EPISODE 105 – Hourly Rates & Why They Suck

EPISODE 105 – Hourly Rates & Why They Suck

By mick | June 30, 2022

EPISODE 105 – Hourly Rates & Why They Suck |

Welcome to the "Builders Business Success Podcast". This is episode 105. And in this episode, we will be focusing on hourly rates and how bad they suck, for a number of reasons.

But if this is your first podcast, the "Builders Business Success Podcast" is a construction business podcast for the building industry, I would like to think that I could be your construction business coach or your builders coach, and help you uncover the very common and costly problems, or at least uncover the solutions, offer you the solutions for many of those problems.

We are going live into the ToolShed, there's a number of participants with us live, lovely to jump into the chat and say, good day, tell us who you are, where you are.

And if you've got any questions or comments throughout today's podcast, jump in. As I said, today's episode's focusing on hourly rates, how much they suck for everybody. And they cause everybody problems, they cause you problems, they cause the team problems, they cause subbies problems, they definitely cause clients problems.

And understanding a few different principles, that if you understand, if you wrap your head around some of these ideas, you'll end up making more money, you'll have more time, and your clients will love you for it as well.

We've got both Katie and Steph with us today, so what is Katie gonna share with us?

Katie: In today's video, I'm going to explain why I believe charging an hourly rate totally sucks, and why you should be charging for your value. Have a listen.

Mick: That’s absolutely right, Katie. I'm gonna be covering that as well, it's all about value rather than the focus on the price. Steph's gonna give us some of her wisdom as well, what are you gonna tell us, Steph?

Steph: Build a brand that you are proud of. Hello, I'm Steph from Tradies Go, and my little quick snippet today inside Mick's amazing ToolShed is that you need to build a brand.

I'm not talking Coca-Cola here, I'm talking a brilliant building brand. Something that you aspire to be a part of, something that you can carry through, and maybe one day sell or hand down to your son or to your daughter.

A brand that has a belief that it can help a certain customer and do a certain thing. That is how you get ahead and demand the best jobs.

Mick: Absolutely, and that's what it's all about is making sure that you fill your business with the best possible projects, with the best possible people, clients, suppliers, the whole team.

Now, as I always mention, I want you to get a copy of this. It's called "The Successful Builders Toolkit". It's everything from start to finish that we talk about in the Builders Business Blackbelt group.

We just came back from the Gold Coast on the weekend. Last week, we had our three day intensive with a bunch of, well, all of the Blackbelt people, a few Blueprinters showed up as well, we had an absolutely fantastic time.

It was quite deep, it was quite challenging, there was a lot of progress made, and you'll learn a lot of what we talked about in this book.

So go grab yourself a copy. If you want to, there is a QR code, you can just scan the QR code, which is a bit difficult if you're watching this on the phone, 'cause it's very difficult to scan the QR code while you're watching on the phone, if you pick up what I'm putting down.

The New Book!

But what you can do is jump in the comments, if you're watching live, and there is a link there that you can click on, and that will take you to a page where you can get yourself a copy of "The Successful Builders Toolkit".

So, okay, that's it. Let's get on with this here show.

Transcription of the show!

There is a couple of reasons. There's probably more than a couple, but we're gonna start with a couple of reasons as to why hourly rates cause problems. And what I'm gonna do is a little bit different, I'm gonna ask Katie to introduce her perspective on why hourly rates suck first to get that conversation started, and then we'll talk about a couple of other reasons as to why hourly rates suck and what you can do about it. So let's listen to Katie.

Katie: Hey, Katie here from Profit First for Tradies. What I wanna talk to you about today is charging an hourly rate, and why you should stop doing it.

Now the problem I see with doing this is there are so many businesses, so many builders that are not profitable, and often we think it is because of rain delays, material shortages, staffing shortages, shuts downs, etcetera, etcetera, and they all add to the problem.

But what I see more often than not is the problem of being not profitable starts way back at the process when you are doing your quoting, and you're quoting an hourly rate.

So there's a number of solutions that I go through with my clients, but what I wanted you to do here, and to have a takeaway from this video is the very first thing that I get my clients to do.

So firstly, you are absolutely worth not charging an hourly rate. But I also understand that is a bit of a journey, and I'm sure these videos will help you understand and uncover why we need to move away from that.

Why your value is so much more than the hourly rate that you use. So the one thing I wanted you to do today is sit down with your numbers, no surprises there, and have a look at exactly what your business is costing you.

So I want you to work out exactly what your business is costing you, and then have a look at what your hourly rate is, and how much work is coming in the door, and have a look, if in fact, that hourly rate that you are actually charging is covering your expenses.

Is it covering your wages? Is it covering your profit? And if the answer is no, then this is one of the very biggest reasons to start having a look and diving a little bit deeper into your pricing and how you price your jobs.

Because as I said, I see this so often, the hourly rate that you are quoting and charging hasn't been reviewed for quite some time, or it's just been up to bit here, five bucks there, 10 here, whatever it may be, and it's not based on any facts, it's not based on your financials.

So the one thing I want you to do today is have a look at your numbers, see what your costs actually are, not what we think they are, your actual costs that are in your bookkeeping system, and then work out what your sales have been for the year. And actually see, is there enough in it?

Are you charging enough to cover your expenses, including your wages, including your profit, to cover everything in the business? My guess is probably not, or it's very slim, and I'd love this to be the first step for you to investigate more about why you are absolutely worth charging your value and not charging an hourly rate.

If you wanna have a chat about this, I'm happy to do so, make sure you reach out, and we can jump on, and have a call, and I can step you through how to review your expenses and your income to see if your hourly rate is actually covering what you need it to be.

As I said, that's step one, just get that started, and then it'll help you move on towards understanding the value that you bring to your clients.

Mick: Absolutely, Katie, great advice there, couldn't agree more. It's something that I suggest that everybody should be doing on a very regular basis, at minimum once a quarter, perhaps once a month, excuse me, getting emotional about it already.

We've got to look at what the expenses are and make sure that every single expenses is being covered.

And we know that this slips through the cracks from time to time, one of our Builders Business Blackbelt members was just telling us the other day that they obviously became very, very profitable after they joined Blackbelt and changed a bunch of things, and then started to add to the team, and just forgot to check in and ensure that the new team members' costs were being considered in the total hourly rate and the costs that are put together for the pricing of a project.

And the other challenge that comes with that is when you start to add, you know, another person or another expense, your rate and the pricing of an overall project needs to go up to reflect that.

And then you might get into a situation where somebody starts to say, that's a bit expensive, I'm going with somebody else, because you have a conversation or a focus on price rather than on value, and then this becomes the scenario, you end up losing jobs, because you are "too expensive".

That then means you need to go back and do one of two things, because it's essential that you remain profitable like this month in the ToolShed, it's money mindset month, so that's why we're talking about this sort of stuff.

You gotta wrap your mind around this, that if you are losing work, because you're too expensive, one of two things needs to happen. You need to be able to come back down so you aren't too expensive, which isn't what I recommend.

But it is something that you would have to do if you don't work out how to do the other, and that is present as the best value.

If there is any sort of competition with other builders, you need to be able to present yourself as the best value. Matt's just said, morning, in the chat. Love everybody else to jump in the chat who's on live as well, and say, hey, just so we know who's there.

And as I said, if you've got any comments or questions, as we go through here live, jump into the chat, ask them, it'll become part of the podcast, and everybody can benefit from your question.

So you need to either reduce the expenses, or you need to learn how to present more value. I'm a big fan of that second option. But if you're struggling with that, what you need to do is look at your expenses on a regular basis, and you should be doing that anyway, and just keep them really tight.

Now there's also another reason why hourly rates suck and having a focus on hourly rate, and Steph's gonna touch on this a little bit, she's gonna introduce this concept as well. So let's listen to what Steph has to say on this whole idea of hourly rate.

Steph: Good day, Steph Campanella from tradiesgo.com.au. And Mick has ever so lovely, tapped me on the shoulder and said, can you give me some content on this topic? And the topic is, charging an hourly rate sucks, and we should all be charging an outcome.

Now I know this working in a web agency, a marketing agency, years and years ago, we would look at the time it would take to do the job, and we would do the job, and then we would bill accordingly.

But as we got better and better, obviously we got more efficient, and so prices were being driven down because we were so quick at doing things, and we could turn things over really quickly.

And we shouldn't be punished because we can do things really well. What I wanted to actually talk about is branding and how branding can help you make sure that people aren't asking for your hourly rate, because they know they've come to the right place.

How do we do this? We have to state who we are working with. I know that in marketing, the three Ps, product, place, pricing, and all the usual marketing client avatar and all this is actually really difficult to get your head around. But if you can just for a second, take a step back and go, who do I want to work for?

Bless me, my little paper shredder there is trying to eat more than he can chew, and I've filled him up anyway.

So how can a company like yourself drive really good quality leads and do it again and again? It comes down to your who, who are you working with?

And I cannot drum on this hard enough, if you do not state and make a claim as to who you are working with, then you will be stuck attracting and taking on everybody and just saying, yes.

This leads to burnout, like I've seen it, it leads to frustration, it leads to wanting to throw your business out the window. And you don't wanna do that, you got in here for a certain reason, so stick to it.

So, action plan, who are you working for? Who are they? What is their name? I want you to think of that person and give them a name.

If you've had a really amazing client that bought a really amazing thing from you, then your client avatar is now that person, it's Jenny from Adelaide, she's living on the coast there, she got a whole house renovation, she got whole room extension, and new flooring, and walls ripped out.

And it's now a coastal, modern home, versus a little red brick kind of thing. Think about it from that perspective.

She's 35, she's got 3 kids, a gorgeous husband, and two big rottweilers. Get really physical on who it is you're working with.

Because this helps your marketing company actually write content for you and put your why front and center. If you can't do that, then you are basically capping your marketing company and stopping them from doing as well as they could.

Now, when you do this and when you lead from the front and you say, we only help Sallys that are doing X for X, with X, then you can actually attract that customer and detract the customer that you don't want.

The ones that are keeping you busy and in the weeds, doing the wrong things, and running over, and doing a site inspection on a job you don't wanna be inspecting because you said, yes, because of your lack of marketing.

Now, if you have visibility, you have traffic, and then your message is right, and the who is so clear, and you've made a solid statement. Then you will have a great brand, a brilliant brand, and you'll be able to attract the right customers. So I hope that was helpful, all the best.

Mick: It certainly was Steph, very, very helpful, particularly that first point. And we just need to unpack that a bit is that in her agency, they got better at doing things, they became more effective, more efficient at doing things.

And if you are charging by an hourly rate and you buy some software, or you do some training, but you invest time, effort, and money into being able to do things better and faster, and you are charging an hourly rate, what that means is you are not rewarding yourself for putting that sort of effort in.

And so it's really important to understand that what you should be doing, and what you should be putting forward, and having your conversations focused on with your prospects and your clients is it is their pile of money for the outcome that you are delivering, that's the decision that needs to be made.

It's basically none of their business what your hourly rate is. And if you get stuck and sucked into conversations about hourly rates, what that is doing is causing your client or your prospect to make a value judgment on your worth.

You are saying, I charge X amount of dollars per hour, and they're getting you involved to create an outcome. They want this thing, they want this problem solved.

And once you start to have this conversation about hourly rates, you're inviting them to judge whether you are valuable or not, whether they feel that you are valuable or not, versus I'm gonna pay X amount of dollars, and I'm going to get this result, that really needs to be the only conversation.

And you need to learn the art, and it is an art, of learning how to get the conversation onto that space, into that focus. And if you keep the focus on your dollar per hour rate, you're making a rod for your own back, you really are.

Now I know that you need to figure that out when you're putting a proposal together, you need to understand how long things are going to take, and based on hourly rates of your team members, you've figuring out what things are going to cost.

But in my mind, also, when you are getting feedback or when you're getting prices from sub trades, they should be giving you, you know, this is the outcome you're going to get, and this is the cost.

Like, what does it matter to you what their hourly rate is? If you are worried about hourly rates, you get sucked into that whole thing as well. So you need to be having conversations about the outcome, and the value of that outcome, and the price to get that value of that outcome.

Same goes for your team, like even when you're talking about hourly rates with your team. If you constantly are talking about how much they earn an hour, what their thought process is all about is, I need to turn up at this time, and I finish it this time, and I get some overtime.

You know, if I have to work later, I get paid overtime, because it's all about hours. Whereas, if you have conversations about achieving outcomes, and achieving goals, and improving productivity on site, and there is a reward for that, then you're rewarding that sort of behavior.

But if you're just constantly talking about hours, buying their time for dollars, and there's this hourly rate conversation going on all of the time, it's all about how long they're on site for, it's all about how long they turn up for.

And the team aren't contributing at all to the efficiency and making the job site more effective, or the office processes more effective, more enjoyable, more efficient.

If the focus is on outcome and the value and the reward that they get for outcome, you will find your team will start to invest their time, energy, and effort into learning and contributing to the improvement of procedures, you can get them to start to talk about what they like and what they don't like, and the whole environment, the whole experience of people's workday can change.

And when people are having a great time, a better time, their productivity goes up. But if the focus just stays on dollars per hour, if that's the metric they're getting paid by, then it's just, what time do I turn up? What time do I finish?

And then not that, I mean, I'm not saying that everyone will bludge, I'm just saying that if that's all the focus is, you are really missing out on some creativity and some contributions from team members who get this concept.

It's not about how many hours I show up for, it's about the value that I bring and contribute to this team, and if I bring more value and I can contribute more to this team, I believe I will be rewarded with more opportunities.

And that may be money, but it may be more flexibility, it may be getting the projects or parts of the projects that are more fun and more enjoyable.

So take the focus away from this hourly rate and start to think about value and outcome for a price, that's what needs to be the focus. The other thing too, is if you focus on how to deliver better results, in other words, more perceived value for your clients in less time, you can scale it.

And what I mean by that is if the focus is always on hours and paying for the hours, the only way you can scale and do more projects or do bigger projects is to have people either work longer or bring more people onto the team, that should make sense.

So you can't really scale very well because as the projects get bigger or they get more, as you get more projects, you need more people, which is more cost, more frustration, more challenges, all of that sort of stuff.

Whereas if you get the team involved in the conversation about how do we scale this, like, how can we take on bigger jobs? How can we take on more jobs? And you will find that when the team get involved in those conversations, you can scale, you can get more done with the same or even less people if you start to get into that mentality.

But your team won't contribute to that, if they see that they're going to be hamstrung by this conversation, that if I contribute to efficiency and I'm only being paid by the hour, that's not very good for me, because then I'm shooting myself in the foot.

I'm going to work less, therefore get paid less, why would I want to contribute to that? So you've gotta have a completely different conversation and get your team involved in, how do we deliver more value for the client?

How do we deliver more value for the team? How can the team have more fun, be more effective, and what is the reward for that? So you can't have any of those conversations if it's all just hourly rate stuff.

If they want to earn more money, they've gotta work more hours. No, if you want to earn more money, bring more value into the team, give us some ideas that we can create efficiency, effectiveness, more fun, more value for the client, so we can charge a premium price, and everybody wins.

Start to share the time freedom and the financial benefits from the contributions from the team, and they will want to contribute more. So I hope that makes sense.

Now, if anything that I've talked about is resonating with you and you want some help, all you need to do is get across into the nav section there, and you can see there's a little thing there that says, get personal help, click on that, fill out a quick couple of questions, and we can have a conversation about how we can help you.

The other way of doing it is just put a post in the ToolShed, or reach out to us, to me in particular, in the chat, ask the questions, we can go back and forth and see how we can help you implement this sort of stuff.

So that's just about it for this episode of the "Builders Business Success Podcast". But before I get out of here, I wanna ask you a question, and I want to get a conversation going in the comment section underneath this episode of the podcast. And the question is, do you know what you must charge?

Now, as Katie said, it's not about what you think you should charge, it's about knowing what you should charge. And I would really challenge you to answer this question.

Now, if you don't wanna give us the dollar figure, that's fine, but at least get into a discussion and at least understand, and let us know that you understand exactly what you should charge.

And I asked this question because I have spoken to far too many builders that don't consider certain expenses, they think they know what they should charge, but most of the time that thought process is driven by what other builders and trades about the place charge.

And if you figure out what you should charge, and then you look what other people are charging and go, well, I'll never get a job, because I have to charge too much, I'll be too expensive.

That's a whole other conversation where we start to talk about how to deliver value. There are Builders Business Blackbelt members, there's some of them listening to us live right now that understand this, they've implemented it into their business, they're being paid to do their proposals, they are making sure that they're being paid for the project management.

Everything is considered, every possible expense is considered that contributes to a project that the business has to pay for over a year, that's put into the price, and they are still getting the go ahead, they're still getting clients, even though they have increased their prices significantly.

So you've gotta know the answer to this question, do you know what you must charge? Get into the chat, start to ask some questions if you're not sure, but tell us one way or the other, yes, you do know, no, you don't know.

If you do know, we can ask you some questions to make sure you do know. If you don't know, we can answer your questions as to what you may now need to consider.

And we might even be able to point you in the right direction, so you can learn how to represent a lot of value with your new pricing structure, so you can be profitable.

If you don't do anything about this, you're simply another statistic, another builder that is making zero profit and is just hanging on.

And the statistics at the moment of builders going under, builders losing their business right now is distressing, and it needs to stop, and here is one of the reasons that is causing these problems.

Let's get into it, let's have a conversation, let us help you make sure you don't become a statistic.

So I hope this makes sense to you, I hope we've started to get the brain box ticking over in this episode of the "Builders Business Success Podcast". And we'll be back again next week.

As I said, if we want help with anything, reach out to us in the chat, go over here into the nav, you can reach out to get some help there. Ask questions in the ToolShed, start to engage, start to let us know you are there.

The squeaky wheels get the oil in the ToolShed, so start to become a squeaky wheel, start to ask questions, and let's get into some conversations.

We'll be back again next week with another "Builders Business Success Podcast". I hope you've enjoyed this episode. I'm Mick Hawes from Builders Business Blackbelt. That is all for today, bye for now.