Are you looking toward the new year, wanting to have the biggest and best year ever in painting, but your hopes are based on 100% emotional enthusiasm …without a solid action plan? Are you hoping – and hoping alone – that next year will be buttercups and rainbows?
Maybe, just maybe, this year will be a good year. It’s all just hope, but no direction, no tools, no pathway, no clear notion of where you are going. If that’s where you are in planning for the new year, you’re not alone. I’m going to demystify what you need to do to grow your painting business in the new year and I’m going to strip out all of the nonsense, all of the clutter, all of the BS so we can focus on the metrics and the methods that matter.
We’re going to do this quickly. We’re going to do it simply and by the time we’re done, you’re going to understand what you need to do in the new year to get to where you want to get in your painting business, okay? I’m going to do this quickly.
I’m going to get into details and so I need you to grab a pen and a piece of paper, take notes, hang on, here we go.
There are really seven key factors that’s why I call them the big seven, seven big metrics that drive a painting business. Now you may start going, “Brandon, I’m not a numbers guy. I don’t want numbers.” In which case I would say, “Maybe you got into the wrong business.” If you don’t like numbers, if you don’t like math, simple math, simple ratios, simple indicators of success, then you don’t need to be an entrepreneur. You need to be an employee.
If you’re going to be in an entrepreneur situation, you’re going to have to look at numbers, make sense of them and then find the ways most importantly to drive the ones that matter so we’re going to look at the seven, big seven here.
Number one is your net income goal, okay. You may have other goals, right, for the new year. I imagine you probably do. You have to deal with time, spiritual, health et cetera relational. Now we’re not going to cover that today, okay. We’re going to talk about the metrics primarily of business, maybe in a later edition of this, we’ll get into that too because that’s key for making certain especially time that you can get to this stuff, but we’re going to walk through really business metrics for right now so number one is net income.
Number two is net profit margin.
Number three is gross sales goal.
Number four is average transaction size.
Number five is completed project goals.
Number six is estimate closing rate and then number seven is written estimate goal, okay.
The first thing you have to ask yourself is how much money would you like to make, right? How much money would you like to make in the new year? We have to come down here and pick a number, right. We got to pick a number and then figure out how in the world we get there. Let’s say that your number of your big seven, that your number is going to be $200,000.
The first thing we have to do to figure out how to get to $200,000, figure out what your net profit margin is. Now there are a lot of people and it just drives me nuts who will sit you in a room and talk to you for like hours about how to calculate net profit margin. It’s a waste of time. This is a simple business. There is money in and there’s money out.
It’s a cash flow business so after you pay the painters, after you pay the paint store and after you put in your marketing expenses, your administrative overhead and your taxes and your liability insurance and a handful other things, you got money leftover. Now we’re going to look at these numbers, moving from here down, they need to be your current numbers, not your proposed numbers. Current actual numbers from the last year.
Let’s look at what your net profit margin was. Let’s say it was 20%, okay. 20%. If your net profit margin was 20%, you take $200,000 and you divide it by 0.2, that means you’re going to have to do $1 million in sales this year if you want to get to $200,000. Now we’re going to get to, “Is this a good profit margin? Is that a good closing rate”, in a minute, but for now, we need to get a baseline so hang in there with me, okay, before you start getting ahead and asking a bunch of questions.
We got to get to $1 million, okay. Average transaction size, most entrepreneurs and painting contractors I work with have an average transaction size somewhere around $3,000. $3,500, $3,000. We’re just going to use $3,000 for simple math, for keeping the numbers round. We’re going to take $1 million.
We’re going to divide it by $3,000 so that means we need to do 333 point, or rather, I’m sorry. We need to do completed project goal. We need to do 333.3 projects and that is with a, I’ll go ahead and make these zeroes, that is with the $3,000 average transaction size, means when you add up all the transactions that you’ve done, all the projects through the whole year including your commercial, your residential, your exteriors or interiors, the big ones and the small ones, every time you close a job, it’s around $3,000.
Now we need to look our estimate closing rate. Let’s say that your estimate closing rate is somewhere around 20%, okay and maybe we’ll give you 25%. You take 333.3 and you divide it by 0.25, which is 25% estimate closing rate. I’ll go ahead and put some dollar marks up here.
25%, that means we’re going to have to do, we’re going to have to see our estimate goal has got to be, I’m going to move over here so I can write a little better for you, is has to be 1,333 projects. If you want to do something different in the new year, you cannot ignore these metrics. This is where all your money comes from. If you want to get to this number, you’ve got to know and hit these numbers so the big thing when you’re planning for is to simply take these numbers and to put them in a spreadsheet and then start asking some really good questions.
How am I going to get to this number, if say for example, I’ve never done $1 million in sales, but this is where my profit margin is. How am I going to get through this many projects when I’ve never seen this many projects? Now I’ve put a dollar sign where one shouldn’t be. How am I going to get there?
One of the biggest mistakes people make when they’re trying to hit this $200,000 number, is they instantly go to where, down here at the bottom. People go down here to the bottom. How many estimates can I write this year? I’m going to keep everything in my business the same, same crappy broken systems. I’m going to shove more leads through this crappy broken system and hope to God I can hang on to my hat and make it to $200,000. Working long hours, working Saturdays and Sundays, managing a crew I don’t like, painting for customers I don’t care for, from lead sources that produce low quality. That’s what most people think. That’s the only way most people can get going is to just think of this, right, generate more leads.
Well, I’ll tell you where you really need to start to make it easier, to get to this $200,000 and that is to go down here and start looking at the things you can actually control, okay, that are easy. Number one is this estimate closing rate. If you got a 25% estimate closing rate, you’ve got two ways you can fix that in the new year.
Number one, you can improve the quality of the lead that you get. The quality of the lead that you get most often has to do with going back to past customers and unconverted leads. You’ve probably got list of them you never communicate with or you only communicate with them a couple of times a year or sporadically or quarterly using one medium like an email, okay, two emails a year, one post card a year, a Christmas card. If that’s what your system looks like, that’s why you’ve got low numbers of repeat business. It’s easy to improve this metric by just changing the type of person you go after.
Go after more commercial, go after more referral sources, go after more repeat customers. You don’t even have to change your sales process. Now if you couple changing your sales process, if you make, decided that in 2018, you’re going to change your sales process, well then this number goes up and if you start going after other people, there’s no reason why you can’t change this to 35%, 40%.
Now changing your sales process also has a lot to do with this guy up here, net profit margin. If you change your sales process and if you change your customer type, you can increase your profit margin up to 30% and never see any change, and actually increase your closing rate and increase your profit margins, just by going to better people with a better sales process and increasing your prices.
You will never see in most cases, when you raise your overall prices by 10% or by 12%, meaning that you’ve got a 10% bump in your gross profit or whatever it is, above and beyond breakeven. You’re not going to see, but even a 10 over 2 is 33%. You’re never going to see, or actually 50%, you’re never going to see a 50% decrease in your close rate because of raising your prices, but people are a lot scared to death of that even though that never happens. If you want to get further and faster in 2018, go after better customers, improve your sales process, raise your prices, that’s easy.
Those are three things, they’re very cheap and quick and simple to do and that’s what we do in our core five process. It’s actually the first three steps: customer reactivation, the power paint presentation process, the at home monthly newsletter for increasing referrals. Increasing referrals is also going to raise this and you can raise this, okay.
Your average transaction size, know the big place you need to be looking, moving into the new year. When you increase your average transaction size, it makes it easier to get to this while seeing fewer of these, right or the same amount. You change any of these numbers, it throws everything else into a different category. So how do you change, increase your average transaction size?
Well one of the first things you need to do is look at, are you upselling? Everyone says “Oh, yeah, I upsell”. Most people don’t. You’re probably kidding yourself if you think you do. That’s where you go, you present your core offer and then you’ve got a secondary process for A, presenting additional offers. Two coats instead of one, the deck with the house, the ceiling with the rest of the house, alternatives.
One out of five people will pick an upsell if you just present it, but here’s the issue: 98% of painting contractors aren’t presenting an upsell, an alternative for a better product. That’s kind of, you get less bang for your buck in margin there. You’re better off pitching services, okay. A contract for deck maintenance and then incentivizing your crew leaders to go back to that pitch. If it’s not executed about three quarters of the way through project and ask Ms. Johnson, “Hey, by the way, couldn’t help but notice that Brandon put the deck on the house. While we’re here, we got our tools out. I know you don’t want us back, it’s going to need it in a few months. Really needs it now, would you like us to go ahead and do it?” Incentivizing him, training him to sell for you and then the other part’s going after commercial contracts. You get a couple of $50,000, $70,000 contracts by marketing to commercial, which is what we do in our fifth step in the core five process.
It’s easy to take this transaction size of $3,000 and bump it to $3,500 and then you put your sales process on it, it bumps to $3,700. See I’m going to highlight quickly, in a moment, the numbers over which you have control, okay. The numbers over which you have control are this and we’re going to change within a minute so you can see what it does.
You have control over this. You have control over this. You have control over to some degree this, depending if you’ve got issues with operational stuff and of course this profit margin up here can have a lot to do with, are you attracting your guys hours on a daily business? Are you incentivizing them for coming under budget? Do you know what’s going on day by day in your job? Do you have regular crew meetings that reinforce the things that need to happen? Do you have a good pack and then process of information for them to go out and do the job so they’re not going over budget?
I’m dealing with mainly sales and marketing stuff today because that’s where people drop the ball the most. Can you go after this number with operational improvements? Yeah, but they’re usually small. The sales and the marketing improvements cost less money and they take effect quicker, okay, that’s myprimary area of expertise, but I work with this a lot with our platinum guys. I just thought you should know that.
You can kind of affect this like how many jobs you do, but I’m not going to talk about that today, okay. There would be another presentation for another time. Your estimate closing rate, easy, so the big three that you can immediately swing without a whole lot of effort and you can, number of estimate, written estimate goals, how many leads you generate, those are the ones that are the easiest. These are the four of the seven that are the easiest to fix. The cheapest of all them to fix is this one, your closing rate, okay or, these are tied together because the sales process allows you to charge a higher price.
By that I mean in every town, there’s a lady, getting her hair cut for $40 and there’s a lady getting her hair cut for $400. The hairdresser spends the same amount of time, right, but the salon is typically better, the client is typically better, the area of town is typically better, the person who’s doing the haircutting is typically a better salesperson, same haircut, same paint job, more money, okay. If you overlook that, you overlook a lot so let’s get in here and kind of mess around with these numbers, shall we?
Let’s mess around with the ones that we can actually do something about and maybe we could even work our way up. How do I want to do this? We could work our way up, that might be interesting. Let’s work our way up, okay. I’m going to erase the things that we’re going to change. We’re going to work our way from the bottom. We’re going to keep the number of estimates we see the same and we’re going to work our way up changing the things that you have the most control over, okay.
You’re going to see how little bitty changes, make a big huge difference in your painting business and this is how I’m routinely able to double and triple the size of a painting business in a short amount of time because the metrics essentially tell the tale. I just help them out. Let’s reverse the metrics. Let’s say we move your closing rate. We’re just going to move things by a little bit, all right. Let’s say we move your closing rate to 32%, that’s easy. Let’s just do 30, okay. We’ll do 30. 30%, which is a 5% increase. Complete the project goal, average transaction size, let’s move to 3,500, okay. We control these, remember, the ones we control. We’re going to keep this the same. Gross sales goal, net profit, let’s move this 25%. Easy to get to 25%, nobody would miss it. These tiny little improvements, right. Tiny little improvements.
Now we take 1,333 and let’s divide it by 0.3. Sorry about that, let’s take 1,333 and multiply it by 0.3. Is that right? It’s a written estimate goal. Oh, I see, okay. It’s X divided by, so 0.3. Okay, so 0.3 times 1,333 equals 399 projects. We write this in here. let’s multiply our 399 projects by the changed amount here. 3,500 times 399, see the thing it is, just by changing really, getting the same number of leads, but changing these two things, we can now hit 1,396,500 with the same number of leads. Do you see this, how just changing one thing from the bottom and working your way up changes everything? Then we multiply that by 0.25 and our income is increased to $349,125 and this is going from the bottom up. You see, so much easier, so much easier.
To see that with the same number of leads, but by only improving your estimate closing rate and your average transaction size and your profit margin by little bitty increments that instead of reaching with the same number of leads, $200,000, now you’re making $349,000. Does that make sense? I’m going to run through these numbers one more time, okay.
One more time and then I want to show you how easy it is to get to $200,000 if these metrics are the same so remember the ones we can change easily, the easiest. We’re going to erase this. We’re going to erase this. We’re going to erase this. We’re going to keep the 25% the same. We’re going to change this back to our original income goal of $200,000 and we’re going to divide 200,000, now I want you to remember what this was. This was 1,333, right. Okay, I’m going to put that in parenthesis.
We take $200,000, divide it by 0.25. Now what do we have to hit, 1 million? Nope. We’ve only get, we got to hit 800,000. Now divide that by 3,500. We don’t have to do 333 projects now, do we? I think that’s what it was. We’ve got to do 228 projects so basically, 100 less projects.
How much better would your life be if you had 100 less projects to do in a year? That’s one less every three days, maybe two point something days. Then finally, let’s divide that by 0.3, 228 divided by 0.3, 760. You see? 760 minus 1,333, you have to write 573 less estimates. These are like the big seven metrics so when you’re planing for the new year, you need to look at all of these things, okay. Number one is you can’t affect your net income goal, that’s what you end up with at the end of the year, but you need to be asking yourself very simply, how much do I want to make and then what can I do to change? I’m going to walk over here. What can I do to change my net profit margin?
Can I make some operational improvements? Can I just increase my prices because I have changed my sales process? Average transaction size, can I upsell? Can I go after commercial? Can I go after bigger projects? Can I reach past customers? Past customers typically tend to close higher projects overall the new customers. My closing rate, can I change what my repeat and referral business looks like? I know repeat referral is the best type of business, the best two types.
What am I doing to make sure that this is a larger piece of my pie, a larger percentage of who I serve? Then that’s going to affect basically how much you earn, how many estimates you have to slog through, how many projects you have to complete so you can look at it two ways. If you want to make more money and work less, you can keep the same income goal, fix these numbers and see, remember? Man, writing almost half as many estimates, doing 100 over, let’s do the math. 100 divided by 333, which is the old number, doing 30% less projects.
Is that right? 100 divided by 333, 30% less projects so whether you want to increase your income or whether you want to decrease your work, you still gotto work these metrics and for every output here, there isn’t a systems input and if you have not ran these numbers, which I encourage you to do and if you have not reviewed the systems that cause these numbers to be what they are, I’d like to encourage you to do that. Here’s the steps, okay.
Number one, get these numbers in an Excel spreadsheet or on a piece of notebook paper, start messingaround with them, okay. Start changing them, look at last year’s numbers, set that as the baseline and then start tinkering with it, okay. Number two, identify the processes and the systems that drive these metrics. What drives these puppies? Identify the systems and the metrics that drive this, okay. What systems makes a closing rate go up or down? It’s usually your sales process andthe types of leads that you’re getting. How do you make the leads better? How do you make the sales process better, okay?
All of these things, what are the processes that drive the metrics and then you’ve got to ask yourself a very important question, what are three things that I can do that will make these metrics go up, each one of them? What are three things I can do to make my estimate closing rate go up next year? What are three things I can do to make my net profit margin go up next year? What are three things I can do to increase my average transaction size?
You might put the pending although this is the most, the toughest and the most expensive, if you’re doing it with the right people, the right prospects to increase your quality of customer, what can I do to increase my written estimate amount and that that percentage would be higher and higher quality repeat, referral customers and maybe a mix of commercial or outside new referral sources, not just people you painted for before that maybe partnering with other home service, commercial service companies, realtors, property managers et cetera.
Here’s the secret. I know it’s simple. People don’t like simple. People want things that are complicated and expensive and slow so if all of this makes perfect sense to you and probably one of the most logical things you’ve ever seen presented, but you don’t know how to move these numbers and you don’t know what systems to really use and even though you kind of know what the system is, you don’t know the best system, reach out.
Request free information from us, you can do that on this page or sign up for a phone call, sign up for a diagnostic assessment, ring me, 423-800-0520, 423-800-0520 or you can email firstname.lastname@example.org. That’s email@example.com.
I’m Brandon Lewis with the Academy for Professional Painting Contractors, wishing that you have the best new year ever by going through this exercise, breaking it down, identifying the inputs and the outputs that will lead you to the financial success you deserve.
Happy New Year.