Fun with Numbers, Part 5

This week I’ve written about how improving various numbers can help you in running your paint contracting business. Today we are going to look at how small improvements in each area can have a very significant impact.

Again, we are assuming the following:
You want to increase revenues by $100,000
Your closing rate is 33%
Your average sale is $3,000
Your average lead cost is $100
Which means you must sell 33.3 more jobs, generate 100 more leads, and spend $10,000 more on advertising

Let’s look at a 10% improvement in each area:
The closing rate rises to 36.3%
The average sale increases to $3,300
The cost per lead drops to $90.
Which means, you must sell 30.3 jobs, generate 83.5 leads, and spend $7,512 in advertising. A 10% improvement in each area can reduce the advertising costs by nearly 25%!

Again, the point here isn’t how to accomplish these improvements, but rather how to project the results. When we can project results we can determine the most appropriate course of action to take. We can determine what our goal should be, and how we can attain it.

Knowing our numbers give us a very powerful took in managing our business. Rather than guess as to what might happen, we can make reasonable predictions based on past experience. While the past is no guarantee of future results, it certainly gives us a sensible basis for making projections.

Improving any of your numbers takes more than a few entries in a spreadsheet. It requires that you identify what actions will lead to those improvements, and then implementation of those actions.

As this series has shown, significant improvements can be made in the business by making a number of small improvements. Rome wasn’t built in a day, and neither will your paint contracting business.

© BEP Enterprises Incorporated 2008

Fun with Numbers, Part 4

Yesterday I wrote about average sale price for your paint contracting business. Today we are going to look at increasing the closing rate and the impact that can have on your advertising budget.

Again, we are assuming the following:
You want to increase revenues by $100,000
Your closing rate is 33%
Your average sale is $3,000
Your average lead cost is $100
Which means you must sell 33.3 more jobs, generate 100 more leads, and spend $10,000 more on advertising

A 10% increase in the closing rate would result in a closing rate of 36.3%. This would reduce the leads needed to 91.7 and reduce the ad budget to $9,170. As in previous examples, a small improvement in one area can result in widespread improvements in the business.

There are numerous ways for improving the closing rate: learning and using better selling techniques, offering more value to the customer, or lowering prices. This last is not recommended as it will decrease the average sale and likely offset the higher closing rate.

One of the most effective means for increasing the closing rate is higher customer retention and more referrals. These can also help lower the cost per lead. Again, an improvement in one area has a ripple effect.

A simple spreadsheet can be constructed to look at different scenarios. This will allow you to see how changing one number will impact the others. (Or you can purchase a pre-programmed Excel. See the first article in this series.)

The important point in this series is knowing your numbers and understanding the information that it conveys. While this series has focused on sales and advertising, knowing your numbers will allow you to better understand all areas of your business.

During this series I have looked at the individual numbers and how an improvement in one area will impact the others. Tomorrow I will show how a small improvement in each area will have a significant impact.

© BEP Enterprises Incorporated 2008

Fun with Numbers, Part 3

Yesterday I wrote about reducing the cost per lead for your paint contracting business. Today we are going to look at increasing the average sale and the impact that can have on your advertising budget.

Again, we are assuming the following:
You want to increase revenues by $100,000
Your closing rate is 33%
Your average sale is $3,000
Your average lead cost is $100
Which means you must sell 33.3 more jobs, generate 100 more leads, and spend $10,000 more on advertising

What if you could increase the average sale to $3,300—a 10% increase? This would reduce the number of jobs sold to 30.3, the number of additional leads to 91, and the advertising budget to $9,090. That’s a decrease of almost 10% simply by increasing the average sale.

Increasing the average sale can have an impact throughout the business. Fewer jobs need to be sold (which can reduce scheduling and administrative issues), fewer leads are required, and the advertising budget might be reduced. Small improvements can have a widespread impact.

A simple spreadsheet can be constructed to look at different scenarios. This will allow you to see how changing one number will impact the others. (Or you can purchase a pre-programmed Excel spreadsheet for $10. The spreadsheet will allow you to track and analyze your monthly advertising and sales statistics, as well as run various scenarios regarding the numbers discussed in this series.)

One way to increase your average sale is to increase your prices. Of course, this may have other repercussions and needs to be considered carefully. Another way to increase the average sale is to offer upgrades to more durable products.

Again, this isn’t about how to increase the average sale. There are many ways to accomplish that. But when we understand the numbers and how they can impact our business, we can make more informed decisions. We can decide on the best course of action to accomplish our goals.

As with the other numbers being discussed in this series, increasing the average sale can have a ripple effect. Understanding those effects is the best way to manage your business by the numbers.

© BEP Enterprises Incorporated 2008

Fun with Numbers, Introduction

Knowing your numbers is one of the most important skills the owner of a paint contracting company should possess. Knowing your numbers allows you to make informed decisions, make reasonable projections, and manage the growth of your business.

Numbers tell us what happened, or what will happen (all things being equal). They are a powerful tool for analyzing past performance and projecting future performance. When we understand these numbers they reveal a very informative story.

This week I am going to write about some of these numbers and how we can use them to better manage our business.

To accurately know your numbers you must track certain information:
The source for each lead
The number of jobs sold
The amount of sales
Your advertising costs

This information can help us analyze our marketing, and in turn make better use of our advertising dollars. It can help us identify weaknesses in our skill set and where improvements can be made. It can help us project the results of changes in certain parts of our business.

There are many ways to track the information. One of the easiest, particularly in terms of analyzing the data, is to construct a spreadsheet. (Or you can purchase a pre-programmed Excel spreadsheet for $10. The spreadsheet will allow you to track and analyze your monthly advertising and sales statistics, as well as run various scenarios regarding the numbers discussed in this series.)

Knowing our numbers helps us see how one part of the business impacts another. It helps us understand that one action will have a ripple effect. More importantly, it helps us see what that effect will be.

Running your business by the numbers takes all of the guessing out of the equation. It allows us to make rational decisions. And perhaps most importantly, it’s a whole lot of fun.

© BEP Enterprises Incorporated 2008

You Might be Able to Fool Mom

When I was a child my brother and I would often find creative ways to entertain ourselves. We would often play baseball in my bedroom, using a rolled up sock for a ball and a metal ruler for a bat.

One day I was batting and in my enthusiasm to hit a home run I allowed the ruler to slip from my hand. It stuck in the wall. We immediately knew we were in trouble. However, being the creative kids we were, we decided we could repair the wall and our parents would never know.

We used some modeling clay to fill the gash. We then snuck into the basement to find the paint we needed to touch up the repair. We located the paint, touched up the area, and celebrated our achievement. No harm, no foul.

A few days later my mother asked about a spot on my bedroom wall. Standing at the door, a very noticeable sheen difference could be seen. I had used a semi-gloss paint on the flat walls! I confessed my transgression. Much to my relief my mother was actually somewhat admiring of our creativity.

I learned several things from that experience. One, I had a lot to learn about paint. Two, honesty always pays. I could have played ignorant, and perhaps gotten by with it. But when I was honest, I wasn’t punished and received some level of praise.

I might have fooled my mother. But I would have been the real victim of my deceit. I might have concluded that sometimes dishonesty is a viable option. A petty lie to my mother probably wouldn’t have wrecked my life. Petty lies to my customers will definitely wreck my business, as it should.

You might be able to fool Mom. You can’t fool the market, at least not for long.

© BEP Enterprises Incorporated 2008

Berries, Decals, and Painting

I started my first business when I was about 8 years old. I would go into nearby fields and pick wild blackberries. I then sold the berries by going door-to-door in the neighborhood. I had that job for 4 or 5 summers.

My second business overlapped the first. My father owned a part-time business that sold racing themed attire. He frequently had decals, stickers, and similar items. I would take these items to school and sell them.

I don’t know if the neighbors bought my berries out of a desire to help a budding entrepreneur or a true desire to consume freshly picked berries. I do know that I sold my berries very easily and quickly.

I also know that my schoolmates did not depart with their nickels and dimes easily. Those coins were their fortune, but I offered something they valued more highly. Nearly every boy in my grade school had my stickers adorning his notebooks.

In both cases I filled a need. Neither my berries nor my decals were necessities, but I found a ready market for both. In many cases a paint job is not a necessity either, but there is a ready market for that as well.

Success in any business involves little more than identifying a need or desire that isn’t being filled, and then filling that need or desire. In the case of painting, the process of putting paint on the wall is relatively simple. Certainly there are those who cut corners, but there is also a market for that.

In my first businesses my market was small and easy to reach. I also had no competition. Paint contracting is a different animal. There is immense competition. My customers are not as captive. But that simply requires something I didn’t have to do as a child—market my business.

As a child, I built it and then beat on the customer’s door. As a paint contractor I do the same.

© BEP Enterprises Incorporated 2008

David versus Goliath

It is not uncommon for a painting contractor to disparage larger companies. Such comments usually imply that larger contracting companies have bloated overhead, unscrupulous salesmen, and little concern for customer satisfaction. In short, they imply that any painting contractor who is not actively putting paint on the wall is a conman. While there may be some contractors who fit this profile, such blanket claims are simply false.

Those who say such things generally brag about their operations with comments like:
I don’t need to advertise. I get all of my work from referrals.
I pride myself on the quality of my work.
I don’t need to charge inflated prices because I don’t have any overhead.

The truth of these statements is highly debatable, but that is not the point of this post. Further, there is certainly nothing wrong with running a small shop. It isn’t about the size of one’s business.

These comments are typically delivered in an attitude of self-righteous indignation. Goliath (anyone who does not actually paint), they imply, hurts our industry. Goliath, they imply, will do anything and everything simply to make a buck. David, they imply, is the pious guardian of all that is good in our industry.

Every economic transaction is based on the voluntary consent of each party. If one party engages in deceit or dishonesty, fraud has occurred and that party should be charged accordingly. Fraud is relatively rare, and any business routinely engaging in fraud would not last long.

A business cannot grow without offering value to its customers. It cannot grow if its work is of poor quality and its prices are grossly inflated. To imply otherwise is to claim that consumers are stupid and can be easily manipulated.

Whether such comments are motivated by ignorance, anger, or envy is impossible to determine. But regardless, they are ugly.

Any battle between David and Goliath in the painting industry is a fantasy. The real battle exists only in the minds of those who perpetuate these mistaken ideas.

© BEP Enterprises Incorporated 2008