Ignorance is not bliss

We’ve all heard the expression that what we don’t know won’t hurt us. I beg to differ. Ignorance is not bliss—it’s a real nice way to get yourself in deep doo doo.

Too many painting contractors think that if they apply paint well they will be successful. They think the secret to success lies in being able to brush and roll. So they fail to educate themselves on marketing, sales, finance, and a myriad other topics.

I suppose it is possible to run a successful company and not know the difference between an expense and a hole in the ground (come to think of it, sometimes they are very similar). But why take that chance? Why gamble on the future of your business and your life?

I’ve had contractors tell me that they know they should learn some of these topics, but they don’t want to work all of the time. This is a silly excuse if I’ve ever heard one. First, you don’t need to work all of the time to learn to read an income statement. Second, if building a business were easy my cats would do it. Third, if you don’t want to work hard to build your business, get a job.

The problem with remaining ignorant on a subject is that you don’t know much about it. And what you don’t know can indeed hurt you. If you can’t read your financial statements, how will you know if you are making money? How will you make decisions? How will you plan your future?

Each of us is born ignorant. At birth, we know nothing. Successful people acquire the knowledge they need to be successful. Ignorant people don’t. Successful people read, learn, and grow. Ignorant people don’t. Successful people set goals and work to achieve them. Ignorant people don’t know how. In short, those who think that ignorance is bliss are simply ignorant.

The mysteries of pricing paint jobs

A common theme on contractor discussion boards is the unwillingness of customers to pay for quality contracting services—these are the “price is king” contractors. This complaint cuts across the trades, and so do the reasons underlying it.

There is no denying that some customers are price shoppers. The complaint however, is almost always delivered as a blanket statement that applies to all customers. As is usually the case, such a broad generalization is not true. There is ample evidence that customers will pay more when they perceive a higher value for the money.

Why then, do contractors insist on clinging to this false idea? Why do they repeat, over and over, that their market is different (or some variation thereof)? Why do they argue with an almost religious fervor that others just don’t understand?

I have previously written that such contractors lack a healthy dose of self-esteem. Despite their proclamations to the contrary, they do not think that they are worth a higher price. While this remains true, there is a deeper, more fundamental issue involved.

Invariably, contractors who make this price argument are also resistant to other ideas regarding business. They insist that marketing is unnecessary, they rely on word of mouth. They argue that the quality of their work is sufficient to sustain their business. They criticize salesmen as charlatans who emphasize style over substance. (These are generalizations and not necessarily true of every “price is king” contractor.)

All of these claims amount to the same thing—they know better. They are privy to some special knowledge that escapes others. It never occurs to them that the “others” are not complaining about pricing issues. It never occurs to them to question their basic premises.

On the surface, the “price is king” contractor might seem like he is being independent, that he is rejecting the “conventional wisdom”. But the truth is, he is doing neither. He is being conventional and dependent.

Consider the fact that 90% of the contractors who started a business this year won’t make it five years. One of the primary reasons for this high failure rate is that the contractor simply does not charge enough. His pricing structure—and many other business practices—does not allow him to pay his bills and have a sufficient profit to sustain his business. The “price is king” contractor is following the same path as the vast majority of contractors, and that path ultimately leads to despair and disillusion. This is the conventional path.

Which brings us back to the question—why do so many contractors tenaciously cling to ideas that lead them to failure?

Success in any small business—including paint contracting— is rare, and the numbers demonstrate this fact quite convincingly. Success is the unusual; failure is the common. Regardless of a contractor’s ultimate success or failure, his business practices are guided by certain principles. These principles may be explicit and known, or they may be implicit and subconscious. But they are in operation regardless of his awareness of them.

The small percentage of contractors who succeed are guided by common principles. The large percentage of contractors who fail are also guided by common principles. At some point in his career, each contractor is faced with the choice of which set of principles to accept. (He may actually face this choice many times, but his first choice will set him down a path that becomes more difficult to change.)

The choice a contractor makes is determined by a deeper premise—one that he likely accepted early in life and has never explicitly identified or questioned. That premise reflects his fundamental view of the world, and other people.

Because the details vary so widely between individuals, I can only indicate the general pattern by which this premise is formed. Each of us, at many points in our life (and usually very early) are confronted with a situation in which someone makes an assertion that does not make sense to us. It may be as simple as a parent telling us to do something “because I say so”. The assertion is often made by an authority figure—a parent, older sibling, teacher, etc. Because of our age, and the authority of the person making the remark, we are often reluctant to dispute the claim. Yet this choice—and the countless others like it—ultimately shapes our most basic views of the world.

Some passively accept the assertion, concluding that since Mom said it, it must be true. Some will aggressively reject the assertion, concluding that since Mom said it, it can’t be true. Both conclusions are wrong, and both stem from the same error. To accept or reject a claim only on the basis of who utters it is to ignore the actual facts. It is to place the judgment of others before the facts.

If this continues, the child begins to conclude that the world is unknowable to him, but somehow knowable to others. He never reaches this conclusion explicitly, but it is the “logical” conclusion if he repeatedly places the judgment of others above the facts. He does not look at the world and judge it independently, but rather, he looks to others to determine what he should believe. If, later in life, he goes into business, he will embrace the conventional thinking because others “somehow” know the path to success.

Another child, when confronted with a claim that makes no sense to him, will question it. He will refuse to accept it if he does not understand it. He neither accepts it passively nor rejects it out of hand merely because of the person making the claim. He looks at the facts to determine what he will accept or reject. He judges independently what anyone else claims. If, later in life, he goes into business, he will embrace ideas that he judges to be true regardless of their source.

At root, the “price is king” contractor is looking to others to determine the truth. He may be looking at customers who say his price is too high. He takes their claim at face value and investigates no further. He may be looking at contractors who charge much higher prices. He concludes that they are slick talking salesman, and as a craftsman he wants no part of that. He may look at the majority of other contractors and conclude that he must charge the “going rate” if he is to be successful.

Conversely, the successful contractor does not look to others to determine his business practices. He looks at the facts and judges them without regard for what others believe or don’t believe. If he must charge $50 an hour to meet his financial goals, then he must charge $50 an hour, no matter what his customers might claim or what his competitors do. Whether he can sell enough work at this price is a different issue, and one that he must also judge independently.

Therein lies the fundamental cause for contractors insisting that the path to success lies in imitating the vast majority who fail. They refuse to judge for themselves. They believe—and usually subconsciously—that “others” somehow know. And when confronted with the overwhelming evidence that these “others” do not know, they refuse to question their basic premise, because they have refused to judge for themselves.

You may think that all of this is just some fancy, ivory tower rhetoric. I assert with no hesitation that it is not, that this is the fundamental explanation for the far too common attitude among contractors. But whether you accept this explanation or not is a judgment that only you can make.

Playing Santa Claus isn’t good for your painting business

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.

What should I charge?

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%.

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