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, Part 2

Yesterday I wrote about using the numbers to develop a marketing plan to grow your paint contracting business. There are more ways we can look at the numbers.

In yesterday’s example you need to spend an additional $10,000 per year on advertising. Let’s say that you can’t find the money in your budget. There are other options, and the numbers will help us identify them. Today we’ll look at reducing the lead cost. In the next few days we’ll look at other options.

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

At these rates, you need to generate an additional 100 leads each year. But what if you could cut the cost per lead in half? You would now need to spend only $5,000 more per year. Of course, the issue becomes how to reduce the lead cost so dramatically.

The point here isn’t how to reduce the cost per lead, but the impact it will have on the advertising budget. Obviously, cutting the cost per lead in half is a pretty big task and probably not realistic. But a reduction of 10% to 20% isn’t so crazy. And when combined with other measures could significantly reduce the advertising budget.

A 10% reduction would drop the cost per lead to $90 and the total increase in advertising to $9,000. A 20% reduction would mean an increase of $8,000. Again, you must then develop a plan to realize these reductions.

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. See the introductory article of this series.)

A few simple ways to reduce the cost per lead are customer retention and referral programs. Both can be relatively inexpensive and generally result in a higher closing rate. Both can also increase the closing rate, which will further reduce the number of leads required.

The important thing is to know your numbers. When you know your numbers you can make very informed decisions about your business. When you know your numbers, business really can be fun.

© BEP Enterprises Incorporated 2008

Fun with Numbers, Part 1

Fun with Numbers, Part 1
Numbers can tell us a lot about our paint contracting business. There are the obvious numbers like net profit, but many other numbers are very useful in planning and managing the business. This week I’m going to write about how to use numbers in planning, as well as managing your business.

Let’s say you decide that you want to grow your business. You currently do $200,000 a year and want to grow to $500,000 in 3 years. That’s an increase of $100,000 per year.

For this illustration, we’ll assume the following:
Your closing rate is 33%
Your average sale is $3,000
Your average lead cost is $100

This means that for each job sold you need 3 leads, which will cost you $100 each in advertising. To increase your revenues by $100,000 you will need to sell 33.3 more jobs, which means 100 more leads, which means $10,000 more in advertising.

This gives you some pretty powerful information. You now know you need to beef up your advertising, and by how much. You can now develop a marketing plan with specific goals in mind, as well as benchmarks for measuring your progress. You can also look at different scenarios to determine which is the most feasible. Most significantly, rather than simply guess you can make a very informed projection.

For example, you might conclude that spending $10,000 more on advertising isn’t realistic, but $5,000 is. You can then choose to improve the other numbers, or scale back your growth plans. In either case you can make informed decisions.

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. (See yesterday’s post if you would prefer to purchase a pre-programmed Excel spreadsheet.)

Of course, we can make the numbers do almost anything we want. I’ve made a million dollars on paper far more times than I can count. We must be realistic. The numbers are merely a tool—they help us plan our actions. And without actions, the numbers are just a fantasy.

© 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

To Kill a Mockingbird

Set in a small Southern town, To Kill a Mockingbird is a quintessential story about justice. The movie, which won 3 Oscars (including best actor for Gregory Peck), was based on the Pulitzer Prize winning novel of the same title.

Told through the eyes of a precocious 6-year-old tomboy named Scout, the story revolves around Atticus Finch’s (Peck) principled defense of Tom Robinson, a poor black man who is wrongly accused of rape. Intermixed is the story of the fascination Scout and her brother have with Boo Radley, their shy, mysterious neighbor whom the townspeople believe is insane.

At the heart of the conflict lies self-induced ignorance and blind hatred versus benevolence and uncompromising principles. The conflict reaches its apex when Atticus rebuffs an armed mob with nothing more than the power of his convictions.

Just as Atticus stood alone, so we must often stand alone as the owner of a paint contracting company. We must often reject the common wisdom and create a new path. We must often stand alone, with nothing but our independent judgment.

Business success requires that we offer a superior value than our competitors. This means breaking the mold, being better in some regard. It means that we can’t do it like everyone else. That takes strength in our convictions, confidence in our judgment, and the courage to tell the mob to go home.

© BEP Enterprises Incorporated 2008

Don’t Just Do Something, Stand There

Sometimes we get so wrapped up in running our paint contracting business that we can’t see the big picture. We get bogged down in the daily grind of giving estimates, picking up paint, and paying the bills.

While these are necessary activities, they are examples of working in our business rather than on our business. They don’t help us plan, organize, or build our business.

Sometimes it’s best to stop doing and survey the scenery. Sometimes we need to not do something, but just stand there.

Setting goals may seem like a waste of time, but it helps us identify where we want to go. Planning may seem like a waste of time, but it helps us identify how we will get there. Developing systems may seem like a waste of time, but it helps us implement our plan.

I’ve heard it said that 10 minutes of planning can save 1 hour of execution. I don’t doubt that this is true, and it is a very good investment. If we plan our actions, those actions become more efficient and we are more likely to achieve the desired results.

Sometimes it’s best to step back and look around. Sometimes it’s best to don’t do something, but just stand there.

© 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

Tell it to Your Grocer

We are probably all familiar with common playground repartees: “My dad can beat up your dad.” “Oh yeah, well your mother wears army boots.” Such exchanges are obviously silly, but that doesn’t stop some painting contractors from engaging in similar activities.

You don’t need to read a painting forum too long to stumble across painters who claim they do the best work. These claims are no different from playground taunts—they accomplish nothing but massage the ego of the speaker.

I don’t doubt that those making these claims do very fine work. But the best? What does that mean? The best by whose standards? And why is being the best painter such a big issue?

I didn’t start a paint contracting company to be the best. I started my business to make money. I soon learned that most customers weren’t willing to pay for a perfect paint job. Most couldn’t recognize one if it snuck up and bit them on the butt. (Ignore the fact that paint jobs don’t have teeth, though I’ve seen some that must have lips because they really sucked.)

I decided that the time involved getting to a 9.5 or a 10 was simply far more than customers would pay for. I concluded many would pay for an 8 or an 8.5, and there was a large market for this level of service. That’s where I have focused my efforts.

I am certain that there are companies that do better quality work than mine. I’m also aware that many of these companies struggle to stay busy and don’t charge what their service is truly worth. In short, they don’t make much money.

So, if you aim to be the best painter, knock yourself out. I’m glad you take pride in your work. But don’t come bragging to me about being the best. If you think I’m apathetic on the issue, trying telling your grocer that you are the best painter. He’ll still expect you to pay your bill, and being the best doesn’t always accomplish that.

© BEP Enterprises Incorporated 2008

Asians and Lawyers

Ask a group of painting contractors who their worst customers are and you will get a litany of answers. Some people respond by listing people by ethnicity—Asians, Greeks, etc. Others respond by listing professions—doctors, lawyers, etc. I never like such generalizations, because while they may be true of most of the people in a group, they are never true of all of the people in that group.

I personally don’t like being judged by the color of my skin, my height, my hair color, or anything else superficial and largely beyond my control. Prejudice means to pre-judge, which means to judge before one has obtained the relevant facts. To pre-judge an individual because his last name in Chan is simply stupid.

I’m actually glad that so many painting contractors resort to such Neanderthal methods. It leaves a lot more decent customers for me.

So who are my worst customers? I have 2 types:
1. Those who refuse to abide by the terms of our contract. And they come in every color, from every corner of the globe, and exist in every profession.
2. Those who pre-judge me because I’m a painting contractor.

Come to think of it, this last group of customers would be a good fit for the contractors who pre-judge their customers. Maybe I’ll start a referral service to hook them up with one another. Then they could entertain one another while they each wallow in their self-induced ignorance.

© 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

The Shawshank Redemption

How would you react if you were convicted of a crime you did not commit and subsequently sentenced to a long prison term? Would you decry the injustice of life and wallow in self-pity? Or would you follow the example of Andy Dufresne in The Shawshank Redemption?

Wrongly convicted of killing his wife, Dufresne refuses to succumb to self-pity. He refuses to diminish his self-image when he is viciously raped. He maintains his indomitable spirit when he is sent to prolonged periods of isolation in a dark, dank cell. There is, he tells another prisoner, a part of him that they can’t touch or take away.

It is easy for us to get down as we struggle to build our paint contracting business. The trials and tribulations of business can weigh down the most energetic and enthusiastic of entrepreneurs. But such times do not need to destroy us—they are merely a test of our character and determination.

Andy had a plan. It was a plan that required twenty years to execute. Andy had a dream. It was a dream that took twenty years to achieve. Through it all he endured vicious assaults, both physical and mental. In the end, he triumphed because he remained true to himself and his vision.

The greater our dream, the greater the effort required. The higher our aspirations, the greater the dedication and perseverance needed. The more lofty our ambitions, the greater the struggle necessary.

At times it may feel like we are in solitary confinement. Sometimes it may feel like life is unjust. But there is a part of us that nobody can touch unless we allow them. There is a part of us that is ours, and ours alone until we surrender it.

By our words and our actions we make our character. Our character determines the type of person we are, and ultimately, the type of business we build.

© BEP Enterprises Incorporated 2008

Checkbook Accounting

Many painting contractors, particularly sole proprietorships, maintain one checking account for both their business and personal finances. While both the business and the individual are the same legal entity in a sole proprietorship, this co-mingling of money creates numerous problems.

It generally indicates that proper accounting procedures aren’t being followed. Because personal and business expenses are paid from the same account, accurately identifying business expenses, and therefore profit, is difficult.

When business expenses are not accurately identified, properly pricing services is almost impossible. What results is the attitude of, “If I have money in my account, I must be doing okay.” This may or may not be true, and the truth is often discovered too late.

Managing cash flow is certainly an important part of operating a business. But cash flow management extends far beyond simply balancing the checkbook. It involves projecting receivables and payables. It involves anticipation. It involves long-term planning.

Checkbook accounting is inherently short term in its focus. It looks at today. While today is important, it does not necessarily help us deal with tomorrow, next week, or next month. Nor does it accurately tell us what happened in the past.

Accounting provides a method for analyzing our financial history. For that information to be meaningful it must follow specific accounting rules. It must look at much more than how much money is in the bank.

Accounting software such as QuickBooks makes accounting very easy. There is really no reason to not use such software. The information provided can make all of the difference between success and failure. There is no reason to use checkbook accounting when real accounting is so available.

© BEP Enterprises Incorporated 2008

You are What You Want to Wear

Many painting contractors chastise business owners who wear Dockers. They perceive such owners as slick salesmen who care more about making a buck than satisfying their customers. Such aspersions are as amusing as they are wrong.

There is nothing wrong with being an “in the bucket” owner, particularly if you enjoy it. At the same time, there is nothing wrong with being “out of the bucket”. Each involves a different skill set and a different attitude.

I believe a large part of the animosity towards those who wear Dockers stems from different perceptions regarding paint contracting. Those who wear white (“in the bucket”) view paint contracting as primarily about putting paint on the wall. Those who wear Dockers (“out of the bucket”) view paint contracting primarily as a business.

Again, there is nothing wrong with either of these. But to denigrate someone for choosing one over the other is wrong.

The primary difference between those who wear whites and those who wear Dockers is attitudinal. Those who wear whites regard marketing and sales as manipulative. They regard the market place as dog eat dog, and the relationship between consumer and a business as inherently adversarial.

Those who wear Dockers view marketing and sales as an educational process, in which the business helps a consumer make wise purchasing decisions. They regard the market place as an avenue to create win- win situations.

Of course, these are generalizations and do not apply to everyone who wears whites or Dockers. Indeed, many who wear Dockers once wore whites. But they aspired to build their business, and undertook the necessary work. They wanted something better for themselves and their family. On the flip side, there are contractors who once wore Dockers who now wear whites. They did not implement sound business practices and were unable to sustain their business in that form.

What you wear is not permanent. You can move from one to the other. But in the end your business will be defined by the systems and procedures you have in place. In the end, your business will be defined by what you want to wear.

© BEP Enterprises Incorporated 2008

The Square Foot Estimating Myth

It is not uncommon for a painting contractor to ask what price he should charge per square foot. In and of itself, this may seem like a plausible question. However, the square foot involved is on the floor, rather than a paintable surface.

This type of pricing is common in new construction. It provides an easy (and I might add, lazy) way to estimate. I say this because the size of the floor has nothing to do with what is being painted.

Consider the following example: A room that is 20’ x 20’ with an 8’ ceiling has 400 square feet of floor space. The wall area is 640 square feet. There could be 80 linear feet of baseboards and 80 feet of crown moulding. If that room were divided into 4 equal size rooms of 10’ x 10’, the wall area would double to 1,280 square feet. Similarly, baseboards and crown moulding could also double.

No matter what you charge per square foot, the above example shows that the floor has little bearing on the actual work.

Estimating paint jobs isn’t rocket science. But it shouldn’t be done with blind guesses, tea leaves, or Ouija boards either. Many factors need to be considered when pricing a job. And the size of the floor tells us nothing about those factors.

You may think, “But everybody does it this way. It can’t be that bad.” First, everybody doesn’t do it this way. Second, 90% of the painting contractors starting business this year won’t be around in 5 years. So if you want to do it like everybody else, you are probably going to wind up like everybody else—burned out, disillusioned, and broke.

Tea leaves make a nice beverage. Ouija boards can be a fun party game. But neither is a good method for making important business decisions.

© BEP Enterprises Incorporated 2008

Guesstimating Painting Jobs

There are really only 2 ways to estimate a painting job. You can use an “eye-ball” method, wherein you look at the job and propose a price. This is really just a guess (it may be an educated guess, but it remains a guess). Or you can approach it more scientifically.

An estimate is a projection of the labor and material costs for a specific job, with overhead and profit added. Overhead and profit are easily calculated and should be applied on a per hour basis. Material costs can also be calculated by measuring the surface areas to be painted.

All things being equal, it should take a painter the same amount of time to paint a door at Mr. Smith’s as it takes to paint a similar door at Mrs. Brown’s. If you know this time, labor costs also become easy to calculate. Estimating a larger job simply becomes a matter of identifying all of the tasks involved in the job.

Some may think it is a lot of work to measure each surface. This may or may not be true, depending on numerous factors. (I can measure a typical 2,000 square foot house in 15 minutes or less, so it doesn’t need to take a long time.) But so what if it takes 30 minutes, 40 minutes, or longer? Which is more important to you: accurate pricing or getting on to the next appointment?
Guesstimating jobs may be a quicker method than measuring. There are probably painting contractors who paint a house quicker than you. All they need to do is cut some corners—do less prep, apply only 1 coat, etc. Painting a house isn’t a race, and estimating that job shouldn’t be either.

© BEP Enterprises Incorporated 2008

I Don’t Bring Me Flowers Anymore

Building a paint contracting business is hard work. It requires dedication, self-motivation, and stamina. It requires effort—both physical and mental. It requires passion to maintain the effort when times are tough.

New couples often exhibit much more passion than couples who have been together for a long time. The excitement of a new relationship and the future creates much of that passion. As time passes the excitement and passion can fade.

So it often is with our business. The excitement of a promising future fades as the reality of a difficult journey sinks in. The passion we feel as we embark on a new adventure declines as we face obstacles and set backs.

Relationship experts suggest many things that couples can do to keep their passion alive. Surprise gifts, weekend trips, and date nights are common suggestions. Few women are not thrilled with an unexpected bouquet of flowers.

We must do the same thing in our business. We must take actions to help us maintain our passion and excitement. It is fine to keep the long-term goal in mind, but we must also enjoy the moment. We must celebrate our successes and milestones. Sometimes we need to stop and smell the roses. And sometimes we need to be the one to grow (or deliver) those roses for ourselves.

© BEP Enterprises Incorporated 2008

Dr. Seuss and Business Development

Years ago, when I was a child, I “taught” my younger brother to read a Dr. Seuss book—Hop on Pop. Proud of my accomplishment, I drug my brother before my parents to demonstrate my sibling’s newly developed skill.

My brother proceeded to “read”. When he concluded, my father (never one to engage in unnecessary diplomacy) pointed out that my brother really hadn’t read the book. He had memorized it.

I was devastated and demoralized. I thought my father’s comments were cruel. And I quickly realized that they were true.

We must often face truths that are unpleasant. But the facts are what they are, and our disappointments won’t change them. If we are to learn and grow, we must face the facts.

It can be easy to have an unrealistic view of our paint contracting business. It can be easy to delude ourself about our profitability. It can be easy to shift blame for our shortcomings to others. But none of this will help us develop the type of business we desire.

Just as my brother didn’t really know how to read, so it is with many painting contractors. They lack the knowledge and skills necessary to read their business. They don’t understand the numbers that are crucial to success as a painting contractor—gross and net profit, return on investment, overhead, direct and indirect costs, and much more. They mimic words but don’t understand their meaning.

Realizing this can be demoralizing. But it is far better to recognize an unpleasant truth than to ignore it. When we recognize the truth we can deal with it and take corrective actions.

© BEP Enterprises Incorporated 2008

Let’s Make a Deal

What do you do if a customer tries to get you to reduce your price for a painting job? Do you immediately cave in and reduce the price in order to secure the work? Do you refuse to budge and project an attitude of “take it or leave it”? Neither of these is a good approach.

When a customer starts haggling over price it is a sure sign that he is ready to buy. The only issues remaining to be decided are the terms. That’s where the negotiations begin.

Any economic transaction should be mutually beneficial. In the case of a painting job, the customer wants to purchase your labor and expertise. And you want their money. When the customer starts to haggle, he is indicating he wants to purchase your services. You just need to agree on the extent of those services and the final price.

If you immediately cave, you essentially state that the job was overpriced from the start. This is not a good message to send. If you project a “take it or leave it” attitude, you are missing an opportunity to create a win- win situation.

There are many ways to achieve a mutually beneficial conclusion. The scope of work can be changed. The level of prep can be reduced. Different materials can be specified. The project can be divided into multiple parts. The specific approach to take depends on the job and the customer’s needs.

Personally, I love negotiations. When a customer begins to negotiate, I know he is going to buy a paint job from me. When a customer begins to negotiate, he is saying “let’s make a deal.” Unlike the old game show, I don’t need to dress up in a silly outfit. I just need to create a situation in which everyone benefits.

© BEP Enterprises Incorporated 2008

The Low Price Always Wins the Job-- Not

Far too many painting contractors believe that the low price always wins the job. If this were true, we’d all be driving a Yugo and McDonald’s would be the only restaurant in town.

When two products or services look the same—that is, have the same perceived value—the low price will win. Nobody likes to pay more than is necessary. But when the perceived value is higher, consumers will often pay more.

Believing that low price always wins is a self-fulfilling prophecy. If you focus on price you have little else to offer your customers. If you focus on price the value you offer is comparable to low priced painting contractors. If you focus on price, so will your customers.

If you don’t believe me, look at your own spending habits. Do you always buy the cheapest product available? Do you drive an old, beat up car? Do you have a small, black and white television?

The cheapest products will generally do the job. They may not be as durable, dependable, and sexy as their more expensive counterparts. But a rusty car will still get you to your destination. A black and white television will still allow you to watch your favorite programs. You choose to spend more on these products because you receive more value.

There is actually a certain amount of arrogance involved in believing that the low price always wins. First, there is an abundance of evidence to the contrary. Second, those who believe this seldom practice it themselves. Third, those who believe this are actually making decisions for their customers. They assume they know better than their customers and refuse to offer a superior value.

Several years ago I saw a cartoon that was both funny and sad. Two bums were sitting on a park bench. One said, “I used to be a contractor. I was always the low bidder.” If you are in business to make money, being the low bidder probably won’t get you there. What it will get you is a seat on a park bench.

© BEP Enterprises Incorporated 2008

$100 a Room, and Other Bad Ideas

Every so often a painting contractor will advertise a ridiculous price for his services, such as $100 per room. There is actually a franchise that makes this a big part of their advertising. If you read the small print on these ads you will notice that the price typically only includes the walls, does not include paint, and limits the room size.

On the surface, this may seem like a good idea. For the consumer the price might seem reasonable. For the painter, he gets his foot in the door and can then pile on the extras.

The truth is this is a bad idea for several reasons. For the customer the extras can become significant.

For the contractor, this tactic positions him as the “cheap” contractor. And if he does start piling on a lot of additional charges he also develops a reputation as being somewhat shady—i.e., using bait and switch tactics. Neither will serve him well in the long term.

In a similar fashion I occasionally see painting contractors advertise a set price for painting exteriors. These ads include similar restrictions as the $100 a room gimmick. And they are just as bad of an idea.

Anyone who has painted more than a few houses has probably discovered that each home, even within the same neighborhood, can be vastly different. Among the items that must be taken into consideration when estimating job are:

• The type and quantity of the surfaces
• The current condition of the surfaces
• Access issues
• Repairs

Each of these can have a huge impact on the price of a job. If they are not identified they cannot be properly priced. To advertise a set price without this information means that the advertised price won’t stand, the customer will receive a mediocre job, or the contractor will lose his shirt.

If you think advertising fixed prices is a good idea, consider giving me a price for painting my home. If you can’t because you haven’t seen it, then what makes you think you can price any other job sight unseen?

© BEP Enterprises Incorporated 2008

Tire Kickers and the Easter Bunny

Painting contractors frequently lament “tire kickers”—customers who are perceived as simply price shopping. Contractors generally view such customers as a complete waste of his time, because they often have little interest in a professional paint job.

Many tire kickers are concerned with nothing but price. But this does not mean that “tire kickers” can’t be converted to value shoppers.

Consumers don’t purchase painting services everyday. Many do not know what constitutes a professional paint job, or all of the factors involved in the entire service experience. They don’t know what they don’t know. But when exposed to a professional painting contractor, many will change their focus and priorities.

Contractors who develop pre-conceived ideas about their customers are no better than customers who develop pre-conceived ideas about contractors. Both are pre-judging, and both can be wildly wrong.

If you wish to grow your paint contracting business, you must discard your pre-conceived ideas about customers—including “tire kickers”. Approach each customer with the same mindset. Educate each customer regarding the value of hiring a professional painting contractor. If you do, you might be surprised at the results.

The Easter Bunny is a symbol of the fertility of spring. Spring is a time of rebirth—plants and animals emerge from winter and multiply. The earth comes alive with new growth.

Business growth requires fresh ideas. If you follow the same stale ideas as your competitors, you will get the same stale results. You must continually inject your business with the vigor of spring. Be an Easter Bunny for your business, and you might find some pleasant surprises in your basket. You may also find a goose who lays golden eggs, but that’s a different story for a different day.

© BEP Enterprises Incorporated 2008

Employees Are Customers Too

The owners of successful painting companies spend a significant amount of time marketing their business. In order to grow, they must attract and retain customers, and this requires marketing.

Painting contractors also need dependable and skilled craftsmen. Without qualified painters to put paint on the wall, all of the customers in the world won’t matter. Unfortunately, many contractors do not realize that their employees are customers too.

As with consumers, employees have choices. They can work for you or a competitor. They can start their own business or go into another line of work. Just as a home owner doesn’t have to hire your company, a painter doesn’t have to work for your company.

Marketing is intended to communicate the value of our company to potential customers. We should also be marketing our company to our employees. That is, we should communicate the value of working for our company.

External marketing communicates to those outside of the company—i.e., customers. Internal marketing communicates to those inside the company—i.e., employees. The particular benefits and values each seeks are obviously different, but each needs to be made aware of what the company offers.

Achieving the vision we have for our business requires “buy in” from our employees. They are a crucial part of our team. But we can obtain that “buy in” only if we remember that employees are customers too.

© BEP Enterprises Incorporated 2008

The Going Rate

New contractors often ask about the “going rate” in a particular area for a specific kind of work, such as commercial or new construction. Such questions are really inappropriate, because they ignore the many factors that go into pricing a job.

The selling price for a particular job should include the following: labor costs, material costs, overhead recovery, and profit. All of these can vary widely from company to company.

Let us look at overhead as an example. Overhead consists of all expenses not directly resulting from a job. Expenses such as advertising, insurance, gasoline, maintenance, depreciation, office supplies, professional fees, rent, utilities, and much more are overhead. For the typical paint contracting company overhead will comprise about 50% of the selling price. How am I, or anyone else, to know what another company’s overhead is?

More importantly, the “going rate” is a mythical number. It is believed to be the rate that the market will bear. But the market consists of many different segments, and the price each segment is willing to pay depends on many factors.

What is the “going rate” for an automobile? The answer depends on many things—the manufacturer, the model, the age of the automobile, the options, etc. Prices vary widely depending on these factors. The same holds true for paint jobs.

Many contractors believe that if they exceed the “going rate” they won’t be able to sell jobs. They are probably right, because they focus solely on price. They don’t offer additional value or a better service experience, and consequently can compete only on price.

Many consumers will pay more for superior value. A casual glance at any parking lot will confirm this.

If you are concerned about the “going rate” I suggest you shift your focus. Emphasize value and you might be surprised what the market will bear. You might be surprised what consumers will pay. And you might actually start making a reasonable profit.

© BEP Enterprises Incorporated 2008

Knowing Your Numbers

Imagine playing a basketball game and not knowing the score. You are in the final minute, but don’t know whether you need to score more points or attempt to run out the clock. Victory or defeat depends on your decision, yet you don’t know what actions to take.

Imagine running your business in that manner. Sounds silly doesn’t it? Yet many, if not most, painting contractors do exactly that. They don’t know their numbers, and numbers are the scorecard for their business.

For example, do you know your true overhead costs? If you claim you have no overhead you are sadly mistaken. Do you advertise, have signs, or business cards? If so, those are overhead expenses.

Do you carry insurance? If so, that is an overhead expense.

Do you own a vehicle? If so, the wear and tear (depreciation), gas, insurance, maintenance, etc. are overhead expenses.

Do you have painting equipment? If so, the wear and tear (depreciation), gas, maintenance, etc. are overhead expenses.

Do you use any paper, or forms, or postage, or office supplies to conduct business? If so, these are overhead expenses.

If you do not know your true overhead then you cannot recover that overhead in your pricing. Which means, you are not charging enough money. Which means, your business is not as profitable as it could be and should be.

Do you know the return on investment for your advertising? If not, how do you decide which advertising is worth continuing and which should be dropped?

Do you know your gross profit? Do you know your net profit? Do you know your closing rate? Do you know your cost per lead. Do you know your average sale price? If not, how do you make decisions? How do you know whether to run out the clock or attempt to score?

If you are like most contractors, your answers to most of these questions is “no”. If you are like most contractors you don’t know your numbers. If you are like most contractors, you are making decisions blindly.

It is possible to make money without knowing your numbers. It is also possible to win a basketball game without knowing the score. But your business is not a game and the consequences are much more serious.

© BEP Enterprises Incorporated 2008

Working for the Man

In recent threads on PaintTalk.com several painting contractors have stated that they work alone or with a helper because they don’t want to work for “the man”. They want to be their own boss. They don’t want “the man” to make money off of their sweat and toil.

These comments are usually accompanied with claims, both explicit and implicit, that “the man” uses others to further himself. “The man” they claim, both explicitly and implicitly, is a dishonest charlatan who will do anything to make a buck.

As is common with those who cast such aspersions, “the man” remains unnamed and undefined. He is a faceless, nameless demon who sucks the life out of decent, hard working people. Who then, is “the man”?

If we accept the implications of those making these comments, “the man” is anyone who employees others and/ or makes a profit. A profit is a gain, an improvement in one’s position. If someone profits during an exchange with others, the thinking goes, it could only be at the expense of others.

The fact is, an economic transaction is a voluntary exchange. Each party believes he will profit—he believes he will gain something he values more highly than what he is giving up. Voluntary exchanges are mutually beneficial.

An honest businessman (and most businessmen are honest) offers value to his customers. He does not seek something for nothing. He seeks to create values desired by the purchasing public. And the greater the values he creates, the greater his profits.

This concept is completely lost on those who disparage “the man”. To them, a profit is a sign of dishonesty. A businessman is simply a slick talking conman. A business is simply organized crime. Those who put down “the man” are really putting down businessmen.

They do so because they believe that mutually profitable relationships are impossible. They do so because they cannot or will not create greater values. They do so because the successful businessman represents everything they are not.

The history of mankind is replete with examples of men and women who created tremendous value and profited in the process. Some look at these heroes as inspiration and as evidence of what is possible in life. Others look at them in envy and as evidence of what they will never be in life.

© BEP Enterprises Incorporated 2008

Painting Contractors who Play Santa Claus

A business is intended to be a profit making venture. For the business owner, profit represents the return on his investment in time and money. A business that doesn’t make a profit is really just a hobby.

The primary reason painting contractors don’t make a profit is low prices. Low prices can have several causes—not understanding one’s true cost of doing business, an intentional policy designed to build a client base, or simply under estimating the job. Regardless of the reason, a contractor who does not charge enough is playing Santa Claus.

Most contractors have far more expenses than they realize. Direct costs—labor and materials—are generally obvious. But the “hidden” costs—i.e., overhead—are often missed and not properly factored into the job price. Making the matter worse, many contractors defiantly insist that they have little overhead. They ignore insurance, depreciation, office supplies, professional fees, gasoline, utilities, and many other business expenses. Consequently, they do not properly recover these costs. In doing this, they are giving their clients a gift.

The contractors who intentionally undercharges are only marginally better. They effectively are declaring, “I know I should charge more, but I’ll make up my loss in volume.” Unfortunately, they will develop a reputation as a low priced contractor. When (and if) they raise prices, they will meet with resistance from their clients.

In the short term, such a policy means that they are subsidizing their client’s home improvement projects. In the long term, such a policy undermines their ability to receive a reasonable price for their services. Which means, in both the short term and the long term, such contractors reduce their income and profit potential.

Under estimating a job has only one essential cause—the failure to identify all of tasks required, and the appropriate amount of time required for those tasks. This may result from simply poor estimating practices, such as the “eye ball method”, or from demanding perfection in the performance of the work. In either case, the job that was estimated at 40 hours turns into a job that takes 50, 60, or more hours.

The contractor who uses poor estimating practices can easily correct this situation by adopting better a better system. The contractor who demands perfection must change his mindset. He must begin charging for all of the time he spends on the job, i.e., increase his prices, or he must “let go of perfection”. His time on the job must match his price, or he is simply giving away his time, and therefore, his money.

Playing Santa Claus may be appropriate at Christmas time. There is nothing wrong with giving gifts. But if a contractor is doing so under the guise of operating a business, he is sadly mistaken about the true nature of his endeavors.

There is nothing inherently wrong in operating a non-profit organization. But the contractor who is doing so should be more open and honest with himself and his family. Rather than wearing painter’s whites, he should really be wearing a red suit and a long white beard.

© BEP Enterprises Incorporated 2008

Avoiding the Winter Doldrums

Winter is traditionally a slow time for painting contractors. Inclement weather, the holidays, and tax season often combine to reduce lead flow. Painting jobs can become very precious and contractors start "buying jobs" by reducing prices.

During this period many painting contractors start barraging various paint contracting forums with questions about how to generate work. They seem to think that there is some magic button to push to suddenly turn on leads.

Sadly, these contractors wait until it is too late. They seem to fail to recognize that winter occurs every year at the same time. They fail to anticipate the winter doldrums and be pro-active. Instead, they act surprised when the inevitable occurs and then scramble to react to it.

The time to prepare for the winter is during the summer and fall. If you wait until winter it is too late. You must plant your seeds early so that they have time to germinate and grow. Planting your seeds in the winter simply won’t work.

A myopic view creates myopic results. A successful business is a long-term endeavor. A successful businessman looks beyond today, this week, or this month. A successful businessman sets long-term goals and identifies the path to get there.

Marketing for winter work can take multiple forms. For example, you can delay interior projects that arise during the late summer and fall. Develop a retention program and market to past customers during the fall. Distribute additional door hangers during the fall. Most importantly, develop a marketing plan and then implement it.

If you don’t like the way this winter has shaped up, plan to make next winter better. Winter will come again. You can choose to anticipate it and be prepared, or you can hope that “somehow” it will be different.

© BEP Enterprises Incorporated 2008

Estimating Painting Jobs

One of the most challenging aspects of running a paint contracting business is estimating jobs. For someone with little experience, estimating can be a rather scary endeavor (it can also be scary for someone with tons of experience). After all, the accuracy of the estimate will have a huge impact on the contractor’s success.

This, I believe, is the primary reason new contractors frequently ask what to charge for a job. But such questions are misdirected, because what I (or anyone else) would charge is completely irrelevant and doesn’t address the real issues.

The price of a job is comprised of 4 basic components: labor costs, material costs, overhead, and profit. Estimating is the process of identifying the labor and material costs. We add our overhead and profit to those costs to obtain our price.

Overhead—advertising, rent, insurance, utilities, phone, owner’s salary, etc.— is completely unique to each company. Without knowing these numbers, it is impossible to properly price a job.Profit goals are also unique to each company. Again, without knowing the specific profit goals for a company, it is impossible to properly price a job.

Consequently, any attempt to answer a pricing question in the absence of these two key numbers is essentially meaningless. More to the point, pricing questions ignore the fact that a large percentage (often more than 50%) of the job’s price should be comprised of overhead and profit. (My suspicion is that those who pose such questions don’t know their overhead, and mistake gross profit for net profit. But that’s a different issue.)

As I said, estimating is the process of identifying the labor and material costs for the job. Labor costs are determined by the type of work being performed, the production rates of the company’s workers (the time required to perform each task), and pay rates. As with overhead and profit, these numbers will be unique to each company. Material costs are determined by the type of materials required, the quantity required, and their purchase price.

For example, let us say that a painting contractor knows that his painters can prepare and paint a certain style of door in 30 minutes. He looks at a job that has 10 of these doors. He knows that his painters can prep and paint these doors in 5 hours. He can also calculate the materials required by the spread rate of the product he will use. The contractor can now determine what his costs will be for the job. By adding his overhead and profit to these costs he will have his price for this job.

While the above example is simple and uses a painting project, the same principle applies to every contracting job—large or small, simple or complex—regardless of trade.

What should I charge for X? really means: what is the total of my labor costs, material costs, overhead, and profit? And the answer to that question requires a substantial amount of additional information. Providing an answer without that information is simply a guess.
Accurately pricing a job is not rocket science, but it shouldn’t be based on conjecture, blind guesses, or another company’s numbers either. Certainly accurate estimating takes effort, but owning a successful business isn’t easy. Asking what to charge for a job is asking for a short cut, but there are no short cuts to success.

Such questions about prices for a job are inappropriate, because they ignore the many factors that determine the price. Providing a price in response to such questions is also inappropriate, for the same reasons.

It is a documented fact that 90% of small businesses fail within 5 years. Of those that make it 5 years, another 90% will fail within the next five years. Which means, 99% of small businesses fail within 10 years. One of the primary reasons for failure is not charging enough. Contractors are as guilty of this as anyone.

There seems to be no shortage of hacks willing to work for dirt cheap prices. Nor does there seem to be a shortage of replacements when they inevitably fail. One of the most effective means for avoiding failure is to know your numbers. Asking what to charge for a job is simply an admission that you don’t know your numbers.

I hasten to add that there is nothing wrong or inappropriate with asking how to price a job. But how to price is different from what price to give. Learning the process is a good thing. Looking for an easy way out isn’t.

Putting paint on the wall is a trade skill. Pricing a job is a business skill. A skilled craftsman does not necessarily make a good businessman, because different skills are required. The owner of a contracting company does not necessarily need to have trade skills, but it is imperative that he have business skills if he is to succeed. The longer you wait to obtain those skills, the closer you move to joining those 99%.

© 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