't accounting for that. So for me, I'd rather not have that conversation. I'd rather the hand handle the optics in a manner where it's baked into my rate, so I don't have to waste time explaining it to clients. It's simply part of my number. That's my rate. It's up to me to understand and figure out how to market and sell that inflated rate. So I do that in a couple
ways. I have to find the right client, the ideal client for my business. So not every client values what I offer. Even the wealthiest clients have budgets, so I have to understand what my value proposition is, and I under I have to understand who my ideal client is, and I have to be able to use my value proposition to market myself towards that ideal and unique, specific client for the type of projects that support my rate. I also, being small, have to prioritize efficiency. I must
remain lean to boost my profit. Right? When you're small, there's a couple ways to make more money. You can sell more or you can reduce the money that you're spending. So I am not looking to charge less for overhead, but I am looking to reduce the amount of time that I spend on jobs. Because if I can execute a job and spend less percent, let 10% less on my time, if you're a fixed cost contractor, your margins will go up. If your time and material like me, it allows me to charge
a higher rate. So I can't just create efficiencies and maintain the same rate, because if I'm time and material, then I'm losing money. I'm creating efficiencies that my clients are benefiting from. But what I use those efficiencies for is to charge a higher rate, a higher rate. So I'm still capturing the same amount of time, but I'm putting less time into the job, if that makes sense. So I do that through having a truck that's set up with everything that I need. I prepare my jobs
before. I don't show up and just get to work. I do not leave the job during the middle of the day, unless I have some sort of absolute emergency. So there's an economy of motion. There's no wasted motion. I'm always prepared when I'm on the clock, I'm fully focused, and I'm putting equitable work in place. So at the end of the day, 1600 hours is not a lot of time if you want to be if you want to have a $200,000 take home at the end of the year, your rate's going to go way up. So how are
you marketing? What type of jobs are you doing? How are you creating efficiencies to be able to offset the cost associated with that rate? You have to understand your market. You have to understand how you make money, and you have to understand how to capture that and sell that to clients. There's very little room for error. With this model, there's
very little room for mistakes or redos. They cost you a lot of money, not only the money that you're putting out to fix the mistakes, but you are losing hours that you can bill for in a year, and when you're one person, those hours are your most precious resource, and you don't have a lot of them. So you have to ensure that you're working very efficiently, you're not making a ton of mistakes, and you're not having a ton of
redos. I have to capture every single hour of my time or I will not make what I need. Two in a year, and my margins go down very quickly, because they are not amortized over a large amount of hours. If I'm invoicing for 10,000 hours a year, and I lose an hour that doesn't affect my margin as much as when I'm invoicing for 1600 hours a year, and I lose an hour of productivity. That's a much bigger percentage that I'm taking a hit. This model ends up taking discipline, and it does take
time to perfect. It's not for everyone. It worked for me. It provides me with a sustainable, profitable business that supports my lifestyle, my priorities, not the other way around. It's also just that this is the this is the jumping off point for most people in business. So most of my consulting clients who call me and want to understand like, Hey, I'm an owner operator. I need to make more money. I'm thinking about
scaling. I'm thinking about bringing on employees. There's many, many, many ways to scale, like we discussed in the last podcast, scaling is putting a higher output of work in place through efficiencies. In order to scale correctly, right, scaling is just increasing your your output, however that means so, or whatever that looks like. So in order to scale efficiently as a small business, you have to be able to create efficiencies.
You have to be able to put more work in place, more equitable work and Bill for more work, or create efficiencies that allow you to charge a higher rate for the same amount of work that you're putting in place. So for me again, there's an opportunity to scale without actually increasing your revenue if you
can work less, right? So if you know you have a job that's supposed to be 100 hours, and you can get that job completed in 75 through efficiencies and systems that you've created that is a way for that you've scaled your business without actually increasing your top line revenue, and that does offer you the opportunity to then scale your top line revenue and do more work in the same amount of time, if that's what fits your
program, this model is scalable, right? If I wanted to scale, if I want to add a few employees, two, three, additional pull employees. I could do that. I'd have to replicate the same client and project model. So the biggest struggle for me would to would be to ensure that there's enough work out in my market to support the rates that I'm charging and the model that I'm looking to execute in business. That's the biggest struggle for
me. So that's why I wouldn't be able to grow a 1215, person team with my model, because there's just not enough of the type of jobs that I need without me having to travel with the rate that I'm looking to charge. It is a scalable model, but it's built around being small, being lean, being efficient, you know, not offering a competitive advantage through price, but more so through services, through efficiency, through execution, and through your unique value proposition as a
business. So my business is sustainable. It's profitable, and most importantly, it is not overwhelmingly complex or all consuming, and for me, that is the secret sauce to running a business and maintaining a lifestyle that's going to wind up this week's episode of midweek modern craftsman, super
pumped with this one really exciting stuff. Great conversation with this consulting client, if you are interested in hopping on a consulting call, digging into any of this stuff, more of my business model, potential opportunities for scaling your business, changing the way that you operate, just looking into your business and what I would say would be the biggest issue that you're facing right now. I have a lot of experience with this. I've spoken to a lot of
people. I've been doing this myself for 15 years as a small business owner and primarily an owner operator. So if you're curious about that, or you want to talk, or you think that we can improve your model even with a single phone call or video conference call, shoot me an email. Tyler at TRG, home concepts.com, again, that's first come, first serve. Usually
doing one or two per week. I don't book up more than a couple weeks in advance because I never know what week to week may hold for me, and I don't want to put that much pressure on myself. But if you are interested, shoot me an email. Tyler at TRG, home
concepts.com, and one last time, hop on the website. Monitor craftsman.co, check out our new scaling course that you can find there that is designed for builders, remodelers, anyone who is just looking to have better systems and processes to be able to create efficiencies or put more work in place without affecting your bottom line. All right, guys and girls, as always, I appreciate it. Appreciate.
To support the feedback, let me know if you need anything. Tyler at TRG, home concepts.com, have a good week.