Why are You Losing Money?

If your business was losing money, would you simply conclude that you need to raise prices and do so by some arbitrary amount? Or, would you sit down, analyze your finances, and determine a specific cause for the loss? In other words, would you just take a wild guess or would you approach the problem scientifically? Unfortunately, many contractors take the guessing route.

Certainly, not charging enough is a primary cause for contractors to lose money. But that fact alone does not tell us why a contractor isn’t charging enough. Perhaps he doesn’t know his true costs and isn’t recovering his overhead and labor burden. Perhaps jobs take longer than he expects. Perhaps it’s a combination. But he won’t know if he simply guesses.

While guessing may be fun at a carnival, it seldom is an effective business strategy. This is true whether you are trying to determine what you should charge for labor or whether you are trying to determine how long a job will take. To make accurate decisions, you must approach each aspect of your business scientifically, and this is particularly true of estimating.

Fundamentally, estimating comes down to identifying the time and materials required to complete a particular job. But we must do this before we ever open a can of paint. We have a choice when we are estimating a job: either we can guess, or we can approach it scientifically.

If you are estimating a simple job, such as a single bedroom, you might be able to accurately guess how long it will take. There are few substrates and other issues to consider. A small error won’t be financially catastrophic. But what happens when you are estimating a complete repaint of a 3,000 square foot house? The number of substrates, preparation and access issues, and other considerations rises significantly. A few errors could have a significant financial impact.

You wouldn’t paint this house in one fell swoop. You would approach it in a systematic manner—remove or cover furniture, prep the surfaces, paint, and then put things back. You would follow a series of steps to complete the job. The same approach should be used for estimating.

All things being equal, a painter should complete a specific task in the same amount of time, whether he is working at Mr. Brown’s or working at Mrs. Green’s house. If you know that time, then estimating becomes nothing more than a process of identifying which tasks must be completed and how much of that task is involved.

Of course, all things are seldom equal. Preparation will vary and access will be different. Surface textures will vary and other variables will come into consideration. But we can attach numbers to these variables, just as we can count the number of doors or windows.

Just as we attach a number of our financial activities—we identify how much of each expense occurs—we can attach a number to our production activities. By doing so, our estimating can become as scientific and objective as our finances.

In this regard, I am proud to announce Estimating Paint Jobs.com, a new project dedicated to helping contractors develop an estimating system.

The why determines the what

Sometimes I see contractors get so obsessed with a number that they lose sight of what the number represents. I’ve seen this happen in regard to a variety of numbers, such as labor rate and what percentage of revenues to spend on advertising.

While it is important to know the numbers, it is even more important to understand what the number means. The number tells you what happened, but it doesn’t tell you why it happened. And the “why” determines “what” that number really means.

A multitude of variables can impact any particular number. If you don’t understand the impact of those variables, then the number isn’t going to do you much good.

For example, a recent thread on PaintTalk.com addressed the percentage of the job spent on materials. The numbers offered varied considerably, depending on the materials used, the efficiency of the painter, the application methods, the labor rate charged, etc. Each of these are unique to a company and thus will impact the percentage spent on materials.

If a contractor arbitrarily seizes some number and sets it as his goal, he will likely ignore the impact of these variables. The result could easily be decisions that are very harmful to the business.

My numbers have nothing to do with your numbers. Certainly you can learn from my numbers, but only if you understand the reasons that give rise to them. Only then can you make decisions about your business.

For example, I spend less than 3% of my revenues on marketing. If you tried to duplicate this, you would likely fall way short of the leads you need. But if you understand why I spend so little, then you might be able to reach that number.

Your business is unique. So are your numbers.

We have the best prices

Some time ago I was driving to an appointment and spotted a pick up with lettering on the back window. Being an avid reader, I quickly perused the content and discovered that I was traveling by a fellow painting contractor.

My sense of camaraderie quickly vanished. In addition to the normal items, his lettering included the bold announcement of “Better Prices than Our Competition”. I was tempted to wave the fellow to the side of the road and slap him silly, but I feared that I’d break my hand before my point sunk in.

I see similar lines in countless ads and I always shake my head in dismay. Of all the ways of advertising a paint contracting company, this is about as bad as it gets.

Such claims position the contractor as cheap. He is making an issue of price and implies that his prices are low. Sadly, there will always be some schmuck willing to beat his price. Sadder still, while he may get a lot of work, he won’t make any money.

Such contractors obviously believe that price wins jobs. Their only competitive “advantage” is their willingness to work for peanuts. And so they slave away and wonder why they never have any money. His frustration grows as his bank account shrinks, and in the end he winds up disillusioned and broke. That’s the price he will pay for having “better prices”. Sadly, he never asks who those prices are better for.

Use the right tools for your painting business

I seriously doubt that any painting contractor would use a 1” sash brush to paint walls. It would be inefficient and the results would likely be less than desirable. It simply isn’t the right tool for the job.

Yet, when it comes to other aspects of their business, these same contractors often fail to use the proper tools. The result is the same as painting a room with a 1” sash brush—inefficiency and less than desirable results.

One example is accounting software, such as Quick Books. Such software, when properly used, provides a wealth of information about the finances of the business. That information does more than simply tell you your profit, it helps you make wise decisions regarding planning. And the best part is, you can accumulate years of data that is easily accessed.

Another example is web sites. I continue to be amazed at the number of contractors who do not have a web site. A web site provides 24/7 access to information about your company and is an invaluable tool in reaching potential customers. Hosting can cost less than $10 a month.

A third example is estimating software. There are an abundance of programs on the market, and while none is perfect, each provides an efficient and accurate method for pricing jobs. The savings in time is usually well worth the investment.

Using the proper tools helps you get the job done faster and with better results. Doing things the “old fashioned way” may be quaint and nostalgic, but it isn’t good business.

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