Episode #13 Transcription - How to Increase Project Profitability with Time Tracking Part II - How to Audit your Project’s Time & Increase Your Profitability

Welcome to the designers Oasis podcast. I'm your host, Kate Bendewald, interior designer, mama and CEO of a thriving interior design business, built on authentic word of mouth referrals. It wasn't that long ago that I stepped away from my corporate architecture job to build my own dream, one that would allow me more time with the people that I love, the ability to serve my clients at the highest level, and to make a great living. It wasn't always easy, and I've made my share of mistakes along the way. Fast forward to today, and I've learned a thing or two. This podcast is for you - the inspired, creative, ambitious, and let's admit it,  occasionally overwhelmed interior designer who shares this dream of transforming lives by transforming homes. Join me and my guests each week as we walk through practical ways to build an interior design business you love, and helps you transform your clients' lives. You can do this. 

Have you ever had your ass handed to you on a project? Maybe you dramatically underestimated how long a project would take. Maybe you were so far over on hours, you couldn't bring yourself to invoice the client for every hour of work you completed. Perhaps you were so far in the hole that you just stopped tracking time. Because you couldn't bear to know exactly how far off you were. Welcome back. This is part two, in a series called How To Increase project profitability with time tracking. And this is part two: how to audit your projects time and increase your profitability. So in part one, we were making the financial case for tracking your time on your interior design projects. How to do it as efficiently and accurately as possible so that you have that information you need to gain insights on your business and profitability. And how do you get your team on board. 

So if you're not consistently tracking time, I highly recommend pausing this episode, go back to Episode 12, the first part of the series where I'm helping you understand the importance of time tracking what to track how to track it, how to get your team on board, and most importantly, how to do it as effortlessly as possible. So if you're new here, I'm Kate Bendewald. And this podcast is for interior design business owners. So everything we talked about today is from the lens of running an interior design business. But if you run a similar business, such as decorating, styling, staging, landscape design, or architecture, and so on, if you're a service based business, I think this information is relevant, and I hope you'll stick around. So again, in the first episode, I talked about how to track your time.

Let's fast forward to six months later of consistent time tracking, you've finished a project, and you're ready to audit it and see how profitable you were. And keep in mind the time tracking stuff. If you go back to Episode 12. And you implement the things that we talked about, do it simply, it's little small actions every day, right, that are going to add up to having all of the state and information. And this audit that I'm about to talk about, you're only gonna have to do this once every couple of times a year when you finish a project, but it's going to provide you with incredible insights. So in a moment, I'm going to be sharing with you some simple math, plus some terminology that you're going to want to know. And I figure as interior designers, you are visual like I am. So I've created a one page, printable PDF, to show you these formulas and the terms so that when you're ready to audit your own project, you have this at your side. So look for this free PDF download in the show notes. Okay, I'm gonna make this as simple as possible. We're gonna use simple math, but we're going to talk about how to audit your time. Now, keep in mind if you're doing a project , if you're purchasing for a project, we're not talking about that today. Right now we're just talking about human resources. We're talking about time auditing. But if you're ordering and charging your clients for that and you've got a profit there, that's also going to be another Ask factor of auditing a project. In today's episode, we're simply talking about auditing your time. Okay?

So in order to audit your time, you need to have a baseline, which means you need to know what you estimated in the first place, and your cost to do business. Now 40 to 60% is a good profitability goal anywhere in that range. And I'm going to tell you how to figure out that number. Okay, for every project, you need to know the following information, and this is what's going to be on that PDF download. So you can go grab that first, you're caught, you're your cost per hour, why CPH your cost per hour, that is for you, not any of your stuff, that is your cost per hour. It's not the number that you charge clients for for your time, but what it costs you to be in business. So for simple math, we're gonna say that number is $50 an hour. Next, you need to know your staff's cost per hour and staff cost per hour. What do you pay your employees or contractors, this is not the rate you charge clients. For example, let's say you have an assistant and you pay them $25 an hour, but you build them out at $75 an hour, I'm talking about the first number $25 an hour is what you pay them, even if they're on salary, you can figure out their hourly cost to the business. S Cph is staff cost per hour. And this number is likely different for the different types of staff that you might have working for you.

Okay, TDF total design fees TDF total design fee. So how much did you charge your client in total for your services. So whether it was flat fee, hourly or hybrid, what is the sum of everything they paid you for services alone, okay, then you want your number of total hours per staff th total hours. So total hours each staff members spent on the project, regardless if those hours were billable or not. Hey there quick note about today's episode, I use the term total project cost. But what I should have said was total time cost. The reason is, total project cost would include additional costs, such as client gifts, meals, paying for mistakes, etc. When you're auditing a project's profitability, you're going to also want to look at sales of product as well as any project related cost. But since in this episode, we're only focused on time, I should have said total time cost or T T, C versus t PC. The calculations are all still the same and accurate. But I wanted to correct my terminology here. 

When you download the PDF, you'll see the correct term total time cost or TTC in the formula. All right, back to the show. And then final is TPC total project cost. TPC total project cost, that is the total amount it costs you to complete this project in terms of human resources. Okay. So again, when we're thinking about auditing a project, we want to look at cost in terms of human resources. So that's time, you might have other project costs, maybe you have photography, maybe you had client, client gifts, or client coffee or dinner or something like that. Maybe you had to pay for a mistake on a on a project, something like that, that comes out of your profit, you're gonna want to keep that you're gonna want to figure that out separately. But today, we're just talking about human resources, and of course, your profitability on any product that you purchased. That's also another aspect of auditing a whole project. But today, we're just going to talk about the human resources aspects. So total project cost for time. TPC in terms of human resources, okay, so this is where I feel like the PDF download will be, make this a little bit easier to understand, but I'm trying to keep the math really simple. But in the end, I'm gonna, I'm gonna give you this formulas, I'm gonna give you some examples, I want you to just track with me as best you can, because we're listening here. But also, at the end of this, you're gonna get the big picture. 

So what we're going to do is we're going to take each person's hourly cost, your cost per hour, and your staffs cost per hour, and you're going to multiply that by how many hours they worked on the project. And then you can add all those numbers up, and that's your total project cost. And then what you're going to do is you're going to take what you charge for the project and subtract your total project cost and divide it and that's going to give you your percentage. So example A, your cost per hour. Let's say your cost is $50 an hour and you work took 25 hours on the project, that's a total of $1,250 in cost for your time, let's say you have an assistant and you charge or you pay them $25 an hour, and they worked 200 hours on a project that equals $5,000. of cost for that stuff. So you add that together, and you have $6,250 total project cost for time. All right, let's say for that project, you charged your client $15,000. Total design fees. If you subtract your cost of 6250, that leaves you with a difference of $8,750 in profitability. And if you divide that number, by what you charge the client, you come up with a number of 58%. That's pretty good. That's at the high end of the 40 to 60%. range. So that's a very healthy project. And that's a that's an excellent place to be. 

Okay,moving on to example, B, we're going to use all the same numbers, except we're going to increase the number of hours for each staff member. All right, so let's go back to your cost per hour, $30, an hour stays the same. But this time, instead of 25 hours, it took you 100 hours, that's going to equal $5,000 In your cost. Let's say your same employee, same $25 an hour but took them 250 hours to complete the project that equals 62 $56,250. And when you add your cost and their cost together, that's a total of $11,250 total project cost in terms of human resources. Okay, same project, you charge the client $15,000 total design fees, when you subtract your total project cost of $11,250 you have $3,750 leftover in profitability. So yes, your project was profitable, yay. When you take that number 3750 and you divide it by the total design fees 15,000. That number comes out to 25%, which is well below the 40 to 60% range that you want to be in so I'm glad that you're profitable, but it's a pretty low number. And we want to make sure to get that up. 

So in example B,  you still made money you made 3750 But you worked three times the number of hours from 25 to 100 hours and your staff worked an additional 50 hours. That's 150 hours of you not out there getting new clients not doing the things that you know are in your wheelhouse. All the while you made $5,000 less money so you worked more and made less money. Are you sitting a little straighter in your seat? Did that perk your ears up? No one wants to work more and get paid less. But friend if you're not tracking your time, you'll never know this number and where you said hey designer, have you ever wondered about the insider secrets of running a successful full service project? 

I'll see you there so what do you do if you do an audit like this and you find yourself an example be you have a profit margin below 40%? Well, there's three ways was maybe more but today we're talking about three that you can three ways you can address low profit margins. And by the way, it's not a crime to make money. IE, you can delight your clients change lives, make the world a beautiful place, employ people work less and make a great living. And it's yours for the taking if you're ready, okay. This is just a little side rant. But years ago, I worked with a money coach Jenny Carlson. I've mentioned her before, I think her business is called financials for creatives. And I'll make sure to link to her. And she's most definitely going to be a podcast guest one of these days. She's fabulous. And she has a great quiz on her website called What's your money type. And when I did my go take her go take her quiz, get on our list, she's great. When I did my coaching with her part of her process was to identify your money archetype. And that's what the quizzes, and it's based on a book.

And they don't remember the name of the book in them at the moment, but I'll find it and I'll link to that as well. But I think there's eight archetypes, maybe nine, I don't remember. But here are a few that I do remember, because they were relevant to me. So one of the archetypes is the fool, the fool is careless. There's the innocent and innocent is the one that puts their head in the sand. And then there's the warrior and the Warriors disciplined and courageous. And another one was the wizard, which lives in flow and abundance. And when we first started working together, I had a lot of the innocent and full archetype showing up. But also a little bit of that wizard, which was really exciting. I was definitely able to make money, but I needed to be careful on how I spent that money that was really important for me to get a handle on so my work with her is really important. And in doing so cultivating that warrior archetype has taken a lot of work and it continuously needs to be cared for. So if this conversation around money is giving you hives, if you're feeling queasy about words like profit margin, and charging more, if charging clients 3x, for your staffs time makes you want to curl up in a ball, you might have some work to do. And that's okay, I certainly have but my friend, if you want to be in business, for years to come, this is how you have to show up as a business owner. These are basic business principles. Think about this for a moment, think about how you show up for a client when you're feeling resentful that you're still working on a project that is unprofitable. How are you going to feel showing up for work to work for yourself every day, knowing you're barely making ends meet? That's not fun, that doesn't light you up. That doesn't get the creative juices flowing. It zaps your creative energy. You want to talk about tracking time zapping your creative energy. How about not being able to pay your credit card in full each month? How about borrowing personal funds to cover your business expenses? Does that get your creative energy flowing? No. 

All right, well, stick with me, let's move on to what to do if your projects are not profitable. Okay, three ways. Number one, increase efficiency. Number two charge more or raise rates and number three, hire help at a lower cost per hour. Okay, I'm just going to tell you, in a nutshell that prior to doing these audits on projects, I used to think that I really wanted to do these big hole home renovation projects. And I have and I've done them, I've enjoyed them, love the clients, beautiful end results. And I would absolutely do them again, given the opportunity. But from a profitability standpoint, comparing those to some of these smaller projects, I found that I not only was energized a little bit more by the projects that were that didn't quite take as long as some of these mid to small, smaller sized projects, but still had big impact were actually more profitable. So that was a big insight of mine that I gained. And I never would have known that if I hadn't started to implement these audits into my business. So doing them may help you find some new insights that you didn't have before. 

So Okay, number one, increase efficiency. I have this really nerdy phrase that I say sometimes it says, I say, systems are my jam, and templates are my peanut butter. So I know so nerdy. If there are things that are taking too long, I want you to look for ways to make the process faster. I want you to look at things like standard operating practices SOPs. I know also not the sexiest thing in the world to talk about. But when you have standardized processes, you and your team don't ever have to think how do I do this again, you always have a guide to tell you exactly how to do things. You know how to bill your clients each month how to place an order how to prepare a purchase order Have those things are the kind of standard operating processes that when you have them in place and ready to go and your team has access to them, then there's no having to either rethink how to do things or make mistakes that you have to go back and finish or fix rather. So those SOPs can really help you be faster at templates stop recreating the wheel. So much of what we do is replicable. There should be templates at just about every stage of your business. Other than the creative work, you know, the tools that you use inside of your business should just be templates upon templates upon templates.

 And if you're listening this podcast, you know, you're in the right place, I've got the templates, I've got free ones, I've got paid ones. So you'll find all of those on on designers Oasis website. But you know what, you can create templates for everything that you do, if you find yourself writing an email that you find yourself writing over and over again, make it an email template that you that you implement into your process. So templates are huge outsourcing, outsource things that you're not as fast on, let's say, you are not that fast drawings, and they take a lot of your time. That's an easy thing that you can outsource. There's there's all kinds of things that you can outsource in your business. If if that's one of the ways that you want to find efficiencies. 

Another way is to lean on your vendors to help you with things like putting together lighting or plumbing packages. If you've got a whole home lighting package, you can send your lighting designer a list of what you need. And tell them this is our inspiration. This is the look and style that we're going for, can you put together something for us, when you're sourcing hundreds, if not 1000s, of specifications for a project. I know that's the creative side, but you get to be the editor in chief and get that lighting package back and sort of figure out how everything's going to work together and how this one's going to look with that one, and so on and so forth. So you're still putting that creative energy into it. But they're doing the heavy lifting by bringing you a curated list to choose from, you can do the same thing with plumbing, you can do the same thing with appliance packages. So the point is leaning on your vendors to help you pull together some options can be one way to really increase your efficiency.

Okay, moving on, raising your rates or charging more, it's kind of the same thing just depends on if you're charging hourly, a flat fee or hybrid, just how you look at it. But I want you to start looking at how long things actually take you make sure your proposals are an accurate reflection of that, you now have the data and now you know, so you can you know, go back and look at how long something took you if you feel like you're pretty efficient with your work, it's time to raise your rates. And you know what you deserve it because it's taken an education and experience to get you where you are today that's allowed you to be faster at your job. You shouldn't be punished financially because you're faster and more efficient. You're just more experienced. So you know, know how long it takes you to do a site survey know how long it takes you to put a typical kitchen drawing package together, what are those things you do over and over again, that you can look back at the data and understand how long things take you and have your proposals reflect that, whether that's in raising your rates, or charging more depending on how you're charging for a project. Alright, I hope that makes sense. 

And then finally, hire help at a lower cost per hour. Now stick with me here. Hiring help can help you increase your profit margin go back to Adam will link in the show notes episode nine how hiring can help your bottom line where I talk about this more in depth, but we'll do kind of a high level overview here. But think about it like this, if you are charging your client your rate $150 an hour to do all the little things, running errands, ordering samples revising drawings, you're and this is a matter if you're charging flat fee or hourly rate your clients bill is going to quickly balloon beyond what may be considered fair market value. So if on the other hand, you're playing the role of creative director, so you're overseeing all of the overall design, but you have your staff that are carrying out a lot of smaller tasks, all of a sudden, you have the ability to actually charge your clients less while increasing your profits. So as we wrap up here, I'm going to give you a another sort of example of of how this would work. In terms of dollars and cents. This is very, very, very high level. Of course, everything is nuanced. But I wanted to give you just kind of a simple example of how this shakes out. So let's imagine scenario one, it's just you, and you charge $150 an hour. And your project, you're estimating is going to take 100 hours. That is $15,000. Now let's say you have a junior designer, design assistant, whatever. And in this scenario, you're charging, you was charging for your rate $150 An hour times 20 hours on the project, not 100, but 20. That is $3,000. And then you have your design assistant, who you bill out at $75 an hour, and she makes up the rest of those hours for making 80 hours. And that comes out to $6,000. So the total of the client now instead of 15,000, is $9,000. But the profit margin on your employee, let's say you pay them $30 an hour is $3,600. And you only worked 20 instead of hours instead of 100 hours. So now you have freed up the time to be out there drumming up more business, or working on creative direction on a different project, you get the picture. So you're still part of the creative process, you're still running the show, you're still making decisions, but you're not the one doing all of those. And you know what they are, there's hundreds of 1000s of little tiny task ordering samples, running errands, all those things that you can hand off to a junior designer, that's going to allow your clients to actually pay less while increasing your profits, and giving you the ability to do more of the things that light you up.

How are you guys feeling? Do you feel good? Do you feel energized and ready to go? Evaluate your projects? Are you feeling overwhelmed, I hope I hope you're not feeling overwhelmed. I hope that this has given you a little bit of a spark to think about, you know where you are on this financial journey for running your interior design business. Maybe you're at the phase where you're like, Oh, dang, I really need to figure out how much we're spending, how much time we're spending on projects. So go back to Episode One, I want you to figure out what tool you're going to use to track your time, and then start implementing it and make it a consistent part of your every single day. Maybe you're at the point where you've been doing that for a while, and now you have some consistent information. That's accurate. And it's going to give you the ability to look back at projects and determine how did you fare? How did you end up spending your time versus how much estimated how much you charged a client and then doing that math to figure out your number D Are you falling in that 40 to 60% range or not? And maybe you're at the point where you've now been able to audit one to three projects and see how you're faring? Are you getting better at it? Is it about the same. And if you're below that 40% mark, now you have three different ways that you can approach making adjustments in your business so that you can increase those profits. 

And the most exciting part of all of this, I think, you guys if I if I'm just thinking about myself is when you have that extra money in your business, you can afford to do things like a you can give yourself a bonus, be it you can put it back into the business, you can start to invest in things that are going to make your business better, maybe you want to update your website, maybe you want to hire a coach, maybe you want to take yourself or your team for the first time to market. Whatever makes sense for you having that money in the business is going to allow you to flow a little bit more freely. You know, next time there's a mistake that happens on a project, you're not going to be scrambling to figure out how to pay for it. You're going to have that money set aside because you know these things happen. And you're going to spend that money and just consider it a marketing expense versus something that's going to actually break the bank. And I think that there's a levity to running a business when you know you've got some money in the bank. Right? You don't you don't feel like you're constantly having to watch. I mean, you need to be watching your dollars and cents. And if Jenny's listening to this, she's definitely shaking her head to me, but you need to be watching every day spending but there is a little levity in to knowing that you've got some money in the bank to help you get out of a pinch if you ever need to do that, or play with whatever the case may be. So I hope this helps head over to the website to or into the show notes and grab the free PDF that I've mentioned here today. I hope you found this helpful. You guys have a wonderful rest of your week. I'll see you next time thank you so much for letting me spend part of this day with you. If you're loving this podcast, please share it with a friend who you think might also love it. Or perhaps you can take just 30 seconds to open your podcast app and leave us a five star rating. And if you have just an extra minute, go ahead and leave a review. This helps me so much and it helps other designers like you to find the podcast. It also adds fuel to my motivation to keep making great episodes just for you. However you choose to help. Please know I appreciate you so very much. Thank you, my friend. Have a wonderful rest of your day and I'll see you next time.