Piece work as a compensation system

In these tough economic times, everyone is trying to stretch their dollars just a little bit further. As painting contractors, our biggest expense is labor, and if you find your budget pushed to its limits, you might consider instituting a pay system that encourages productivity and caps your labor costs.

Piece work is such a system. Under a piece work pay system, a painter is paid for the work he actually performs, rather than a flat hourly rate. For example, you might pay $10 to paint a door. If the painter can paint 2 doors in an hour, he makes $20 an hour; if he only paints 1 in an hour, he makes half that.

Such a system encourages efficiency. When a painter knows that his pay is based on finding a better way to work, he will likely do so. Of course, you must establish certain standards that must be met in order for the work to qualify as “complete”.

Piece work must be priced fairly. The painter must have a very reasonable chance to meet the production times you use, or he will quickly become discouraged. So if you find that your painters have increased their speed by 10%, don’t cut your prices–that money is a bonus for the painters.

For you, a piece work system caps your labor costs. For example, if you are paying $10 for the door to be painted, your cost is limited, no matter how long the door actually takes. Again, your prices must be fair and reasonable if you actually wish to provide encouragement.

A piece work system can meet with a lot of resistance. Your painters may think that you are trying to become a slave driver. Good communications are imperative when setting up the system, and input from the painters themselves will help with the “buy in”.

If you find that your labor costs are out of control, piece work is one way regain control. And it will also give you some peace of mind.

Treating benchmarks as an absolute is misleading

It can be very useful to compare numbers with other painting contractors. Doing so provides us with “benchmarks”—targets that we can aim for. For example, if you see that a large number of contractors are spending 5% of their revenues on marketing and you are spending 10%, you have a clue that improvements can be made.

However, these benchmarks are only that. They are not numbers that are absolute or sacrosanct. They provide a comparison by which we can evaluate our own business. But in the end, we must look at our numbers and the causes for them.

Treating benchmarks as an absolute is no different from asking about the “going rate”. The “going rate” syndrome holds that there is some magic number that you must charge, and nothing can be done to alter it. It treats our pricing as if some power dictates what we can charge, and our own actions are irrelevant.

Just as we should not use the prices of other contractors in calculating our own selling price, we should not use their benchmarks. To do so is to ignore the myriad factors and variables that are involved in each of these numbers.

Let us return to the marketing example. Suppose you have been in business for a year (or are trying to market in a new area). Comparing your numbers to those of contractors who have been in business for 20 years and have established themselves in a particular community is a recipe for disaster. Their context is completely different from yours. Their established market presence likely means that they have more name recognition, and therefore do not need to spend as much on marketing.

This is not to dismiss benchmarks. In the above example, the benchmarks show us what is possible—they show us what numbers can be reasonable. And we can then plan accordingly. We can develop a plan to reduce our marketing over a period of years, and identify the specific steps that will allow us to do so while building name recognition.

The “going rate” syndrome can take many forms, but each has the same ultimate cause—the failure to know one’s own numbers. Each tries to use the numbers of other contractors as a guide to one’s own business. In the end, this is not only foolish, it is the road to failure.

Not accepting credit cards for your painting business can be costly

Many–if not most–painting contractors do not accept credit cards. They offer a number of reasons for this, but upon close examination, we find that they don’t hold much water. Below are some of the common reasons offered.

I have never been asked to take a credit card in my fifteen years in business. I do high end re-paints mostly and my customers just write the check.

That nobody has asked doesn’t mean that they wouldn’t use a credit card it you accepted them. The absence of such questions is hardly evidence that accepting credit cards is not beneficial.

Most businesses that accept credit cards advertise that fact. Also, given that many contractors do not, it is likely that, absent any indication to the contrary, customers assume that the contractor does not take credit cards. So they don’t ask.

Our clients do not always know what values we offer. We have to inform them. More importantly, the greater the value we offer, the more we differentiate our company.

People use credit cards for many reasons, such as rebates or airline mileage. Limiting the customer’s payment options does place limits on the customer. Accepting credit cards gives him another option.

Some contractors think that using credit cards is foolish, and they impose that view on their customers:

Anyone who has to resort to credit cards to pay for a home improvement project has financial problems. Only somebody in trouble or a financial idiot would pay those interest rates.

This is an entirely different issue. We are painting contractors, not financial advisers. It is not my job to guide my customers towards wise financial decisions. My job is to sell paint jobs. Besides, we do not know that the customer won’t pay off the bill at the end of the month, and simply wants the miles or other bonus offered.

I cannot understand why a contractor would not accept credit cards. I’ve heard some complain about the cost, which to be blunt, shows financial ignorance. Any fees associated with taking credit cards is an overhead item, and like all overhead, should be built into your price.

Don’t worry about what the competition charges

Painting contractors often wonder what the competition is charging. In a small way—and a very small way at that—this might have some value. But in general, what others charge should have no bearing on your prices.

Let me first address the small way in which this might be helpful. If you need to charge $50 an hour to meet your financial goals, and respectable, quality contractors are charging $25, you might have a problem. This would be beneficial to know, because perhaps you are in the wrong business (or at least the wrong market). But beyond this, which I suspect is rarely the case, there is little value in knowing what the competition charges.

Your pricing should not take your competition into consideration. What they charge has no bearing on what your price should be—your production rates, your costs, and your financial goals are all that matter. If you think that what others charge matters, then I suggest that you start looking for a job, because you will need to do so sooner or later, and likely sooner.

If your competition is willing to work for $10 an hour net pay, does that mean that you should? If your competition is clueless when it comes to estimating and pricing, does that mean that you should follow their lead? If your competition is slowly going broke, do you really want to copy them? If your answer is no, then what difference does it make what they charge?

Certainly our competition has an impact on our business. If another company offers comparable service and quality for half the price, the consumer will likely go with the lower price. But it is very unlikely—if not impossible—for a company to offer quality work and service at cut-rate prices. Unless of course, they are going broke, which means they won’t be doing this for long.

I regularly bid against guys who are 30% to 50% lower than my price—and I don’t regard them as competition. They don’t offer what I offer. Certainly I lose some jobs to them, but just as often they disqualify themselves with their low price. My target customers are not looking for the low price, and I don’t regard the guys who compete on price as my competition.

The key is to identify who our true competitors are. Is it the cut-rate contractor, or is it the quality contractor? This is ultimately determined by our target market. If your target market is the price shopper, your competition will be the cut-rate contractors. If your target market is the value shopper, you will have much less competition and that competition’s prices will be higher than the cut-rate guys.

If you find yourself regularly complaining about cut-rate competition, it may be time to examine your target market—you are likely attracting the wrong customers. As is often the case, the best place to start when we complain about the competition is to look in the mirror.

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