EP31: Why You Need To Charge More

I think we can cover all of them, but I want to spend the majority of the time talking about... the things that most of them don't even think about why you need to charge more money.

I mean, if that's your cup of tea, then that's fine. But...

Most of them get the Ford Raptor when they can't even afford it. So I don't think that's actually the issue.

I mean, maybe if we're talking about some extra guns, then you might have my attention. But I don't really care about a bass boat either.

True story on that. A funny story is that my business sponsors me as a shooter. Why do I do that? Because it's all a tax write-off. Because you can? Because I can. Smart. It's my business.

Go ahead.

You know what they call those type of people, those type of jobs or people?

No, do you know, there's a name for those people. Do you know what they call them? What do they call it? Frantic finishers.

Don't be a frantic finisher.

Before we get into the unknowns, let's kind of talk about the most common ones because I just want to kind of bring those up because some people may not even know why you should, like the most common ones. So I want to cover all this whole spectrum. We won't spend as much time talking about those. But the most obvious reason you need to charge more is because you need to, one, you need to be able to pay yourself more.

Well, I mean, if you get into the whole profit first accounting, you know, that's the reason behind that is so that, because it doesn't even matter about contracting. Most small business owners and in the industry don't pay themselves enough or they don't pay themselves at all because they always want to pay all the bills first.

So they do a draw or they just pay taxes. Yeah.

So you need to be able to pay yourself more, right? I mean, that's pretty obvious. You need to charge more so you can pay yourself more. What's another reason, an obvious reason why you need to charge more?

Well, yeah. I mean, there's contractors that they're the sole breadwinner, right? The wife helps in the business. Maybe she's a full-time stay-at-home mom, but she also helps through the books and stuff and answer the phones part-time. But like you said, she's not getting paid for that. Right? And not only is she not getting paid for it, the contractor's not charging enough to pay himself enough. So now it's like cheating yourself out of two salaries. It's horrible.

Well, you're already home. Like you're already home. You're not, you know, I mean, you're not really doing like...

Yeah. And then it turns into five hours and then 20 hours. And then the next thing you know, you hire some more people. And now you have a full-time wife working 40 hours a week and 40 hours as a stay-at-home mom. And it's like, she still hasn't gotten paid anything, right? Because the business hasn't really grown any. You just took on more jobs and you haven't paid yourself anymore. So it just gets getting worse and worse and worse.

Well, but it happens though. I mean, we're joking about it, but this stuff happens.

But here's the other thing too, Eric. It's easy to say, okay, for the first six months, we got to bootstrap this. We got to get it off the ground, right? Yeah. You're not paying yourself anything. You got six months reserves. You start your business. Like that's an acceptable plan to get started. But the problem is six months turns into nine months, turns into a year, turns into two years, to three years, to five years. And they're still stuck in that same mentality of, I can't pay them or I'm not going to pay them. You know what I mean? Yeah. It just, it always takes longer than what most people think it does to grow the business. And if you don't design it to pay yourself upfront and to charge more, you're just stuck in that crazy cycle.

Dude, there were times early on in my business when I was working where I had thoughts of, I need to go get a second job. Now think about that for a second. I own a business where I could almost print money if I know what I'm doing, right? I could work more in my own business and I have thoughts of, I need to get a second job because I'm not making enough money. I mean, that statement in and of itself is just, there's something fundamentally wrong about that.

So that's a pretty obvious one, right? You need to pay yourself more. What's another pretty obvious reason why you need to charge more?

Yeah. I mean, the vehicle maintenance is one thing. I had in a two-year span, really is about a year and a half, but in a two-year span, I had to replace engines in both my truck and my van at $6,500 a piece. Plus I had, before I replaced my engine, I actually spent like $3,000 trying to figure out what the hell was wrong with it. which ended up turning out to be a main bearing. So the engine shot, but I spent all this money. So in the course of over two years, I spent almost $20,000 in vehicle repairs.

Yeah. And I didn't have $20,000 laying around. I mean, I had a little bit, but I didn't have $20,000. So I had to, what I got to do, put it on credit cards.

I didn't know what I was doing.

I mean, it's almost like we're talking from experience here.

Well, the debate's still out on that, Eric. I mean, come on.

But listen, I had to put it on a Discover card, right? So now what do I have? Now I have a monthly payment of... $200, $300, whatever it is. Now I just depleted my cash flows by $200 to $300 a month. You know what I mean? That I wasn't planning on. And if you're running lean and you're not, and you're cash poor, your cash flow poor, now you just put a huge dent in your cash flow and now you're struggling.

Yeah, there were times where I was paying like $150 a month in interest on those things. And it was just, I was so pissed off. That's it? I mean, it might have been more. I don't remember. I kind of block all that information out. Yeah.

So that's vehicle payments and stuff, gas, all that maintenance. But what about tools, right? So let's just say you were smart enough when you started your business and maybe you had $5,000 or $10,000 or $20,000 to start your business and you made a large equipment purchase or tool purchase early on, right? You went out and you bought. I don't know, $5,000 worth of tools to do your job and you're good, right? Now you're set for the rest of your career. Like you never have to buy those tools ever again, right? I mean, that's it. You just one-time purchase and you're done.

Definitely the batteries. I mean, the tools can last a little bit longer, but like drills, power drills. I mean, I got drills that are five, six, seven years old. Of course, that's because I buy a DeWalt, which we're not officially sponsored by DeWalt yet. But the batteries go bad in those things. And the batteries cost more than the actual drill. So half the time, it's cheaper to buy a kit with a drill in it and you get two batteries for the same price as replacing one battery.

No, I need to. I got a couple of batteries that are working.

Squirrel. Okay, so what's the other reasons why? Maybe it has something to do with marketing. I mean, how are people going to find out about you if you don't tell them? It takes money to do that.

You don't think a wrap in your vehicle is important?

Yeah, but if you don't have the money to do it.

I'm going to give you some... Yeah, but I wanted to cover some of the obvious ones first before we got into the not so obvious.

Now you put me on the spot. See, you changed on me. Now I lost my

I don't do that stuff. What are you talking about? Well, I mean,

I don't do it as much as you do. It's easier. I mean, if you got a helper, if it's just you and a helper. that's easy to buy them lunch once a week or whatever, right? Or a couple times a week. I mean, that's a pretty easy. But if you got 10 guys working for you, that's not necessarily an obvious or easy thing to do where you're buying them lunch every week or once a month for that matter.

That actually reminds me of one, which is putting money aside for the rainy day. I have an account called the Rainy Day Fund.

Well, we have snow here sometimes. So, you know, there's times where I don't lay guys off. I'm pretty passionate about making sure my guys are busy. Like I will not pay myself if I have to keep my guys busy. I take that part serious. I take my employees' livelihood serious. And so if it got so bad to where I either had to not pay myself or pay my guys to sit in the shop and do nothing, I'd pay them to sit in the shop and do nothing. That's just me. I'm not saying that's good business advice. I'm just saying that's how I treat my guys.

Well, that's true too. I mean, that's definitely all true things. I just like to have a rainy day fund that way because there's times too in the wintertime where it just happens where... You know, the schedule doesn't work out perfect and there's three or four days in a week that we don't have anything going on. Well, we'll use that time to work in the shop or, you know, get things PM that didn't get done. Like once a year, I tend to pull out all my saws and stuff like that and check and make sure there's not like loose bolts on them or, you know, stuff that just needs to be like PM'd on them. So that's preventative maintenance for those that don't know what PM means. But just doing maintenance on them. So I use that time to help cover where, you know, I say sit in the shop and not do anything. They never not, that's never happened. I mean, there's always something to be done, but it's not like income producing work. You know what I mean?

So having that money set aside for that helps. And we've already talked about like capital investments growth. I mean, if you want to, you know, replacing your truck that you drive is one thing. But planning to buy another truck or two or five, that's a totally different thing, right? Now you got to save even more money to plan for that type of purchase. I mean, you could finance that stuff. I mean, that's definitely possible. But like we said before, when you finance things, now you have payments and you're paying interest. So it actually ends up costing you more money.

Absolutely. It just gives you options, right? Like what you're talking about, having more money gives you options in your business. I want to talk about another reason though why you need to charge more. And that is because the jobs never go as good as in your mind in real life, right? When we bid this job, we look at it, we may think, This job is going to take X days,10 days to do this project, right? On an average day, not even like a good day, like on an average day. But then you don't take into effect that the materials show up and they're damaged or there's a change order or something that affects the, you know, I mean, there's just, there's so many things that can go wrong. Your trailer breaks down on the side of the road. You lose three hours of that day waiting to get the tire changed, whatever. And then you have, so you're out that money, right? And if you bid the job so tight to where you have exactly 10 days figured and you think it's going to take 10 days, you have no wiggle room whatsoever if anything goes south.

I want to share a story. Unless you have a follow-up with that. I want to share a story about it. No, it sounds good. This is happening like literally today in the last three weeks. I hate doing doors. I'll just tell you that right now. And the reason is because The door manufacturers out there have all gone to crap. The quality of them is terrible. Unless you go super high premium door, your average doors are just terrible. So I just kind of quit installing doors. But I had this customer that wanted a front door, a big door, transom, side lights, a huge door, custom, spread jams, spread volumes. I mean, it doesn't necessarily matter if you know what that means, but it was a big door. And so I put a big price tag on it. I threw a lot of extra money into it for labor and profit. And the door comes in and it's all jacked up. It's supposed to be unfinished on the inside. It was primed. And it took like three months to get this door in because it was a custom-made door. And the customer didn't want to wait. So I was like, okay, we're going to go ahead and full finish the inside. So I have a painter on staff. She's really, really good. I asked her, can we do it? She said, yeah, no problem. So we're going to full finish the inside to look like wood, stained wood, right? That's the solution. But that wasn't part of the bid. The original part of the bid was just going and staining the inside, painting the outside, and we're done. Now it added on like 12 extra hours of labor in painting to make this happen. Now, I'm not going to charge the customer that because it's not his fault the door didn't come in the right way. And I'm not going to make them wait another three months to get a new door made. Right? So I have to eat that. On top of that, the way the door was made, I had to spend an extra 45 minutes during install just to fix the things that were screwed up on the install. So all these little things are coming together. I send my other guy out there today to put the storm door on the front. And he gets out there. And because of the way the door was made, the storm door won't fit. It's going to hit the door handle, hits the... The storm door hits the door handle. And so now we have to add on extra thickness for the storm door to clear the door handle, which I didn't have planned in the job. So now he went out there for two hours and wasted his time. So all of these things have happened. I got to go out there tomorrow and meet with the manufacturer because the things, the grids on the lights are not done right. and we couldn't paint them all the way because if they're going to replace them, we don't want to paint them twice. So the painter can't finish the job. I got to go out there tomorrow and meet with the manufacturer, find out what they're going to do, come up with a solution. And so all this stuff's happening on this one job that I was going to have so much profit on that now I'm probably going to be best like barely making any money on it all.

that's why you got to have extra money. If I would have had like a normal, what I would normally charge for that job, I would be losing money on it.

I actually met with a friend of mine today and we just ran each other at lunch and we had lunch together. He's a contractor. And we were talking about locally, there were five doctors that started a construction business. Five doctors started a home building business.

And they hired a production manager, a construction manager, basically, to run the jobs. and this customer called him out to fix a problem. And he gets out there and he looks at it and he's like, this is a warranty issue. The house wasn't even a year old. He's like, this is all warranty stuff. You need to call the home builder back and make them fix it. And they're like, F that, dude. We're never calling them ever again. Everything through this whole process. We've spent so much money. Everything's been so screwed up from what they did. We're never going to call them back ever again.

Well, no, they didn't even know what they were doing. They didn't know what they were doing, but they put the tile in the kitchen directly onto the subfloor so it's cracking everywhere. They didn't put proper underlayment underneath the tile the way you're supposed to. So the house is less than a euro and tile is cracking all over the place. I mean, we're talking thousands and thousands and thousands of dollars worth of repairs. But this is going back to the warranty issue that this is people that don't know what they're doing. If you know what you're doing, it can still happen. You can still have errors and problems that you have to go back and fix. And so like you said, if you don't have things factored in, they can come back and bite you. Those guys are not calling them back. My point of that was like you said, contractors don't call them back. They were calling the home builder to the point to where the home builders are like not even returning their calls anymore.

You're like, why didn't you call them back?

Well, and... So it also depends on what you're doing as far as charging for warranties. I mean, yes, you need to, I don't, I don't necessarily think it needs to be a percentage based. It can be. If you're doing the same thing, if all you do is ponds and that's literally all you do, then that works. But if you do, you know, if you're doing landscaping, ponds and sod or all these different things, you know, obviously some things are going to have more warranty claims than others. And so you may need to fluctuate that based on the type of service that you're offering.

You got to factor in your employees too, right? Because when I was by myself or had a helper, I didn't have callbacks. It almost never happened. But when I started hiring employees, I started getting callbacks.

Well, yeah, anytime you hire someone, I mean, for me, when I hire someone, it takes about six months before they are settled into the job. And it takes about a year before they're firing all cylinders. They don't have to think about anything or how does Team Handy do this way or what's Brad want done? None of that happens, but it takes about a year to even get to that point. of working together before they're finally just flowing. Yeah.

Absolutely. You have to factor in all that stuff. You got to factor in when they do screw stuff up, screw stuff up. They're going to screw up things, right? I mean, you have to factor all that in. So I think the last thing I want to talk about, and I think it's important. in terms of why you need to charge more money. And it's very unknown or not obvious, I should say. That is, you need to charge more so that you can give your customer a better experience.

So I'm glad you asked, Eric. Whenever you don't have to have as many jobs going on and you... If you charge more money, you don't necessarily have to do as many jobs to make the same amount of money that you would, right? So it doesn't matter what type of work you do. But if you're trying to do $500,000 a year in revenue and it takes you 50 jobs to do that, if you charge more money, you could still make $500,000 in revenue and maybe only have to do 30 jobs a year, right? Which would you rather manage and be in control,30 jobs or 50 jobs? It's a question. Which one would you rather manage,30 jobs or 50 jobs?

Well, I'm just, I didn't know. Maybe you didn't know. I mean.

Yeah, and if you factor in some extra time, whenever things do go wrong, you can take care of some stuff without having to charge the customer more money if you don't want to, depending on what the factor is.

You don't have to be a frantic finisher running around forgetting stuff and having to go back three times to get a longer bolt because the bolt wasn't long enough. I mean, all these things factor in, right? So you can provide a better quality experience for your customers if you actually charge them more money. And a lot of people are like, well, that's like screwing them over. Like you're just ripping them off if you're doing that. No. The thing that people, the contractors don't understand is that whenever you give someone a dollar amount, If you say, Eric, this project's going to cost you $20,000, okay? And you have enough profit figured in to be able to deliver them an awesome experience. It's up to them to decide if they want to spend that much money. You're not putting a gun to their head and making them do that. If another contractor comes along and says he can do the exact same job for $15,000, it doesn't matter if they hire you, that's their choice. So a lot of guys have this mindset thing. Well, I can't charge them. That's just too much. You're just ripping them off.

Well, I agree with you 100%. And if people aren't willing to pay you, guess what? You have the wrong customer. That's another part of the equation. We're not going to get into tonight, Eric. But if your people are just saying you're too expensive and they can't afford you, it's because you have the wrong customer. It's because you

Or you're just attracting the wrong type of customer, right? So that goes to branding on. That's what you're saying. But it doesn't mean that you're charging too much. It just means that you're not finding the right customers. Yeah. What was your other thing you wanted to bring up?

Oh, crap. Here we go.

Are you trying to say I'm not creative, Eric? Well,

I'm not that creative. I know.

Well, here's a little ring and ding or whatever you want to call it, alert or notification, whatever. But when someone says, Eric, we want you to come out and... give us some ideas on how to take care of the space, that's when you know you should be charging for your time. I mean, you should be charging no matter what. But if they want your ideas because they don't know exactly how it's going to look, that is a consultation. You're providing a service. That is not giving them an estimate. That's not the same as saying, how much is this pond going to cost? If they say, we want your ideas and kind of lay it out and tell us what's going to work in our space, you are providing a service and therefore you should be charging for that.

Yeah, I had a friend of mine just the other day, he wants his deck stained and he's like, hey, come on out and give me a bid. I'm not going to come out and give you a bid. I mean, he may have just been saying, I mean, usually I get all the work that he's once done. And that just may have been him saying that, come on out, give me a price. But it's just whenever people use language like that, it's usually like, hey, I'm collecting bids. I got a chain around my neck and I got the fingers of all the contractors that I've collected bids from. You know what I mean? That's what I think of.

That happens, right? And it's not always the customer's fault. Yes, there are people out there that are like that, but sometimes they just don't know any better. You got to educate them on it. That's a whole other podcast. But why you need to charge more, I think we've covered, I mean, maybe there's some we missed, but those are the main ones that you need to be able to do. Why you need to charge more so you can provide a better quality service for your customers so that you can expand and scale buying equipment. You got to replace equipment. You got to pay yourself money. You got to pay your spouse money. You know, there's all kinds of things that are going on in your business maintenance-wise that can happen. Take care of your team. Treat them to... I mean, you could even treat them to a half a day off, right? Give them a half day off and pay them the rest of the day. Pay them for a full day. Whatever. I mean, all these things factor into why you need to charge more money. And if you're just breaking even in your business, you're going to be on the crazy cycle for a long, long time.