If you and your project manager spend 13 hours preparing an
estimate for a remodeling job, how much money have you invested
in the project? Would you have been better off spending those
13 hours getting things done on one of your current
You can't answer those questions unless you understand where
you get the most return on your time — yet most of the
contractors I talk with have only a vague conception of how
many hours they devote to various jobs and activities. They
don't know how to quantify their time and often don't grasp the
benefits of doing so.
I recommend that you keep detailed records of how you and your
senior employees spend your time. Doing so is fairly simple: I
carry recipe cards in my wallet and make a note of time spent
on specific tasks. The bookkeeper gets my cards at the end of
This type of recordkeeping can yield meaningful results in as
little as six months, giving you a powerful tool for managing
your business more profitably with fewer headaches. In my case,
seeing the cumulative value of my time made me much more
conscientious about how I spent it. And because I also got
serious about tracking other things — such as my
employees' time and my company's overhead in general — I
became better at predicting job costs and more focused on
managing the details of my business. As a result, my company's
quality and efficiency skyrocketed.
Today, I make as much money doing eight projects as I used to
make doing 18.
Time as Money
If you're like most contractors, some of your time will be a
direct job cost and some of it will be part of your overhead.
I'm not going to tell you which activities to put in which
category. Instead, I want to show you the value of
understanding where your hours go, no matter how you classify
The biggest reason to track how you spend your time is that it
will help you earn more money. A lot of builders and remodelers
set an income target of "as much as I can make" and hope
there's enough profit at the end of the job to pay themselves a
decent wage. I believe that every contracting firm, regardless
of size, should include the owner's compensation as part of its
overhead. If you're a small contractor, it may not be realistic
to pay yourself a full salary — but there is an
alternative: Pay yourself a smaller base salary, plus a
periodic bonus based on profitability. If you have a target
income of $125,000 per year, you could pay yourself $5,000 per
month in salary and the rest in quarterly bonuses.
To hit that target, you will have to include your time as an
expense in all cost estimates, and you'll need to look for ways
to spend more of your time generating income. For example, my
records tell me I will need to devote an average of three to
four hours per week to a full-scale kitchen remodel. This makes
my actual overhead cost closer to 16 percent than the 15
percent many contractors quote, and I set my prices
When I began recording my hours, one of the first things I
noticed was the unpaid face time I was giving away to clients.
To avoid this, I now ask the following question when qualifying
homeowners: "How much interaction with me do you anticipate
you'll need?" Their answer, along with my intuition and
experience with past clients, helps me estimate how much
handholding time they'll require.
I include my compensation for that time in a line item on the
estimate called Owner Project Management. It ranges from 1
percent to 11 percent of the total job cost, depending on the
clients. (This is in addition to the 16 percent overhead
For example, if I have a $150,000 remodel where I anticipate
having to be on site or in phone conversations with the clients
for an average of three hours per week, and the job schedule is
16 weeks and my rate is $128 per hour, I will add $6,144 to
that line item (3 hours/
week x $128 x 16).
The clients never see this line item, as it's folded into a
larger cluster of overhead or management costs. It's for my
internal use, so I can make sure that I'm getting paid for my
time. Once the job starts, any time I spend with the clients
gets credited to this line item. If they start needing more
attention than I thought they would, that's a signal for me to
start acting like a manager and focus on moving the job
A lot of contractors object to building the cost of their time
into estimates. The reasoning goes like this: "If I charge what
I'm really worth, I won't get the job. We're bidding against
other companies that don't know their costs."
That may be true, but if you have to lower your profits to get
work, you should do so with your eyes open and a clear
understanding of the consequences. You also need a baseline
below which you won't go — usually the point at which it
costs you money to go to work. But in order to stay above that
line you need to know where it is.
Even if you can't ask your clients for more money, knowing the
costs and implications of your and your staff's time pays off
in lots of other ways, because it forces you look at how much a
job is really costing you. Facts and figures about job costs
are powerful managerial tools. They will help you do the
• Decide whether to bid on a job. This goes back to the
question at the beginning of this column: Is bidding against
four other contractors for a job worth your time? The answer
depends in part on how much it costs you to complete the bid.
You can determine that only if you understand how much of your
company's time the bid will require.
• Calculate your profit from various job types. Where do
you make the most money for the least amount of management
time? Is it the small remodel, the large remodel, or the custom
home? Having this information can help you prioritize the kinds
of work your company pursues.
• Set a minimum change-order fee. My minimum
administrative fee for change orders is $175 because my
recordkeeping has shown me that $175 is the value of the time
that even the simplest change order will take away from
productive work. If I like the clients, I can waive the fee as
"courtesy of Dennis Dixon." That lets them know that I am
giving them something for free, and they appreciate it.
• Manage your designer. After I started seriously tracking
my hours, I saw that my project manager and I were spending way
too much time resolving architectural questions and poorly
detailed specifications. Now we make it clear to the architect
and the structural engineer that any time spent on this will be
charged to them by the hour. If they balk, I tell them I'll
bill the homeowner. It's amazing how quickly that brings them
around to our way of thinking.
• Waste less time. If your time is worth $60 per hour,
should you spend three hours sweeping up a job site? Should you
be running errands for the electrician who forgot two screws?
Having the actual numbers will help you make good decisions in
• Avoid nasty surprises. A business in poor financial
condition may have enough cash flow to pay most of its bills
for some time, leading the owner to misdiagnose its financial
health as "profitable" — when in fact it's about to fail.
Getting into the habit of paying attention to your actual costs
will put you in position to see trouble before it
The more you work with these numbers, the more effective a
manager you'll be — because understanding your company's
true overhead will make you better at prioritizing your
company's time and efforts.
Dennis Dixon is a custom builder in Flagstaff,
Ariz., and a regular speaker at JLC Live.