This is an episode on profit.
Welcome to another episode of Builder Nuggets, the show where builders and remodelers discover how to build thriving businesses while working less. I'm Duane Johns and together with Dave Young, we share the elements of success that have helped hundreds of contractors like you build better lives.
(00:22): So it's no secret that it's our mission to build freedom. And while there are different kinds of freedom, we can build into our businesses like the freedom to work with the people we choose to work with, or the freedom to pick our goals and objectives that are important to us or the projects that we liked the most and the freedom of how we spend our time. We're diving into a series of episodes dedicated to helping you with your financial freedom. Dwayne, let's talk about profit today. Yeah. Profit. When it comes to business, profit just shouldn't be a dirty word. And in fact, profits, one of the key elements of success and essential. If you want to create financial freedom, not just for yourself, but for others and because it's so important, we just can't fit it all in one episode. So we're going to do a series on it and time is money.
(01:07): I know that you know that we're going to kick things off today. We'll look at billable time. Yeah. We're sharing a strategy with you that if you're not already effectively implementing it, is it going to be a major game changer for you? The businesses that we work with target for 6% profit on billable time alone, and ended up turning their overhead into a profit center by doing so. So Dwayne, you and I are the experts today. We don't have a guest and together we're going to share with you the elements we've learned for setting this up in your business. When we do business assessments, this is one of the first things that we look at because we often see that businesses just don't have proper allocation for time baked into their business flow and people aren't paying enough attention to how they get paid for your time.
(01:53): So when we look at this, you know, what's your advice for how we get paid for our time? What kind of answers do you see there when we're asking this question? Yeah, it's interesting. When we ask this question, a lot of times we'll get that pause. First people may be trying to gather their words or exactly how they want to say it. You know, we hear things like it's, it's baked into the price, or maybe it comes out of their fee. The builder's fee, it's stuck somewhere in the markup. And in some cases they might flat out, said they feel, they don't really get paid for their time. You know, we do. We talked to a lot of builders and remodelers. And when we do some of those initial assessments, I think one of the most common pitfalls that we find when you dive deep into the numbers, look at some of their job costs.
(02:36): They're just simply not getting paid for all the time that they spend working on a project. I mean, they're simply giving money away. A lot of these folks they're going to probably going to be pretty close with you know, materials that might've been estimated or things that they've gotten quoted. We get that some of those harder type of job cost items, but when it comes to the time that they are actually spending with their clients, their time, project, time, some other staff, there's a lot that they're giving away. Yeah. And there's risk there too, because no matter which of those pieces you've put into into your format, there's risk for you in there. If you're not tracking it, if you're not measuring it, and if you're not getting paid for it, you're setting yourself up either you or the client to be the one losing.
(03:20): So it's guaranteed that somebody is going to lose on the deal. And what do you see happens? Like, I mean, the risk is one time runs out. What happens when time runs out in those models when time runs out as models, generally speaking, that's when you'll find a builder loses interest, you know, maybe they've got a fixed fee or some kind of block of time that was you know, set up for the project. And once you go pass, that becomes, you start going into that abyss. It really becomes difficult to, to ask for more time. And, you know, unfortunately I think in many cases like that, the builder ends up eating it, but we talk about it all the time. The most valuable thing you have is time. And you've just, you've got, you got to stop giving it away. And a lot of it is because folks, they treat it as a commodity.
(04:02): We treat it as a commodity as well. And that's the thing we see with a lot of the builders that we talked to it's that they haven't figured out another way to do it yet. The stories that we hear, things like I've run at a time. I still want to provide good service to my client. Every second that I send or every hour that I send a project manager or my resources out to, to the site now is costing us money. And there's no way to, to recapture it. So yeah, it's a, it's a tough situation to find yourself in. And it's absolutely unnecessary. It's so easy to put in, in place. And I look at it or we, when we work on this with people, we look at it from a professional standpoint, like we're all business professionals, right? And when we look at how other business professionals get paid, if you look at lawyers or top doctors or other top professionals, they actually get paid for their time and they track their time.
(04:55): So why wouldn't we want to do probably if you really dig deep, everyone wants to do that. It's as you said earlier, a lot of times they don't know how, I mean, the industry has set it up to treat the time straight up as a commodity, even things like the builder's fee. I mean, what does that really mean? What's tied to that is that separate from project management, is that all inclusive? How, and it goes from the very beginning, how are you working with clients in the very early stages in the pre-construction phase is if you have maybe a design build process all the way through to construction, you've got to look at each and every interaction you have with your clients. And as you said, if you're going to be delivering a professional level of service, you need to be accounting for that. And you need to be charging for that.
(05:39): Yeah. One way to look at it is, is making it like a line item and understanding that this is an input cost into the business. This is easy to set up or is often, already easily set up with the other business professionals that you're bringing in or the other trade partners that you're bringing into the business. If start to treat your staff, your project managers as top industry resources, put them in as line items, anticipate the amount of time that's going to be needed for the project. You're setting clear expectations of what, what this is going to require. And you're treating yourself th th this aspect of your business, just like any other professional aspect or third-party service that you're, you're going to be inserting into the workflow. So it's very, very easy to do, and we actually encourage builders to separate it from their markups.
(06:33): So it goes in like a regular line item and then a cost plus model. Your, your markup would apply to that time as well. And we're seeing a lot of success with this creating a great deal of predictability. So what other tips do you have? Well, I think one of the biggest things is making sure that you are looking at this as a professional level of service. I think back to the the free estimating estimating is dead podcast that we did a while back. You know, I mean, it, you have to deliver that professional level of service because everybody's got to see it. They've got to see it as value. And you're going to have a difficult time trying to collect, collect money or charge dollars for each and every hour spent on the project if it's not being presented as a professional level of service.
(07:14): So, I mean, I think that's the big thing. The second thing is to, to really start to track all of it, go back and take a look at everything that you do, all those things that you do from beginning to end and see where they fit. Are they being relayed to the client as part of your process? Part of as you said, maybe even a line item, but I think every one of those things has to be documented so that you can put a cost on it and ultimately a value on it for the client. Yeah. It turns your, what would typically be overhead your, your staff, your let's just use a project manager as an example. It turns that project manager from being an overhead component to now a measurable profit center, because with the right software and tools and systems in place, you can see that project manager a is billable 85 to 90% of the time.
(08:02): And that's what we actually shoot for. And we'll talk about that some more in a second, but when you know that you're billing them out at, let's just say 80 bucks an hour, plus whatever your markup is on top of that. And you know that they're 80% to 90% billable. It's easy to do the math to see what that works out to over the course of a year. And you're also able to project exactly what your profit is going to be on each project based on the time invested by that project manager. Now, what else can we add to that? Dwayne? I think about the importance of time, especially in an environment we're in right now, when you look at the volatility that we have with all the other parts, all the other costs that can be involved with the project. I mean, you really need to be dialed in on, on your time.
(08:52): You cannot afford to be giving that away. So it's a, it becomes a very predictable number. It goes straight to the bottom line. When you understand the time that's going to go into a project are accounting for it properly getting paid for it for every hour that you put in. That goes, as I said before, straight to the bottom line, it's a big, yeah. And like we said earlier, your, your project manager is a guaranteed profit center when you set it up like this. So what do we see when, when we're out there, what are the, some of the classic mistakes and trap? Well, I think it all, it always starts with belief. There's probably people listening right now saying, well, there's no way I'll be able to get away with charging this or setting this up in my market, but we're proof that that's not true.
(09:35): This is an exercise in fairness, where it's easy to explain to a client why you need to spend time or why it's important and valuable for them to have a dedicated project manager that's available when needed for their projects. And I think it starts with learning this yourself, learning how this creates value for our client and how it's fair and making sure that you can then educate clients about what happens when you don't have the right amount of time in there. I think that that's really, the starting piece is working with other builders who are doing this and talking about how you position it, because that's probably the biggest thing for most people getting started is, wow, this might be a big change for me. I don't know how to position it. I don't know how to sell my project managers. What exactly does it look like?
(10:24): And we could probably do a whole separate episode, honey. I think about project manager, but even selling themselves. I mean, there's a lot of folks out there that in their head, they think the owner time is not built. Oh, exactly. That's, you know, that's one of the other classic mistakes too, is, you know, the owner, when you're sitting down doing a weekly review with the project manager is spending an hour, an hour and a half going over, you know, all the elements of that particular project so that you can provide guidance and leadership on that project. Many owners are resistant to putting their own time down there, there, their times should be built. It, you know, if you're building your project managers out at one rate, your your time should be even more. It's, it's super valuable. And if it wasn't valuable, why would you be doing it?
(11:07): So that's kind of what you have to ask yourself is if it's not value, if it's not a valuable use of my time, why am I doing it? If it is a valuable use of my time, if my time is going into protecting this project, safeguarding it for the client, speeding it up, providing leadership and mentorship through this that's absolute value and imperative value for the client to have, and you should 100% be charging for it. But yeah, you're right. That's one of the things we see is that, and when you run out of, you know, if you've budgeted time and your client is using it up or your, or the project necessitates, some of it, you know, you're chewing through the budgeted time faster than expected, and you're not staying on top of it with conversations with the client where you are. That's the other one where we see this go sideways.
(11:55): You never want to have a client get to the end, you know, of a month or a project or a cycle. And then you have to say, oh, by the way, where 40 hours over time, you want to manage that time as if it is money. And in your weekly conversations, provide that client with here's where we are in the time bank. Here's, you know, we're either behind it right on schedule. Here's why here's some of the things that we can do to preserve this, or, Hey, we're going to need to, you know, this is what happened, we've burned through it, but we need more of it. Can have the client sign off on that and understand that, you know, these are the things that we had to work on. And we also do that, recommend that at every single change order, this is one of the little tricks that I think people miss when they start to implement this is when you make a change, you're changing the budget and you may be changing the schedule, but you should be accommodating for the time required for that particular change as well.
(12:54): Just to have the client understand that, Hey, you know what we want to, you want to move those stairs? And we have to requote that that's going to be about three or four hours worth of work with the engineer, with putting together a new scope of work and making the calls and sitting down and reviewing this about another four hours of coordinating with, with the trades and the scheduling and dealing with it as it comes in. So we need to add another seven hours to the time bank. And that becomes part of the change order. So I guess my nugget here is make sure you include time changes in your change orders. It's every bit of time, if you have an owner that doesn't think his time is billable, if there's, you know, project manager, superintendent, other staff time, that's, that's going to the project.
(13:39): That's not being accounted for. I think every anybody listening would agree that time is our most valuable asset. And if you're not billing for it, if you're not billing the client for this time, you're billing yourself. Yeah. And that's, that's what happens too, when you have, we've seen this happen with project managers who are uncomfortable with having a conversation about running out of town, or they've left it too late, they just start billing to overhead. And you start, you quickly realize is as, as a business owner, wow. Now I'm building my client's house with my money because the project manager is billing you the business owner for the time that they are investing in the project. So it's really key to get everybody on board and early and understand this. And if you're having a weekly meeting and you're addressing the TimeBank with regularity and you're not afraid of it, it just becomes another part of the conversation.
(14:35): Then these conversations are not difficult to have. You do get into trouble, though, if you like anything else, if you leave it for too long, you're playing catch up. Yeah. Good points. We talked about some of the mistakes traps you things you can avoid, but probably worth it now to dive a little bit about the things we, the things we do to get people through that, maybe get their mindset changed and tell some of the listeners out there, understand, you know, how do you actually do this? The one of the first things I think of is the positioning on the front end. You know, I think it goes all the way back to the beginning and those early conversations you're having the client has to see your time as valuable. And I might have a little tip is just something that I see all the way.
(15:13): If, if one of the very early conversations or, or if a client starts the conversation off at the very first phone call with, well, I can only meet you in the evenings or on weekends. You know, you have to pause for a moment and start to realize that that person probably isn't valuing your time. So that's, that's the type of thing. You have to think about that from the very beginning, every conversation you have to be clear to the client, to let them know that your time is extremely valuable. Their time is valuable. I mean, we want to respect that. Certainly that's the client, but they also have to understand that every bit of time you're putting in is valuable as well. And of course there could be times where you're going, you're going to make, you know, make time to accommodate a client and see, see someone after hours or on the weekends.
(15:55): I get that. But if your first reaction is to just drop what you're doing and run out to see that client you've actually devalued your time in the eyes of the client. So just, just pointing out that you want to be real careful about how you position time from the very beginning, I think it comes back to being a professional and just sharing with the client, okay. This is a business model we use, and this is why. And when it comes right down to it for us, this is part of the ultimate business model to have it guarantees that you get paid for your time. So we feel like, Hey, why, why would you do it any other way? And if you have the choice which you do, because it's your business, you decide how you want to get paid. If you want to guarantee yourself that I will, I can turn my professional project managers into a guaranteed profit center.
(16:45): This is the way that you do it. You also get to feel good about it, because what you're really doing is coming up with the most fair model for all parties involved. When you learn how to explain that to a client, this becomes quite freeing and they just get it. Not everybody likes it, you know, and some of the wrong clients will not get it, the wrong clients who are looking to commoditize. You who want an all you can eat. They want to treat you like a, a buffet and get the happy hour deal on your buffet time. You're still going to run into those people. It's up to you to decide whether you want to work with them or not. But when it comes down to how you're going to charge what rates you're going to charge out, that's completely up to you and your ability to educate clients that you're worth it.
(17:32): And then you have to be worth it. Well, absolutely. And it's knowing your numbers. I mean, that's where all this stuff comes from. And we've seen folks that have implemented these sorts of things, really recaptured all of those un-billable hours. And I think as you mentioned earlier, you could, you could see four to 6% added to bottom line profit, but you're not going to know that unless you know your numbers. So it is extremely important to understand how many hours you are putting into every project, what it's going to take and making sure that you're billing for it and tracking every, every hour as well. You have to have a system, whether that's a software system, it shouldn't just be a spreadsheet. It should be something that's pretty detailed. And so that you can allot every hour of every project that you've got to a certain line item.
(18:13): So everything's backed up when you have that information. Not only is it great for looking back also great for forecasting, but you don't have to be in a position where you're trying to defend you. Oh, exactly. And you bring up a good point here. You do need a system. You need a piece of software that can help you with that. The other benefit is seeing this stuff in real time and being able to transparently share it with the client that that's our ultimate recommendation. There is that this is something just like the budget that you, the client project managers, you can, you can all see exactly where you are in real time or at the very least on a weekly basis. So you're never using, you know, a lot of people use transparency, confuse transparency with proof. They, they wait until the end of a project and 30 days after and they go back and they say, look, we use transparency.
(19:02): We're showing you how you went $50,000 over budget. We've got all the proof here that, that this is why it happened. And that's no darn good to anybody because it's so far after the fact, clients love being able to see where they are at a given location at a given time. And being able to have access to transparency in real time, both in where you are in the budget, where you are in the TimeBank, where you are in the schedule. This gives a client confidence and visibility into seeing what's happening next and doing this on a weekly basis. Just, it makes you a true professional. And, and that's one of the reasons you're able to charge professional style rates. And once you get your head around what all this time is, what you're charging for it, how you're delivering to the client, what it's going to take, you're going to get away from that.
(19:45): Having to estimate how much time it's going to take to do these projects. I mean, no longer are you just going to be no, don't just round it off to a percentage of the project or what you think a block of time should be put in for this project. I mean, you're, you're going to be able to take the time and, and know how many hours, how much time is going to have to be dedicated to this project. And you're having that conversation openly with your clients so that everybody understands the true time that it's going to take. Then that just makes it a whole lot easier. Well, it's educate over estimate. I mean, you can take the estimating, right? You do need, I shouldn't say take it right out because you do need to have a good ballpark understanding to put it in there at the beginning and set an expectation.
(20:24): But there are so many different variables to it. It comes down to educating the client as to what those variables could be. And those variables can be client need. Clients are all different from each other. Some of them need extra time. They want the project manager onsite with them more. They want the project manager coming with them to make selections. And you want to be able to make those services available to the, on a custom basis because you're trying to create a VIP level of service for them. So helping them to understand if you need more project management time, we're going to be able to make it available for you. If you don't need it, you won't have to pay for it. And we can give you tips and strategies on how to be more efficient in your role on the team with helping us preserve project management time and also setting expectations around, Hey, this is what happens with weather delays.
(21:12): This is what happens in the event. There's a supply chain delay or something like this that happens, you know, a job site issue. We're professionals. We're going to handle it for you, but we're going to be, we do it on a, on an hourly paid basis. It should not be on the builder to pay for all those different variables that are completely outside of the builder's control. And, and, you know, we encourage everyone to stop doing that stuff. Are there times when you have to own mistakes? Absolutely. If you, if, if something is on you and then you can eat the time for that, but it's but, but it should be very, very clear and it's not just the project manager and the owner that we're talking about. If you have a design team, if you have some general carpentry or site labor, those are things that you can have specific rates for.
(22:02): So you, in fact are turning all of your staff and, you know, even admin staff, if they're processing invoices for, for a particular project for a client, that's billable time, that's time that you wouldn't, you know, if you didn't have this project, this person, this resource would not be using or investing. So you can set it up and track it all that way. And one of the things that happens, if you have a good, robust piece of software, is you can tie your resources to your projects. And this just makes forecasting your billable hours, forecasting your project management time, the allocation of your resources, who's working on what project, when boy does that ever simplify things for you. And at the end, you're able to look back and say, Hey, my project manager was billable 82% this month, or my project manager, you know, only had 60% of billable time this month, what's going on.
(23:00): Is there a problem there I'm leaking cash. I'm losing profit. I'm going to go in and investigate, because that doesn't seem, that doesn't seem right to me. So, like you said earlier, Dwayne, knowing your numbers and having all this information in front of you makes a world of difference. Not only for planning, but for compensation, whole bunch of different reasons. Yeah. As we talk about some of these tips here for how you're going to do this, it really comes down to making this something that is a part of your culture as well, that, you know, the value of time, time is an asset that kind of thinking baked into your culture is going to be transformational from you as the owner of project managers all the way down to field staff. Suddenly I think that that mentality of it's almost like a sense of urgency to where there's, there's value of the time.
(23:47): And these things have to be done in a more efficient manner. It works wonders once that once that gets baked into the culture, the first hurdle you have to overcome with us, Dwayne really is believing in it yourself, encourage you to reach out to us. We can put you in touch with people who are doing this right now. It does take some coaching. It does take some work. You need to, you need to really understand how to position the value that you and your resources bring to the client. You need to have a collection of real life experiences that are relatable to a client where you can share with them. Hey, these are the situations that happen when you don't have the right amount of project time. These are the risks. These are the pitfalls, and this is why it's a fair way to do it.
(24:26): And this is how we, we make. We make sure that we deliver an amazing experience to you and whoever you're getting your coaching from, or you're collaborating with on this. They will have their share of experiences of some of the client objections and how to overcome them. And, but we just want to give you the confidence and assure you that it is doable. We S we know hundreds of builders who have switched to this model and who are doing it. They have that real predictability now in their business. And then Dwayne, when we talked about the starting point before the starting point is really you understanding it, digging into it and figuring out, Hey, how could I put this into my business model? If you're using a different business model, if you want to continue to bury it, Hey, that's fine. This may not be for you, but this is an episode on profit.
(25:11): These are strategies and tactics that can instantly boost your bottom line, but we don't want you to lose sight of the longer-term value here. You're there. And that is that when you make your business more predictable, measurable, and scalable, you also make it more valuable. You create more freedom and which for us, this is what it's, what it's all about. So don't be afraid of showing your people how valuable they are. This is motivating and empowering for them. We have project managers tell us all the time that they love being able to see their contribution. And they now understand how to add value to the company, because you've shown them where and how they add value. And they want to be professionals too. Yeah, absolutely. And then with all that, once you get a head around and you have to be able to deliver what you sell your time that you're providing for the client.
(26:00): And if you're trying to provide some value, it's gotta be worth it. You got to have the structure, the training the leadership and the systems, and know it has to get baked into the culture. Everyone has to understand that there is a value placed on time, and it will become something that you can get across to everybody. And really, you're going to be the biggest obstacle in all of this. Once you get your head around and you can deliver it, clients, influencers, other designers, architects, people are going to get on board. You'll be able to communicate the value that you bring. You know, when you think about that, we could probably go into a whole separate show about that. You want to learn more, reach out to us. We're seeing it work. You can do it. And it makes a huge difference in your, in your business and your bottom line and creates freedom. It's time is money. Don't sell yourself short.
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