A study in knowing your numbers

Brian Phillips

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. Knowing your numbers allows you to make intelligent decisions about your business, rather than just guessing.

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.

Now let’s look at another option. 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.

June 30th, 2010 | Tags: , , | Category: Finance | Comments are closed

A bad way to market your painting company

Brian Phillips

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?

June 30th, 2010 | Tags: | Category: Marketing | Comments are closed

The low price does not always get the painting job

Brian Phillips

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.

June 29th, 2010 | Tags: , , | Category: Sales | Comments are closed

Actions speak louder than words

Brian Phillips

You don’t need to spend much time looking at the advertisements of competitors to see repeated claims of professionalism, superior quality, etc. Of course, it is easy to make such claims, and quite another thing to actually deliver on them.

I often amused at the contradictory messages sent by these ads. For example, one local company stresses their customer service with prose that is filled with misspelled words and grammatical mistakes.

Such errors make me wonder how they can deliver good service if they overlook details like grammar and spelling. Certainly painting contractors aren’t hired for the quality of their writing. But if a company will tolerate such easily corrected errors I must wonder what other details slip through the cracks.

In other words, they are telling me one thing while showing me something entirely different.

Marketing is primarily about communications—delivering a message about your company. That message may be as simple as the services you offer, or as complex as your business philosophy. That message may be delivered explicitly—what you say or claim—or it may be implicit—how you say it.

Both the explicit and the implicit messages must be consistent. Otherwise your message will be confusing at best, and contrary to your intentions at worst.

In addition, the implicit messages are generally much more powerful. They are showing rather than telling. They are demonstrating some characteristic about your company, rather than simply claiming that your possess it.

Take the company with superior service as an example. Anyone can claim such service, and if you do so you will be no different from the others. But if you actually deliver superior service from the very first phone call, you will demonstrate it.

So rather than tell your customer how your company is better, show him.

June 28th, 2010 | Tags: , , | Category: Marketing | 2 comments - (Comments are closed)
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