Take What You Want, and Pay For It

I recently received an email asking how the owner of a paint contracting company should determine his salary. I have previously written that it is often recommended that the owner be paid 8% to 10% of the company’s revenues as his salary. As the emailer pointed out, if the company does $120K in a year, this means the owner’s salary would be $12K at most, which is not very good money.

At the risk of sounding flippant, the owner’s salary should be whatever you want it to be, so long as it is reasonable and fair. Of course, that raise the question—what is reasonable and fair?

To begin, the owner should be paid for each service he renders to his business. If he does sales and estimating, he should be paid for it. If he works in the field, he should be paid for it. As a general rule, the owner should be paid 8% to 10% of the company’s revenues, and he should also pay himself a commensurate amount as a sales commission. When he works in the field he should pay himself an hourly rate.

Doing all of this accomplishes several things. First, the cost of these expenses is built into the price. If the owner hires an estimator, that cost has been built into his price and he avoids a dramatic price increase. Similarly with paying himself for his field work. Second, the owner makes a salary that more accurately reflects his efforts. This allows him to live a reasonably comfortable life, save for his future, etc.

But this still does not tell us what the owner’s salary should be.

The 8% to 10% suggestion is only a guideline. Like the directions provided by Google Maps, one should take a look around to determine the accuracy of those guidelines. One should look at one’s personal and business finances to determine what is fair and reasonable.

The starting point is one’s personal finances. What do you need to make to pay your bills, have money to save and invest, and enjoy life? This is where you must be reasonable. It would be easy to say that you want to make $100K, but if your business is only doing $120K, this is clearly not reasonable. You must also be fair to yourself—you must make enough to pay your bills and invest in your future. If you don’t, then why own a business and endure the stress and headaches?

I should clarify one important point. There are three separate components involved in the owner’s income if he also does sales and works in the field—owner’s salary, sales commission, and painter’s wages. Each is separate and distinct, and the total is the owner’s income. But in one’s budget, and on one’s Income Statements, each item will appear separately.

Identifying your personal income goal is the first step. This number should then be used to determine what your selling price must be. If your income goal requires that you sell at a reasonable price—that is, a price that you can actually sell paint jobs at, such as $45 an hour—then your income goal is reasonable. If the calculated selling price is not reasonable—you don’t think you can sell at that price—you are faced with two options. You must reduce your income goal, or learn to sell at the requisite price. Unless your desired income is outrageous, I strongly suggest the latter.

This last point is particularly important. It is a fact that 90% of the contractors who started a business this year will fail within 5 years. The primary reason for that failure is the simple fact that they do not make any money. And the cause for that is not charging enough. There is no reason to endure the trials and tribulations, the headaches and stress, and all of the challenges involved in owning a business if you are not going to make a decent salary.

An old Spanish proverb states: “Take what you want, and pay for it”. That applies to the owner of a paint contracting company. Take the salary you want. You pay for it by learning the skills that are necessary.