I recently had the need to hire a contractor to repair a fence on one of my rental properties. The repair was not particularly difficult, but it was going to take more time than I cared to spend on it.
Several of the posts had rotted and the fence was beginning to lean. Since this is rental property, I did not care to spend the money for a brand new fence. Besides, the pickets and rails are in fine shape. I just wanted someone to add some new posts to stabilize the fence.
The first contractor I contacted didn't want to do that. He wanted to basically rebuild the fence, and his price reflected this. The second contractor suggested adding posts before I could mention that idea. His price also reflected that level of work.
Some of the pickets had to be removed in the process, but the intention was to re-use those pickets. The contractor later called and said that they had damaged quite a few pickets and he would have to charge me a little more. When I met with him to inspect the work, he informed me that he had spent $50 on materials but would only charge me $25 extra.
As a consumer, I welcomed this news. As a consultant to contractors, I cringed. He was paying me to repair my fence.
My suspicion is that he is looking for more business in the future. He knows that I am a member of a real estate group and probably figures that I will be buying more homes in the future. But that kind of thinking will get him into trouble. If he is leaving money on the table now with the hope of future work, why won't he do the same in the future? And more importantly, he may not have a future if this is a standard procedure.
Showing posts with label finance and pricing. Show all posts
Showing posts with label finance and pricing. Show all posts
Monday, February 1, 2010
Friday, March 27, 2009
Tightening the Belt
Tough times call for tough decisions, and cutting overhead can be one of the toughest decisions. Operating a business requires certain overhead costs, such as phones, equipment maintenance, advertising, and insurance. If we eliminate, or greatly reduce some of these expenses, we make it increasingly difficult to stay in business.
This can seem like a horrible Catch-22 situation. If we cut these costs, we take significant business risks. If we don’t cut these costs, we risk facing severe cash flow problems. What is a contractor to do?
Now, more than ever, knowing your numbers is crucial. Understanding your cost structure and selling at the right price—that is, a price that is profitable—is the first step. If you aren’t doing these things, almost nothing else matters.
There is no simple answer to this dilemma. Each contractor must assess his particular situation in the context of his business and goals. But it is important to keep long term goals in mind when doing so. For example, saving a few dollars today on advertising may be disastrous in the long term.
The recession isn’t limited to contractor—other businesses are also slowing down. This can be an opportunity to negotiate better rates on advertising, phone service, and other overhead items. As an example, we recently switched our phone service at a savings of more than $150 per month.
If you find yourself needing to trim your overhead, examine your financial statements closely—year to year comparisons can be particularly helpful. They can show where expenses have risen most significantly. Compute the ratio of each expense to revenues—raw numbers are not always helpful when revenues fluctuate. Most of all, develop a plan for dealing with your particular financial situation.
This can seem like a horrible Catch-22 situation. If we cut these costs, we take significant business risks. If we don’t cut these costs, we risk facing severe cash flow problems. What is a contractor to do?
Now, more than ever, knowing your numbers is crucial. Understanding your cost structure and selling at the right price—that is, a price that is profitable—is the first step. If you aren’t doing these things, almost nothing else matters.
There is no simple answer to this dilemma. Each contractor must assess his particular situation in the context of his business and goals. But it is important to keep long term goals in mind when doing so. For example, saving a few dollars today on advertising may be disastrous in the long term.
The recession isn’t limited to contractor—other businesses are also slowing down. This can be an opportunity to negotiate better rates on advertising, phone service, and other overhead items. As an example, we recently switched our phone service at a savings of more than $150 per month.
If you find yourself needing to trim your overhead, examine your financial statements closely—year to year comparisons can be particularly helpful. They can show where expenses have risen most significantly. Compute the ratio of each expense to revenues—raw numbers are not always helpful when revenues fluctuate. Most of all, develop a plan for dealing with your particular financial situation.
Tuesday, March 17, 2009
Cash and Spending
If you pay much attention to the media, you will quickly "learn" that many of our economic problems are being caused by consumers spending less. Less consumer spending, the argument goes, means less demand for goods and services. According to this thinking, stimulating spending--in either the private or public spending--will get the economy rolling again. In other words, we need more spending. However, even though the federal government is pumping trillions of dollars into the economy, much of the money is being used to improve balance sheets--that is, saved.
There are several errors in thinking that consumer spending drives the economy. First, it simply isn't true. Say's Law states that supply creates demand. An increase in production results in an increase in demand. Or to put it differently, consumption cannot occur without production.
Another error is that savings are spent. If you put $100 in the bank, that money is subsequently loaned to businesses or individuals. They then spend the money, either on expanding production (in the case of business) or for consumption (in the case of individuals).
As owners of small businesses, we will certainly feel the pinch during this recession. Consumers are spending less, which will translate to fewer leads and less work. If we listen to many of the "experts" we should not be saving money or paying off debt--we should be spending so as to stimulate the economy. But this could be extremely foolish, and ultimately destructive to many individuals.
It is always wise to spend less than you make, to save and invest. That doesn't change when the economy slows.
There are several errors in thinking that consumer spending drives the economy. First, it simply isn't true. Say's Law states that supply creates demand. An increase in production results in an increase in demand. Or to put it differently, consumption cannot occur without production.
Another error is that savings are spent. If you put $100 in the bank, that money is subsequently loaned to businesses or individuals. They then spend the money, either on expanding production (in the case of business) or for consumption (in the case of individuals).
As owners of small businesses, we will certainly feel the pinch during this recession. Consumers are spending less, which will translate to fewer leads and less work. If we listen to many of the "experts" we should not be saving money or paying off debt--we should be spending so as to stimulate the economy. But this could be extremely foolish, and ultimately destructive to many individuals.
It is always wise to spend less than you make, to save and invest. That doesn't change when the economy slows.
Monday, March 2, 2009
Speedy Gonzalez
A lot of painters like to brag about how fast they can paint. This would be great if they were in the Painting Olympics, but operating a paint contracting company is not about speed. Or at least is shouldn't be.
Invariably such discussions focus on a small project, like a 10' x 10' room, or a single door. While it may be possible to paint a single room or a single door in an impressive time, this is irrelevant when it comes to estimating a job in the real world.
Let us say that you can paint that 10' x 10' room in 2 hours (actual paint application time) and so you use a production rate of 160 square (320 square feet/ 2) feet per hour for painting walls. If all you ever do is paint 1 10' x 10' room, this might work out. But how many of us operate a business that does nothing but single 10' x 10' rooms?
Most people I know tend to get tired as they do physical labor. Maybe not exhausted, but they do fatigue. And with fatigue our production slows. While we may be able to paint the first room of the day in 2 hours, it may take 2.5 hours to paint the third or fourth room of the day. In other words, our production rates go down.
We must also factor in set up, clean up, moving equipment, and various other tasks. Certainly we could account for all of these separately. But why? Why add 6 or 8 or 10 other line items to your estimate when these items are involved every time you paint a room?
For example, you must lay down a drop cloth, you must remove hardware/ switch plate covers, you must set up a ladder, etc. each time you paint a room. You must clean your brush and roller at the end of the day. All of these tasks are predictable--in both their occurrence and the time they take. Using these tasks as a separate line item when calculating your price is essentially a waste of time. Include them in your production rates.
When we factor in all of these variables, the time to actually paint a room increases significantly. On paper, if someone can paint that 10' x 10' room in 2 hours, he should be able to paint 4 of them in an 8-hour day. But it ain't going to happen. He will be lucky to get 3 rooms painted, which means his actual production rate is going to be 120 square feet per hour. That is a difference of 25%, which means you would be undercharging by 25%.
When calculating production rates, do not use a single, small project as your basis. You will wind up with numbers that might seem reasonable, but simply won't reflect reality. Unless of course, you truly are Speedy Gonzalez.
Invariably such discussions focus on a small project, like a 10' x 10' room, or a single door. While it may be possible to paint a single room or a single door in an impressive time, this is irrelevant when it comes to estimating a job in the real world.
Let us say that you can paint that 10' x 10' room in 2 hours (actual paint application time) and so you use a production rate of 160 square (320 square feet/ 2) feet per hour for painting walls. If all you ever do is paint 1 10' x 10' room, this might work out. But how many of us operate a business that does nothing but single 10' x 10' rooms?
Most people I know tend to get tired as they do physical labor. Maybe not exhausted, but they do fatigue. And with fatigue our production slows. While we may be able to paint the first room of the day in 2 hours, it may take 2.5 hours to paint the third or fourth room of the day. In other words, our production rates go down.
We must also factor in set up, clean up, moving equipment, and various other tasks. Certainly we could account for all of these separately. But why? Why add 6 or 8 or 10 other line items to your estimate when these items are involved every time you paint a room?
For example, you must lay down a drop cloth, you must remove hardware/ switch plate covers, you must set up a ladder, etc. each time you paint a room. You must clean your brush and roller at the end of the day. All of these tasks are predictable--in both their occurrence and the time they take. Using these tasks as a separate line item when calculating your price is essentially a waste of time. Include them in your production rates.
When we factor in all of these variables, the time to actually paint a room increases significantly. On paper, if someone can paint that 10' x 10' room in 2 hours, he should be able to paint 4 of them in an 8-hour day. But it ain't going to happen. He will be lucky to get 3 rooms painted, which means his actual production rate is going to be 120 square feet per hour. That is a difference of 25%, which means you would be undercharging by 25%.
When calculating production rates, do not use a single, small project as your basis. You will wind up with numbers that might seem reasonable, but simply won't reflect reality. Unless of course, you truly are Speedy Gonzalez.
Monday, January 5, 2009
Quick Roundup 2
The Power of Pausing
Good sales skills begin with good listening skills. Brian Tracy suggests pausing before you respond to your customers. Pausing has three benefits
I've seen a lot of contractors (and other people as well) who are so eager to share what is on their mind that they completely ignore what the customer is saying. The customer will realize this, and it will greatly undermine their confidence in you. Communication is a two-way street. Do your part by listening carefully and being certain you understand what you are hearing.
Price vs. Service
Many companies are lowering prices in order to retain customers. Bill Hogg points out that Ambercrombie and Fitch aren't. They plan to retain their brand--which is not based on price. Many contractors are going to be tempted to cut their prices during this tough economic times. But what will they do when the market recovers and their customers expect the lower prices? A better strategy is to improve service, which might even permit you to increase prices. Don't view the economy as an obstacle; view it as an opportunity.
Make Their Phone Ring
John Jantsch suggest a simple, yet effective way to generate leads. Rather than sitting around waiting for the phone to ring, make your customer's phone ring--give them a call and thank them for their past business. Discuss ways you can help them now. Ask what you can do better. Most importantly, remind them you want their business.
Low-Cost Marketing Ideas
Maria Garcia offers seven low-cost marketing ideas, including writing articles and networking. If your advertising budget is feeling the pinch, some of these ideas will get the word out without breaking the bank.
Good sales skills begin with good listening skills. Brian Tracy suggests pausing before you respond to your customers. Pausing has three benefits
The first is that you avoid the risk of interrupting the prospect if he or she has just stopped to gather his or her thoughts. Remember, your primary job in the sales conversation is to build and maintain a high level of trust, and listening builds trust.
The second benefit of pausing is that your silence tells the prospect that you are giving careful consideration to what he or she has just said. By carefully considering the other person's words, you are paying him or her a compliment.
The third benefit of pausing before replying is that you will actually hear and understand the prospect better if you give his or her words a few seconds to soak into your mind.
I've seen a lot of contractors (and other people as well) who are so eager to share what is on their mind that they completely ignore what the customer is saying. The customer will realize this, and it will greatly undermine their confidence in you. Communication is a two-way street. Do your part by listening carefully and being certain you understand what you are hearing.
Price vs. Service
Many companies are lowering prices in order to retain customers. Bill Hogg points out that Ambercrombie and Fitch aren't. They plan to retain their brand--which is not based on price. Many contractors are going to be tempted to cut their prices during this tough economic times. But what will they do when the market recovers and their customers expect the lower prices? A better strategy is to improve service, which might even permit you to increase prices. Don't view the economy as an obstacle; view it as an opportunity.
Make Their Phone Ring
John Jantsch suggest a simple, yet effective way to generate leads. Rather than sitting around waiting for the phone to ring, make your customer's phone ring--give them a call and thank them for their past business. Discuss ways you can help them now. Ask what you can do better. Most importantly, remind them you want their business.
Low-Cost Marketing Ideas
Maria Garcia offers seven low-cost marketing ideas, including writing articles and networking. If your advertising budget is feeling the pinch, some of these ideas will get the word out without breaking the bank.
Tuesday, December 16, 2008
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.
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.
Saturday, November 22, 2008
The Winter of ‘08
This coming winter looks like it will be a rough time for painting contractors. Economic turmoil and the uncertainty of a new President have clients holding tightly to their money. Painting work will likely be tough to come by for many contractors.
I have regularly written, on this blog and elsewhere, of several crucial components to success in the contracting business. Those ideas remain true even in an economic slow down. Those ideas are:
1. Market constantly
2. Develop systems (including marketing systems)
3. Manage cash flow
4. Sell at the right price
In a recession contractors are going to be very tempted to cut prices. This temptation will be even greater if leads are not regular and consistent. Thus the need for constant marketing. If you are not getting sufficient leads and cut prices as a result, you will suffer other consequences. Cash flow will diminish—lower prices means less cash. You will have difficulty raising prices later—you will have a reputation as a cheap painter. Insufficient leads is a symptom. Do not treat it by cutting prices. Treat it by dealing with the disease—lack of marketing.
Systems are crucial to efficient operations and consistent results. Efficiency and consistently have side benefits, such as fewer crises, more free time, and reduced stress. Reducing stress will be important during a recession. Reduced leads and tighter budgets are going to potentially stress even the most successful contractors. Anything you can do to reduce stress—and developing systems is one of the most effective ways—will be beneficial.
Cash flow management is always important. It is more so during tight economic times. Eliminating debt frees up money, reduces expenses, and allows you to build a cushion. Cutting prices will not improve cash flow.
Selling at the right price is never more important than during tough times. During good times jobs can fall into our laps. Often, if we simply show up and offer a fair price the job is ours. But things change during tight times. Customers hold onto their money and spend more time shopping for value. Don’t think that tough times will turn all customers into price shoppers—it won’t. But they will be more cognizant of value, and it is your job to offer and communicate the value you offer.
Tough economic times are a challenge and an opportunity. It is up to each of us whether we allow the challenge to beat us down, or we rise to the occasion and take advantage of the situation.
I have regularly written, on this blog and elsewhere, of several crucial components to success in the contracting business. Those ideas remain true even in an economic slow down. Those ideas are:
1. Market constantly
2. Develop systems (including marketing systems)
3. Manage cash flow
4. Sell at the right price
In a recession contractors are going to be very tempted to cut prices. This temptation will be even greater if leads are not regular and consistent. Thus the need for constant marketing. If you are not getting sufficient leads and cut prices as a result, you will suffer other consequences. Cash flow will diminish—lower prices means less cash. You will have difficulty raising prices later—you will have a reputation as a cheap painter. Insufficient leads is a symptom. Do not treat it by cutting prices. Treat it by dealing with the disease—lack of marketing.
Systems are crucial to efficient operations and consistent results. Efficiency and consistently have side benefits, such as fewer crises, more free time, and reduced stress. Reducing stress will be important during a recession. Reduced leads and tighter budgets are going to potentially stress even the most successful contractors. Anything you can do to reduce stress—and developing systems is one of the most effective ways—will be beneficial.
Cash flow management is always important. It is more so during tight economic times. Eliminating debt frees up money, reduces expenses, and allows you to build a cushion. Cutting prices will not improve cash flow.
Selling at the right price is never more important than during tough times. During good times jobs can fall into our laps. Often, if we simply show up and offer a fair price the job is ours. But things change during tight times. Customers hold onto their money and spend more time shopping for value. Don’t think that tough times will turn all customers into price shoppers—it won’t. But they will be more cognizant of value, and it is your job to offer and communicate the value you offer.
Tough economic times are a challenge and an opportunity. It is up to each of us whether we allow the challenge to beat us down, or we rise to the occasion and take advantage of the situation.
Wednesday, August 20, 2008
Thoughts on Pricing
If you hang around forums long enough, you are likely to see some rather strange theories. Recently a post on PaintTalk claimed:
This is some of the oddest advice I've read in a long time. How is one to know what the "client is willing to pay". Apparently, estimating requires some form of ESP, rather than a working knowledge of the trade. In addition, why just double that number? Why not triple it? Or why not multiply it by Pi? No explanation was given.
Here is another one:
This is a particularly interesting concept, in that it reveals why 99% of painting contractors fail. The premise underlying this statement is that you first pay everyone, and whatever is left you get to put in your pocket. There are several things wrong with this.
First, the owner's salary should be a part of overhead. It should be a defined amount that is built into the price of every job. Second, in the above statement the owner isn't really drawing a salary--he is getting whatever crumbs happen to be left. I don't consider that very motivating. Third, profit is what is left after everything--including the owner--is paid.
I sometimes wonder what motivates such comments. I suspect that the writers simply don't know any better. But that is no excuse for positing oneself as an expert. Fortunately, such comments are usually challenged and corrected by others.
© BEP Enterprises Incorporated 2008
Painting on the other hand...especially faux or industrial is so subjective that
a lot of considerations are simply not relevant. Simply think about what the
client is willing to pay then double it.
This is some of the oddest advice I've read in a long time. How is one to know what the "client is willing to pay". Apparently, estimating requires some form of ESP, rather than a working knowledge of the trade. In addition, why just double that number? Why not triple it? Or why not multiply it by Pi? No explanation was given.
Here is another one:
When you own a company, profit (i.e. what you make after everyone is paid
(bills, employees, etc.) is essentially the same thing as your salary.
This is a particularly interesting concept, in that it reveals why 99% of painting contractors fail. The premise underlying this statement is that you first pay everyone, and whatever is left you get to put in your pocket. There are several things wrong with this.
First, the owner's salary should be a part of overhead. It should be a defined amount that is built into the price of every job. Second, in the above statement the owner isn't really drawing a salary--he is getting whatever crumbs happen to be left. I don't consider that very motivating. Third, profit is what is left after everything--including the owner--is paid.
I sometimes wonder what motivates such comments. I suspect that the writers simply don't know any better. But that is no excuse for positing oneself as an expert. Fortunately, such comments are usually challenged and corrected by others.
© BEP Enterprises Incorporated 2008
Saturday, June 28, 2008
Time and Materials
Many painting contractors think that estimating by time and materials (T&M) insures a profit on every job. This view can be very misleading.
For example, a contractor agrees to perform a job on T&M at $35 an hour. He will likely think that this $35 is going to go straight into his pocket. But that $35 must also cover overhead and profit. If his overhead is typical (about 50% of the selling price) his actual net income is reduced to $17.50. And if he is aiming for a 10% profit, his income drops to $14 and hour.
Because of this, T&M can build a false sense of security. The contractor mistakenly believes that he can’t lose money. Working for $14 an hour is simply not worth the head aches, stress, and other issues that accompany owning a business. At that rate, the contractor would likely be better off working for someone else.
A further problem with T&M is that it can be a lazy way to estimate. Rather than learning how to accurately estimate a job, the contractor essentially becomes an hourly employee.
This is not to say that there is no place for T&M. There are situations where T&M may be appropriate and beneficial to all parties. But I think those situations are far more rare than most contractors believe.
© BEP Enterprises Incorporated 2008
For example, a contractor agrees to perform a job on T&M at $35 an hour. He will likely think that this $35 is going to go straight into his pocket. But that $35 must also cover overhead and profit. If his overhead is typical (about 50% of the selling price) his actual net income is reduced to $17.50. And if he is aiming for a 10% profit, his income drops to $14 and hour.
Because of this, T&M can build a false sense of security. The contractor mistakenly believes that he can’t lose money. Working for $14 an hour is simply not worth the head aches, stress, and other issues that accompany owning a business. At that rate, the contractor would likely be better off working for someone else.
A further problem with T&M is that it can be a lazy way to estimate. Rather than learning how to accurately estimate a job, the contractor essentially becomes an hourly employee.
This is not to say that there is no place for T&M. There are situations where T&M may be appropriate and beneficial to all parties. But I think those situations are far more rare than most contractors believe.
© BEP Enterprises Incorporated 2008
Tuesday, June 24, 2008
Time is Money
You have probably heard that time is money. For a painting contractor this is more than a cliché—it is a literal truth. More than anything, we sell time. We sell the time of skilled craftsmen.
When we estimate a job we are trying to determine how long the job will take, that is, how much time is involved. We are providing a service, and the cost of that service is ultimately determined by the amount of time required to provide it. This may seem obvious. But what is obvious and what is truly understood are often quite different.
The profit on a job is ultimately going to be determined by the accuracy of our estimate. If we estimate 40 hours, but it takes 50 hours, we did not sell enough time. (There may be production issues involved, but that is a different issue.) We will still incur expenses for those extra 10 hours. This will reduce, and more likely eliminate, the profit on the job.
Selling sufficient time is the primary issue in estimating. In that respect, our profit for the job is determined at the time of the sale.
Accurate estimating is not rocket science. But it isn’t a guessing game either. It boils down to knowing how long each task takes. If you know the time required for each task involved in the job, you can accurately estimate. When you know how much time to sell, you really can make money.
© BEP Enterprises Incorporated 2008
When we estimate a job we are trying to determine how long the job will take, that is, how much time is involved. We are providing a service, and the cost of that service is ultimately determined by the amount of time required to provide it. This may seem obvious. But what is obvious and what is truly understood are often quite different.
The profit on a job is ultimately going to be determined by the accuracy of our estimate. If we estimate 40 hours, but it takes 50 hours, we did not sell enough time. (There may be production issues involved, but that is a different issue.) We will still incur expenses for those extra 10 hours. This will reduce, and more likely eliminate, the profit on the job.
Selling sufficient time is the primary issue in estimating. In that respect, our profit for the job is determined at the time of the sale.
Accurate estimating is not rocket science. But it isn’t a guessing game either. It boils down to knowing how long each task takes. If you know the time required for each task involved in the job, you can accurately estimate. When you know how much time to sell, you really can make money.
© BEP Enterprises Incorporated 2008
Thursday, June 19, 2008
Why You Should Get Deposits
For many years I didn’t get any money from customers until the completion of the job. I viewed this as a sign of honesty and a way to develop trust. It may have worked that way some of the time, but it also left me vulnerable to the whims of my customers.
For example, we would get to the end of the job and have a door to paint. The customer couldn’t make time to be home for us to paint the door, so the job was not completed. He would then refuse to pay us anything until the door was painted, yet he wouldn’t provide us access. He basically had us over the barrel.
We also had lots of situations where we scheduled the job, ordered materials, etc. only to have the customer back out at the last minute. We were stuck with materials that we might not use, as well as a hole in our schedule.
We now get deposits. If a customer wants us to make a commitment to their project, he should be willing to make a commitment to us. A deposit shows that he is serious.
Deposits (and progress payments) do more than show that the customer is serious. They also provide us with steady cash flow. If I have 3 $10,000 jobs going on, those progress payments make it much easier to pay my expenses.
I have a deal with my banker. He won’t paint houses and I won’t finance painting projects.
© BEP Enterprises Incorporated 2008
For example, we would get to the end of the job and have a door to paint. The customer couldn’t make time to be home for us to paint the door, so the job was not completed. He would then refuse to pay us anything until the door was painted, yet he wouldn’t provide us access. He basically had us over the barrel.
We also had lots of situations where we scheduled the job, ordered materials, etc. only to have the customer back out at the last minute. We were stuck with materials that we might not use, as well as a hole in our schedule.
We now get deposits. If a customer wants us to make a commitment to their project, he should be willing to make a commitment to us. A deposit shows that he is serious.
Deposits (and progress payments) do more than show that the customer is serious. They also provide us with steady cash flow. If I have 3 $10,000 jobs going on, those progress payments make it much easier to pay my expenses.
I have a deal with my banker. He won’t paint houses and I won’t finance painting projects.
© BEP Enterprises Incorporated 2008
Saturday, June 14, 2008
Which Comes First?
I often hear painting contractors tell me that they can’t afford to market their business. I’ll do that when I start making money, they usually say. And how do they expect to make money if they aren’t advertising? They don’t have an answer to that question.
Such contractors reverse cause and effect. They seek the effect—leads and the money they generate—without enacting the cause—advertising.
When I point this out, they usually respond that it takes money to advertise. Duh!?! Apparently they think that I am oblivious to that fact. Or maybe they think I’ve always had tons of money just sitting around.
The fact that advertising requires money does not mean that advertising must be expensive. My first advertising “campaign” cost me $20. It consisted of me going to a local print shop and having about 1,000 fliers printed. I then delivered the fliers personally. I delivered them almost daily. Trust me, it wasn’t fun, particularly in July when the temperature approached 150, the humidity level was even higher, and giant flies hovered over my head like vultures awaiting the final breath from a dying gazelle.
Over the years I’ve delivered thousands and thousands of fliers and door hangers. (I tried to get this listed in the Guinness Book of World Records, but I didn’t have the right documentation.) Marketing creates leads, and leads generate sales. Sales—if properly priced—produce profits, which fuel additional marketing.
If you don’t have money to market, find it. Because marketing comes first.
© BEP Enterprises Incorporated 2008
Such contractors reverse cause and effect. They seek the effect—leads and the money they generate—without enacting the cause—advertising.
When I point this out, they usually respond that it takes money to advertise. Duh!?! Apparently they think that I am oblivious to that fact. Or maybe they think I’ve always had tons of money just sitting around.
The fact that advertising requires money does not mean that advertising must be expensive. My first advertising “campaign” cost me $20. It consisted of me going to a local print shop and having about 1,000 fliers printed. I then delivered the fliers personally. I delivered them almost daily. Trust me, it wasn’t fun, particularly in July when the temperature approached 150, the humidity level was even higher, and giant flies hovered over my head like vultures awaiting the final breath from a dying gazelle.
Over the years I’ve delivered thousands and thousands of fliers and door hangers. (I tried to get this listed in the Guinness Book of World Records, but I didn’t have the right documentation.) Marketing creates leads, and leads generate sales. Sales—if properly priced—produce profits, which fuel additional marketing.
If you don’t have money to market, find it. Because marketing comes first.
© BEP Enterprises Incorporated 2008
Mind Your P’s and Q’s
In merry old England it was not uncommon for a bartender to tell an unruly patron to mind his pints and quarts. This eventually gave way to the expression “mind your P’s and Q’s”. That expression has several applications to a paint contracting business.
For example, it could apply to your paint, though I doubt you buy many pints or even quarts of paint. However, accurate estimating will help you avoid purchasing excessive quantities of material, and this will ultimately save you a considerable amount of money. Purchasing an extra quart of paint per week would cost $400 a year at $8 a quart.
It could also apply to financial management—minding your pennies and quarters. While I am not advocating excessive frugality, the small things can often break us. A dollar here, a dollar there—these can add significantly to the bottom line.
If you are seeking an 8% to 10% net profit, these small things can make all of the difference in the world. If you start throwing away a few dollars each day that profit is eroded. Good financial records and stringent management are the key factors in controlling costs.
Some may think that such penny pinching is a waste of time. Certainly, collecting pennies is not a very good way to accumulate wealth. However, the mindset involved will carry over to bigger items. Consequently, if you mind your P’s and Q’s, you just might find that the dollars take care of themselves.
© BEP Enterprises Incorporated 2008
For example, it could apply to your paint, though I doubt you buy many pints or even quarts of paint. However, accurate estimating will help you avoid purchasing excessive quantities of material, and this will ultimately save you a considerable amount of money. Purchasing an extra quart of paint per week would cost $400 a year at $8 a quart.
It could also apply to financial management—minding your pennies and quarters. While I am not advocating excessive frugality, the small things can often break us. A dollar here, a dollar there—these can add significantly to the bottom line.
If you are seeking an 8% to 10% net profit, these small things can make all of the difference in the world. If you start throwing away a few dollars each day that profit is eroded. Good financial records and stringent management are the key factors in controlling costs.
Some may think that such penny pinching is a waste of time. Certainly, collecting pennies is not a very good way to accumulate wealth. However, the mindset involved will carry over to bigger items. Consequently, if you mind your P’s and Q’s, you just might find that the dollars take care of themselves.
© BEP Enterprises Incorporated 2008
Thursday, June 5, 2008
The Cost of a Gallon of Paint
What do you pay for a gallon of paint? Do you realize that your actual cost is likely much higher?
Let’s say that a gallon of paint costs you $20. Let’s say you pay your foreman $20 an hour. With labor burden, his actual cost to you would be over $25 an hour.
One day your crew runs a little short of paint, so the foreman hops in his truck and goes to the paint store. It takes him an hour for the entire trip. You still must pay him, so that gallon of $20 paint has now cost you $45.
Unless you have the most unusual crew in the world, they likely will not be quite as efficient and productive when the foreman is away. So during his hour-long trip, let’s say that they actually only accomplish 50 minutes of work. A 2-man crew would then lose 20 minutes of production time while the foreman is gone.
If your average wage is $13, this 20 minute loss would cost another $4.33 plus labor burden, or close to $5.50. Now that gallon of paint has cost you $50.50. But it could be worse.
Let’s say that now only did the crew lose some production time, but that some of the work they did wasn’t up to your standards. When the foreman discovers this he instructs the crew to fix their work. If this takes 10 minutes, we must add another $5.50 to the cost of that gallon, pushing the total to $56.
While all of this is hypothetical and the actual numbers can vary, it should be clear that that gallon of paint can cost a lot more than what the store charges.
© BEP Enterprises Incorporated 2008
Let’s say that a gallon of paint costs you $20. Let’s say you pay your foreman $20 an hour. With labor burden, his actual cost to you would be over $25 an hour.
One day your crew runs a little short of paint, so the foreman hops in his truck and goes to the paint store. It takes him an hour for the entire trip. You still must pay him, so that gallon of $20 paint has now cost you $45.
Unless you have the most unusual crew in the world, they likely will not be quite as efficient and productive when the foreman is away. So during his hour-long trip, let’s say that they actually only accomplish 50 minutes of work. A 2-man crew would then lose 20 minutes of production time while the foreman is gone.
If your average wage is $13, this 20 minute loss would cost another $4.33 plus labor burden, or close to $5.50. Now that gallon of paint has cost you $50.50. But it could be worse.
Let’s say that now only did the crew lose some production time, but that some of the work they did wasn’t up to your standards. When the foreman discovers this he instructs the crew to fix their work. If this takes 10 minutes, we must add another $5.50 to the cost of that gallon, pushing the total to $56.
While all of this is hypothetical and the actual numbers can vary, it should be clear that that gallon of paint can cost a lot more than what the store charges.
© BEP Enterprises Incorporated 2008
Thursday, May 15, 2008
What to do with Your Rebate Check
It seems like everybody has a suggestion on how you should spend your tax rebate check, and it usually involves their store or their product. Since I am such a follower, and have a web site that sells stuff, I’ll make a similar suggestion. Go to Out of the Bucket.com and buy everything we have.
Seriously though, you should really consider investing some of the money into your business. Take a training class, or buy QuickBooks, or do something else to expand your business skills. If you spent $500 on learning something valuable about business, you could turn that investment into thousands before the end of the year.
I know, training is expensive. You don’t have time. Blah, blah, blah. To be blunt, these are silly excuses. Lots of things are expensive—spray rigs, trucks, a gallon of gas. But you buy these things because they help you make money. What about your brain? Does that help you make money? If so, why aren’t you investing in it?
As far as time goes, I hate to be the one to break the news to you, but there are 24 hours in every day. Always has been, always will be. I don’t have any more time in the day than you do. I just choose to use my time differently, that’s all. So when someone says, “I don’t have time” what they really mean is “I choose to use my time for other things.”
But I digress. Marketing is an investment. Equipment is an investment. Training is an investment. Invest your rebate check. You’ll thank me some day.
© BEP Enterprises Incorporated 2008
Seriously though, you should really consider investing some of the money into your business. Take a training class, or buy QuickBooks, or do something else to expand your business skills. If you spent $500 on learning something valuable about business, you could turn that investment into thousands before the end of the year.
I know, training is expensive. You don’t have time. Blah, blah, blah. To be blunt, these are silly excuses. Lots of things are expensive—spray rigs, trucks, a gallon of gas. But you buy these things because they help you make money. What about your brain? Does that help you make money? If so, why aren’t you investing in it?
As far as time goes, I hate to be the one to break the news to you, but there are 24 hours in every day. Always has been, always will be. I don’t have any more time in the day than you do. I just choose to use my time differently, that’s all. So when someone says, “I don’t have time” what they really mean is “I choose to use my time for other things.”
But I digress. Marketing is an investment. Equipment is an investment. Training is an investment. Invest your rebate check. You’ll thank me some day.
© BEP Enterprises Incorporated 2008
Thursday, March 27, 2008
I Ain’t Got No Overhead
Many painting contractors believe that they have no overhead. They are simply wrong. To claim that one has no overhead means:
1. There is no advertising
2. There is no insurance
3. There is no equipment
4. There are no vehicles
5. There are no phones
6. There are no salaries
7. There are no office supplies
8. There are no accounting or legal expenses
9. And the list could go on
All of the above items are overhead. I’ve spoken to hundreds of contractors over the years, and I’ve yet to meet one who doesn’t have most of these expenses. And anyone who truly doesn’t have any overhead doesn’t have a business. They have a job and a delusional fantasy.
What is perhaps most interesting is the fact that for the typical small painting contractor, overhead comprises nearly 50% of the selling price. How then can a contractor overlook such a large part of his expenses and brazenly state “I ain’t got no overhead”?
I think the primary reason is financial ignorance—they simply don’t know what they don’t know. They don’t understand what overhead is. They don’t understand that overhead is an inescapable fact of owning a business.
The sad thing is, this ignorance is also a primary reason for the failure rate among painting contractors. After all, if you are not recovering half of your expenses, it is pretty hard to pay the bills, draw a reasonable salary, and make a profit. The money to pay overhead has to come from somewhere, and it is usually the owner’s pocket.
The truth is, if someone truly ain’t got no overhead, they ain’t got no business either.
© BEP Enterprises Incorporated 2008
1. There is no advertising
2. There is no insurance
3. There is no equipment
4. There are no vehicles
5. There are no phones
6. There are no salaries
7. There are no office supplies
8. There are no accounting or legal expenses
9. And the list could go on
All of the above items are overhead. I’ve spoken to hundreds of contractors over the years, and I’ve yet to meet one who doesn’t have most of these expenses. And anyone who truly doesn’t have any overhead doesn’t have a business. They have a job and a delusional fantasy.
What is perhaps most interesting is the fact that for the typical small painting contractor, overhead comprises nearly 50% of the selling price. How then can a contractor overlook such a large part of his expenses and brazenly state “I ain’t got no overhead”?
I think the primary reason is financial ignorance—they simply don’t know what they don’t know. They don’t understand what overhead is. They don’t understand that overhead is an inescapable fact of owning a business.
The sad thing is, this ignorance is also a primary reason for the failure rate among painting contractors. After all, if you are not recovering half of your expenses, it is pretty hard to pay the bills, draw a reasonable salary, and make a profit. The money to pay overhead has to come from somewhere, and it is usually the owner’s pocket.
The truth is, if someone truly ain’t got no overhead, they ain’t got no business either.
© BEP Enterprises Incorporated 2008
Saturday, March 1, 2008
Fun with Numbers, Epilogue
During the past week I have looked at several key numbers we can use in managing our paint contracting business. There are certainly other numbers that we can and should utilize.
The importance of knowing your numbers cannot be overstated. Numbers provide us with objective measurements of past performance, and a means for making realistic projections about future performance.
It is certainly possible to run a successful business without a comprehensive grasp of one’s numbers. But it is also possible to paint the entire interior of a house with a 2” brush. The fact that something is possible does not mean that it is efficient or wise. If you were going to paint an interior you would use the tools that provide the greatest efficiency. You should do the same in operating your company.
Effectively understanding and using our numbers requires that we capture specific data. The greater the amount of that data the more accurate our numbers become. Small samplings can be very misleading due to aberrations. Numbers do fluctuate, sometimes significantly. Large samplings even out these fluctuations.
For example, a particular piece of marketing may not generate any leads one week and 5 leads the next. If we looked at each of these weeks independently we would draw vastly different conclusions.
It takes time to collect sufficient data. The sooner you begin collecting that data, the sooner you can make meaningful evaluations. It is also possible to reconstruct data by reviewing your records.
Developing a system for collecting data will make the process efficient and more useful. A simple written form can suffice. A simple spreadsheet can be used to compile and analyze the data. In other words, this does not need to be a complicated process.
If you do not have the necessary data, the time to start collecting it is now. The future will arrive. Your numbers will tell you how you got there.
© BEP Enterprises Incorporated 2008
The importance of knowing your numbers cannot be overstated. Numbers provide us with objective measurements of past performance, and a means for making realistic projections about future performance.
It is certainly possible to run a successful business without a comprehensive grasp of one’s numbers. But it is also possible to paint the entire interior of a house with a 2” brush. The fact that something is possible does not mean that it is efficient or wise. If you were going to paint an interior you would use the tools that provide the greatest efficiency. You should do the same in operating your company.
Effectively understanding and using our numbers requires that we capture specific data. The greater the amount of that data the more accurate our numbers become. Small samplings can be very misleading due to aberrations. Numbers do fluctuate, sometimes significantly. Large samplings even out these fluctuations.
For example, a particular piece of marketing may not generate any leads one week and 5 leads the next. If we looked at each of these weeks independently we would draw vastly different conclusions.
It takes time to collect sufficient data. The sooner you begin collecting that data, the sooner you can make meaningful evaluations. It is also possible to reconstruct data by reviewing your records.
Developing a system for collecting data will make the process efficient and more useful. A simple written form can suffice. A simple spreadsheet can be used to compile and analyze the data. In other words, this does not need to be a complicated process.
If you do not have the necessary data, the time to start collecting it is now. The future will arrive. Your numbers will tell you how you got there.
© BEP Enterprises Incorporated 2008
Friday, February 29, 2008
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
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
Thursday, February 28, 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
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
Wednesday, February 27, 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
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
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