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The owner's hours in a unit

Counting every minute a unit causes, turning minutes into hours, applying a costing rate, and adding the result to the materials.

Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.

1. What you will learn

You will count every minute a unit causes, convert the minutes into hours, apply a costing rate, and add the result to the materials to get the direct cost of a job. You will also say which minutes belong to a job, why one rate is used for every job, and why what is left after the calculation is not the owner's pay.

2. What you already have

You can tell the three senses of owner labor apart and you know the costing input is the one that belongs in a price. This lesson does the arithmetic that sense needs, carefully, because it is where most small-business unit costs go wrong: minutes that are never turned into hours, and minutes that are never counted at all.

3. Words this lesson uses

4. Minutes to hours, hours at a rate

The calculation is two steps and the first one is where it goes wrong:

$$\text{labor in a unit} = \frac{\text{minutes the unit takes}}{60} \times \text{costing rate}$$

The rate is per hour. Multiply it by minutes and the answer is sixty times too big, which sounds too obvious to be a common error and is one of the two commonest.

Which minutes count. All of the ones the unit causes: the making, and also the setting up, the traveling, the cleaning and the bookkeeping the job drags with it. A clean that takes ninety minutes in the house and thirty on the road takes two hours. That is the other of the two commonest errors, and it is silent: the arithmetic is right and the answer is still a third too small.

5. The method, step by step, and how to check it

Time a real unit. Estimates of one's own work are notoriously short. Time three or four real jobs from the moment the job starts to demand attention — the phone call to book it — to the moment it stops, and write down each part. Use a typical figure, not the best.

Separate hands-on from attached time, then add them. Writing them separately shows where the time goes and makes it harder to forget one. A screen repair might be 30 minutes at the bench, 10 of diagnosis beforehand and 5 of testing and invoicing after: 45 minutes.

Divide by 60. Minutes become hours. Quarter-hours are worth knowing by heart: 15 minutes is 0.25, 30 is 0.5, 45 is 0.75, 90 is 1.5.

Multiply by the costing rate. One rate, written down and used on every job. 0.75 hours at 28 an hour is 21 dollars.

Add the materials. The direct cost of the job is both lines. Then, if there is a price, subtract to see what the job leaves.

Three checks. The hours figure should be small — rarely more than a few. The labor should be of a sensible size beside the materials: in most services it is the larger line. And the leftover after labor and materials should be positive: if it is not, the price does not even cover the job's own cost, before any rent is paid.

6. What the leftover is, and what it is not

When the owner's time is inside the cost, the money left after the direct cost is not the owner's pay — the owner has already been paid, at the costing rate, inside the cost. What is left is what the job contributes toward the things no single job causes: the rent, the insurance, the phone, the website. The pricing unit calls this contribution, and builds break-even from it.

This matters for decisions. An owner who thinks the leftover is her wage will happily take a job with a small leftover, reasoning that she still got paid. An owner who knows the leftover is the rent's share will see that a month of small leftovers leaves the rent unpaid, even though every job was costed correctly. The two owners do the same arithmetic and reach opposite conclusions, and only one of them is reading it right.

7. Where the rate comes from, and why it stays put

Lesson 5 set out three starting points for a costing rate: what the work would cost to hire in, what the owner needs from each chargeable hour, and what the market pays for similar time. Whatever is chosen, two habits keep it useful.

Use one rate for every unit. A rate of 30 on one job and 18 on another makes the two jobs impossible to compare, and the cheap one always looks more profitable than it is. If different kinds of work are genuinely worth different amounts — skilled diagnosis beside simple cleaning — give each kind its own named rate, and use it every time that kind of work appears.

Change the rate deliberately, not job by job. When a quote feels too high, the temptation is to shave the rate for this one customer. That is a discount on the price, and it should be recorded as one; the cost of the job has not changed because the customer is price-sensitive.

8. Timing your own work honestly

Most owners underestimate how long their own work takes, and for predictable reasons. They remember the job going well and forget the interruptions. They count the part they enjoy and not the part they do not — the invoice, the follow-up message, the trip back for a forgotten part. And they time the job they did last, which is usually one they have become quick at, rather than the mix of jobs the business actually does.

A simple log fixes most of this. For two weeks, write down the start and end time of each piece of work and which job it belonged to, including the small pieces: five minutes answering a question about a booking is five minutes of that booking. At the end, add up the minutes per job and divide by the number of jobs of that kind. The average will almost always be longer than the estimate, and it is the average that the price has to carry.

Some time belongs to no job at all: bookkeeping for the month, learning a new technique, cleaning the workshop at the end of the week. Those hours are real, but they are not attached to any unit, so they do not go into this calculation. They are covered in one of two ways: by a costing rate set high enough that the chargeable hours carry them, as lesson 5 showed, or as part of the overhead that lesson 7 spreads across the units. Either is fine. What is not fine is covering them twice — in a high rate and in the overhead — or not at all.

Once the log has been kept, the minutes per job become a number the business can improve. Grouping bookings by area cuts travel; a checklist cuts the trip back for the forgotten part; a template cuts the time spent on quotes. Each improvement is worth its minutes times the costing rate, on every job, which is how an owner can tell which of them is worth doing first.

9. In the world: a mobile bike mechanic

A mobile bike mechanic visits customers at home. A standard service takes 50 minutes of hands-on work. Before it she spends about 5 minutes on the booking message and checking the parts; getting to the address and back averages 25 minutes in city traffic; and after it 5 minutes go on cleaning the tools and sending the invoice. That is 85 minutes a service, not 50.

She costs her time at 36 dollars an hour. At 50 minutes the labor would be 50 ÷ 60 × 36 = 30 dollars; at 85 minutes it is 85 ÷ 60 × 36 = 51. A service uses about 9 dollars of lubricant, cables and pads, so the direct cost is 60, and she charges 85. The leftover of 25 goes toward her van, insurance, tools and phone.

Had she priced from the 50 minutes, the same service would have looked like it left 46 — and she would have been tempted to cut the price to win more work, not realizing that every extra booking also brings 35 minutes on the road. The first thing she did after timing the attached minutes was to group her bookings by neighborhood: cutting the average drive to 15 minutes is worth six dollars on every service, more than any discount she was considering.

10. In the world: billable hours in professional firms

Accountancy and law firms track billable hours — the share of each person's time that can be charged to a client — and set their hourly rates so that the billable hours carry everyone's full cost. A professional billing 60 percent of a 40-hour week has to charge enough on 24 hours to cover 40, which is the same reasoning as a costing rate that counts attached time.

11. Where this goes wrong

Multiplying by minutes. A 45 minute job at 24 an hour is 18 dollars, not 1080. Divide by 60 first, every time.

Only the hours on the product. Travel, setup, cleaning down and the paperwork a job causes are part of the job. Leaving them out is how a cleaner ends up working ten hours and charging for six.

What is left over is my pay. It is not: your pay is already inside the cost, at the rate you set. What is left is what the job contributes toward the fixed costs, and that is the number the pricing unit is built on.

A different rate each time. Quoting at 30 on a Monday and 18 on a Friday makes two jobs uncomparable. One rate, written down, changed deliberately.

12. A repair at Northside

1. Turn the 45 minutes at the bench into hours.

   $45 \div 60 = 0.75$

   The rate is per hour; this is the step people skip.

2. Apply the costing rate of 28 an hour.

   $0.75 \times 28 = 21$

   This is the owner labor in the repair.

3. Add the screen at 12.

   $21 + 12 = 33$

   The direct cost is two lines, not one.

4. Take the direct cost off the 50-dollar price.

   $50 - 33 = 17$

   This is what the repair leaves.

5. Say what the 17 is.

   $17 \to \text{the bench rent, not his wages}$

   He has already been paid 21 inside the cost.

13. The minutes a clean really takes

1. Write the hands-on time: ninety minutes in the house.

   $\text{hands-on} = 90$

   The obvious figure.

2. Write the attached time: 25 minutes of driving and 5 of loading the van.

   $\text{attached} = 25 + 5 = 30$

   These happen because of this booking and no other.

3. Add the two.

   $90 + 30 = 120$

   Every minute the job causes.

4. Turn the minutes into hours.

   $120 \div 60 = 2$

   The rate is per hour.

5. Apply the costing rate of 24.

   $2 \times 24 = 48$

   This is the labor the price must carry.

6. Compare with the hands-on figure alone.

   $1.5 \times 24 = 36; \quad 48 - 36 = 12$

   Twelve dollars a clean — a third more — was missing from every quote.

14. Pricing a commission at Maya's Ceramics

1. A customer asks for a set of six bowls. List the hands-on time: 45 minutes a bowl.

   $6 \times 45 = 270$

   Throwing and trimming are timed per bowl.

2. Add the attached time: a 30-minute consultation and 30 minutes of glazing prep for the set.

   $270 + 30 + 30 = 330$

   The consultation and the prep happen once, because of this commission.

3. Turn the minutes into hours.

   $330 \div 60 = 5.5$

   The rate is per hour.

4. Apply her costing rate of 27.

   $5.5 \times 27 = 148.50$

   This is the labor in the set.

5. Add clay and glaze at 6.60 a bowl.

   $6 \times 6.60 = 39.60; \quad 148.50 + 39.60 = 188.10$

   The direct cost of the commission.

6. Take it off her quote of 260.

   $260 - 188.10 = 71.90$

   This is what the set leaves toward the kiln and the studio.

7. Check what the consultation would have cost if forgotten.

   $0.5 \times 27 = 13.50$

   Small on one job, and on every commission she ever quotes.

15. Your turn: a bowl at Maya's

1. Throwing and trimming takes 45 minutes. Turn that into hours.

   $45 \div 60 = 0.75$

   Divide by 60.

2. Her costing rate is 24 an hour. Find the labor in the bowl.

   $0.75 \times 24 = 18$

   Hours times the rate.

3. Your turn: work this step out. Its working is at the end of the packet.

   Add the clay and glaze at 6.60 to find the bowl's direct cost.

16. Guided practice

A workshop costs the owner's time at $16$ dollars an hour. Match each job length to the labor it puts into the job.

17. Guided practice

Complete the worked solution: a job takes $90$ minutes on site and $15$ minutes of travel, uses $4$ dollars of materials, and the owner's time is costed at $24$ dollars an hour. What is the direct cost of the job?

1. Add every minute the job causes.

   $90 + 15 =$ _m

   The travel happens because of this job and no other.

2. Turn the minutes into hours.

   $(\text{minutes}) \div 60 = 1.75$

   The rate is per hour.

3. Apply the costing rate.

   $1.75 \times 24 =$ _l

   Hours times the rate is the labor in the job.

4. Add the materials.

   $(\text{labor}) + 4 =$ _d

   Direct cost is labor and materials together.

5. Check the labor against the site time alone.

   $36 < (\text{labor})$

   Counting the travel must make the labor larger than the site time alone.

18. Guided practice

Bright Home Cleaning costs the owner's time at $24$ dollars an hour. A clean takes $75$ minutes in the house, and the drive there and back plus loading the van takes $30$ minutes. How many dollars of owner labor are in the clean?

Answer:

19. Practice

Monica's Market Stall charges $51$ dollars for a bulk order packed for a café. Materials are $15$ dollars and the job takes $75$ minutes, costed at $20$ dollars an hour. What is left over after the materials and the owner's own time, in dollars?

Answer:

20. Practice

Monica's Market Stall costs the owner's time at $20$ dollars an hour. a bulk order packed for a café takes $75$ minutes and uses $7$ dollars of materials. What is its direct cost, in dollars?

Answer:

21. Practice

At Bright Home Cleaning, a standard two-room clean takes $90$ minutes and uses $12$ dollars of materials. The business costs the owner's time at $24$ dollars an hour. Fill in the sheet.

22. Somewhere new

A tutor charges $37$ dollars for a lesson of 45 minutes, spends $6$ dollars on printed materials for it, and has decided to cost her own time at $28$ dollars an hour. What does the lesson leave toward her fixed costs, in dollars?

23. Lesson test

Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.

24. Test question

At Maya's Ceramics, throwing and trimming one bowl takes $45$ minutes and uses $13$ dollars of materials. The business costs the owner's time at $24$ dollars an hour. Fill in the sheet.

25. What you can do now

You can put the owner's hours into a unit cost at a rate, including the travel and setup the unit causes. Tell someone why the money left over after that calculation is not their wages. Next: the costs that belong to no unit at all, and how to spread them.

Working for the steps left to you

15. Your turn: a bowl at Maya's, step 3