Profitable Painter Podcast
Profitable Painter Podcast is a rich resource for anyone interested in starting, running, and scaling a professional painting business, offering valuable insights, strategies, and interviews with industry leaders. Through case studies and in-depth discussions, we deliver a vivid picture of the painting industry, with a disclaimer that any financial or tax information is general and not a substitute for professional advice.
Profitable Painter Podcast
3 Common Bottlenecks & How To Unlock Explosive Business Growth and Profitability
Unlock the secrets to scaling your business by mastering the art of constraint management. Join us as Bookkeeping for Painters' founder, Daniel, and advising director, Richard, reveal how pinpointing bottlenecks and prioritizing resources can propel your business to new heights. Drawing inspiration from the likes of Elon Musk and Jeff Bezos, we uncover how focusing on high-ROI tasks can transform your growth trajectory. Through an enlightening case study of a painting business owner, discover how addressing a single bottleneck—like a low appointment set rate—can slash marketing costs and significantly boost profitability.
In the second half of our conversation, we tackle the twin dragons of cash flow mismanagement and customer acquisition challenges. Daniel and Richard share actionable strategies for securing deposits and managing payments to sustain a healthy cash flow without resorting to debt. Learn the critical importance of lead generation and conversion, and gain insights into refining your marketing and sales processes to outshine less professional competitors. With a focus on showcasing your unique value, our discussion equips you with the tools to systematically identify and resolve the constraints that impede your business growth. Tune in for practical advice that takes your business beyond competing on price, towards a future of sustainable success.
This is Daniel, the founder of Bookkeeping for Painters, and this is Richard, advising director. All right, I'm excited to jump into today's topic. We're going to be talking about the theory of constraints, otherwise known as identifying bottlenecks in your business so you can get to the next level. So this is a really cool topic that I'm interested in and, as a business owner, I would definitely recommend to spend some time to really understand this concept of identifying those constraints or those bottlenecks in your business and prioritizing your resources to solve those things so you can get your business to the next level. And so today we're going to talk about this theory and then go through some typical constraints that I've seen other painting businesses struggle with, and hopefully this will help you identify what is the main thing that's holding you back to get to that next level. So it reminds me of this.
Speaker 1:Earlier this week I met with a painting business owner, a new client that we're working with. He signed up a few months ago and when he first signed up, we took a look at his financials and I was looking on his profit and loss and his gross profit was actually really good. His gross profit is around 48% gross profit. The average is like 40, 45%. So he was above average for gross profit, which was pretty awesome to see, because a lot of times when folks come to us their gross profit's not that great. But he was actually doing really well on gross profit. But then we looked at his gross profit to customer acquisition cost ratio, which is basically comparing gross profit compared to your marketing and sales costs, and that ratio was pretty bad. He was spending a lot of money on marketing compared to what his gross profit was and so, digging into the details with him, it turns out he was spending a lot of money on leads. He was getting leads, but those leads he wasn't efficiently converting into booked estimates because he didn't have control over the setters the people that were, when the leads came in, the people setting the appointments on his estimate calendar and so he had a really low set rate. So out of 10 leads that came in, his setters were only setting like one or two on the estimate calendar, and it should have been more like five or six. So he had a really low set rate and he was closing pretty well 30%, 35%, so decent close rate.
Speaker 1:But it was that set rate and because he had such a low set rate, his marketing costs were super high and so this was a limiting factor for his business because he was not profitable because of that issue of having to spend so much money on marketing to bring new customers in, and the ratio of gross profit to customer acquisition costs was really low.
Speaker 1:So it was like a two to one ratio. It should be three to one or better. So that was a bottleneck and I just talked to him this week and he's made significant progress on getting his centers better at setting appointments and so he's already starting to see the results of making that one change, that one bottleneck in his business, fixing that little piece in his sales process to lower the marketing costs as a percentage of revenue and get a healthier ratio of gross profit and customer acquisition costs, and his profits are going up. So that's an example of identifying the thing that's broken in your business so you can get past that bottleneck and get to the next level. So we're going to dive into three of these bottlenecks.
Speaker 2:Awesome. I love it. So by looking at his sales process he found the constraint or the bottleneck, and then he was able to take steps towards relieving that bottleneck and increasing the efficiency of his business. And I think it's fair to say that even the best run businesses have at least some kind of a constraint, some kind of a bottleneck. We probably just don't know what it is yet because we haven't really looked at the numbers and studied the process to see where we're not being as efficient as we could be.
Speaker 2:So I think it's well worth taking that time to look for those constraints and you'll find more than one, more than likely. But look for the one that is impacting your business the most. Focus on that one, try to identify it, see what we can do to, you know, fix that constraint without investing a lot into it. If we're still being bottlenecked, you know, we can then kind of elevate that to the point where we need to make some investments, make some changes, and once that bottleneck is opened up, we can move on to the next one. And it's going to be a continuous process where we're always looking for the constraints, fixing it and then moving on to the next one so that we have like the most well-oiled machine we can possibly build. Yeah.
Speaker 1:And if you think about the most successful entrepreneurs like Elon Musk, jeff Bezos, steve Jobs, all these folks that created these huge value producing machines and they have as much time in a day as we do right, they don't get extra hours in the day, and so the things that they're good at is exactly this. They're really insightful on understanding what is the thing that's preventing them from getting to the next level. So they are working on the right things, and I know I have definitely struggled with this. This is working on the wrong things or the things aren't going to give you a return on investment.
Speaker 1:Like spending my time doing things that I should maybe delegate or not do, uh, and instead of do, focusing on the bottleneck or the constraint in in in my business. So this is like a really important topic to understand, because we're, as business owners, we're probably all busy. No, I doubt anyone listening to this is like, oh, I have a lot of time. I wonder what I should work on, like we're all doing things, we're all super busy, but you got to ask yourself am I working on the right things? Because that's the most important concept to really put this into practice.
Speaker 2:Yeah, Maybe that's why Elon is so focused on going to Mars, because there's more time in a day on Mars than there is on Earth. I'm sure that's it. That must be it Impact over effort, right? We want to focus our time on things that have the maximum impact and not necessarily, you know, making sure that that our you know, our blows really count, Right.
Speaker 1:Yeah, all right. So let's. I'm going to cover three constraints that I see with folks and maybe that will help you understand what your constraint in your business is. So number one is cashflow Cashflow Do you have money in the bank? Shoddy, what you drank.
Speaker 1:So one thing that could be causing the cashflow issue is you're pricing wrong. So like eight times out of 10, folks are not pricing correctly to get the right price to provide to their customers and they're not profitable, and so that's because of that it's causing profitability issues and cashflow is weak. So that's a big constraint that a lot of folks that come to us they're not pricing correctly. They're not charging their clients enough based off of how much time and effort it takes them to produce the work. A similar issue might be compensating wrong on the other side of the coin. So maybe they're pricing right, but then they're not compensating their team. Maybe they're overpaying their subcontractors because they maybe don't have a good negotiating leverage over their subcontractors, or whatever the case is, they're paying their subcontractors too much or their team too much to produce that work, and so maybe the pricing's right, but they're overcompensating their team. So this is kind of the same thing, just the flip side of the coin.
Speaker 2:They say that cash is the lifeblood of a business, and if we're constantly struggling to get our bills paid on time, we're not going to have the money to invest in growth, in the marketing that it takes, in the new hires that it's going to take, the new equipment that it's going to take, and that's definitely going to be a constraint on our business. And I know we talked about pricing. It seems so simple, right, if I need more money, we'll just raise the prices. It might be simple, but it's not easy, and I just want to acknowledge like I get it.
Speaker 2:Pricing is difficult to get right, and so it's worth reviewing where you're at now and making sure that you really are pricing yourself correctly. And there's a lot of emotion tied into pricing. You know, sometimes we want to price low because we want to be able to help others. We're afraid that our close rate will go way down and we won't be able to bring in any revenue. So it's not just a simple matter of raising prices, but really taking the time to look at it, understanding where our pricing needs to be, why it needs to be there, and then having that confidence to know that we do incredible work and that we are providing great value to our customers and that we deserve the price that we are asking for, because we are providing more value than the price of the job.
Speaker 1:Yep. So cash flow pricing wrong, compensating your team wrong. A third thing that might be related to the cashflow constraint is just mismanagement of your cash. So this could be not charging your customers a deposit and therefore you're paying your team, you're paying for materials, all that cash is going out, but you haven't received any cash from your customers. That can be hard on your cash flow. And so getting paid quickly from customers or maybe delaying outgoing cash to your vendors or your team. So, for example, a lot of folks, a lot of successful painting businesses we work with, they don't pay their subcontractors until they get paid, and so they're good with managing that cashflow, getting paid first and then paying their subcontractors.
Speaker 1:So for cashflow, that can be a huge constraint in your business, limiting your growth, because if you don't have cash, it's hard to invest for the future and growing it in itself is tough on the cash flow. So you got to have a good amount of cash flow to grow without going into debt, and you don't want to grow based off of debt. For a painting business, you do not need a significant amount of debt, or really any debt, to grow, so we don't want to rely on loans or credit cards to grow our business, we want to rely on cash that we're getting, that's being generated from our customers and serving our customers. So cashflow is the number one, the first constraint that we're covering here. Flow is the number one, the first constraint that we're covering here. The next one is not getting enough customers. So this is another big one that I see is the thing that's limiting growth.
Speaker 1:The constraint, the bottleneck is just not getting enough customers, and so this can be broken down into a few different things. First of all, not getting enough leads. So a lot of painting businesses when they start out, their revenue is coming from referrals or repeat customers, and this is great. These are the best type of customers to get. The problem is the growth rate might be slower than you desire.
Speaker 1:Right, you might want to grow fast. You might have a goal I want to hit a million dollars but if you're only relying on inbound what's inbound meaning? Like they're coming to you because they're repeat customers or they're referrals from your current customers those inbound leads you're kind of sitting back and hoping with your fingers crossed that you're going to get more work. So that might not happen. You might have to be more aggressive with your outbound sales, meaning you're going after, you're going doing door-to-door marketing or you're going and doing Facebook ads to attract more customers to attract more customers. So not getting enough leads is definitely a big part of why a lot of folks are struggling with that growth.
Speaker 2:Yeah, I think that's kind of like the situation you're talking about in the beginning there. In this case, the business owner was getting enough leads but it wasn't efficient and so it was costing him way more than it should. But he recognized that he needed to have those leads if he wanted to grow. He just needed to go about it in a little bit more of a cost-efficient way.
Speaker 2:It can be hard to upgrade your marketing because we all start off small right and doing those fundamental things like having the proper signage on your truck and door knocking and getting referrals. Those are all great foundational things. But then, when you want to move up to the next level, how do you spend your money? Is Angie's List and Thumbtack? Are those worthwhile investments? We know that Facebook and Google are happy to take your cash for ads, but how am I gonna deploy it in a way that is targeted and I'm getting my money's worth out of it? It's not a problem that we just wanna throw cash at blindly, but we wanna target and make sure that we're getting the best use out of our investment, and I think that can be a situation where hiring a situation where, you know, hiring a marketing professional, especially one who is focused on painting businesses can help you so that you are spending your money in the most cost-effective way possible.
Speaker 1:Yeah, absolutely and to your point. The next piece of not getting enough customers I'd often see is a constraint is not setting enough of those leads as appointments for estimates. So once you've sold the getting enough leads, the next constraint could be you're not setting enough of those leads as estimates. And so that gets into my first example to open up the episode is that penny business owner had folks that were not setting. They weren't very good at setting those appointments, getting those leads to actually schedule an estimate. So that's a common constraint, common bottleneck that I see as well.
Speaker 1:And then finally, as another part of not getting enough customers is not closing enough jobs. So this could be maybe you're getting leads coming in and you're getting estimates, but maybe your close rate is below 30%. If it's below 30%, take a look at your sales process. Are you presenting in-home estimates? Do you have a compelling sales process that is demonstrating the value of what you're going to provide and differentiating yourself from the fly-by-night painter who doesn't have any insurance and isn't legal, they don't have the proper insurances or works compensation and they don't have a good reputation, but they're really cheap? How are you differentiating from folks that can really lowball their prices? Is that being communicated in your sales process. So if you have a below 30% close rate, you might need to take a look at that and that might be a constraint in your business. Is getting better, getting yourself or your team better at sales?
Speaker 2:Yeah, and I would say, if your close rate is low, it might be tempting to just lower prices, but we don't want to go there because then we're going to run into running out of cash. So people don't buy based on price, they buy based on value. And so if we can improve our sales process to, like you were saying, daniel, demonstrating how we're providing more value than those who might be trying to undercut us because we have the most experienced painters, we have the insurances, we're going to give them a white glove, experience. They can trust the people who are going to be in their home Then that creates the value that makes the price justified, and folks will be willing to pay more if they think they're going to get more. So we just have to help them understand how we provide that above and beyond service.
Speaker 1:Yeah, all right. So we talked about cashflow being a limiting constraint or bottleneck, not getting enough customers being a constraint, and then the third one is not having enough labor to do the work in your business, and so the way that I like to think about this is you should have at least a couple marketing calendars. You have your marketing calendar to market to your customers, to get more customers right, getting leads and getting those leads to become customers. You have that calendar. You should also have a calendar for trying to recruit workers so you can hire and train them to produce the work that you're getting from the sales side, to produce the work that you're getting from the sales side, and so it should be a calendar, a regular thing that you're doing, so that you don't get this constraint. So I do hear sometimes complaints about oh, the labor market in my area is really bad, there's nobody. Nobody wants to work. I would definitely challenge that. There's probably nobody wants to work. I would definitely challenge that. There's probably people that want to work. You just got to go find them and take an active approach and, again, having a calendar that you're regularly reaching out and recruiting to get folks in your organization so you can produce the work that you're selling. So that's the third common constraint that I see, and this could be crews actually the folks working on the job site, crews producing the work. This could be getting a salesperson, getting a production manager.
Speaker 1:A lot of folks struggle to get past around $750 to $1 million in revenue because they're doing all the sales and all the production management themselves and so they're the constraint in the business because they can't do any more sales and production management. They need to hire a production manager or a salesperson so that that new hire can focus on that while they focus on the other thing. So that could be a constraint in your business. Or maybe you're doing $1.5 to $2 million. You have a production manager, you're still the salesperson, but you're doing all the sales. You might need to hire a salesperson so that then that will get you to the next level. So you can do 2 million, 2.5 million with a sales team and production managers and you're just running the business.
Speaker 1:So that could be a constraint is not having enough of a team to do the work in the business and just to throw some numbers behind this, understanding how much each team member should be able to produce. It's helpful to know where these constraints might be. So a two-man crew should be able to produce around $200,000 per year. So maybe you're budgeting this year and you have a certain revenue goal. Let's say you have a revenue goal of $2 million. That's nice to know, okay, great. Well, how many crews do I actually need to produce that? Well, using a rough ballpark of 200,000 per crew, you need about 10 crews, which, if it's two, a two-man crew, that's about 20 painters. So that's a rough, rough numbers. But that's just going to give you an idea. So that's helpful to know, to understand, to plan for the future on where your hiring needs to occur, so you can make sure that you have that marked on your calendar once again to recruit those team members and get them in the pipeline to come on board.
Speaker 1:Production managers should be able to produce somewhere around a million dollars in revenue, and this could fluctuate depending on their exact duties and responsibilities, but somewhere around a million dollars is what a single production manager should be able to produce. And similarly, a salesperson should be able to sell residential repaint about a million dollars per year. Painting businesses number one is cash flow as a limiting constraint. Either not pricing right, they're compensating wrong. They're mismanaging their cash.
Speaker 1:Number two is not getting enough customers to grow to the next level because either they're not getting enough leads, they're not setting enough of those leads on the estimate calendar, or they're just not closing enough of those leads to turn them into new customers. And then, number three, they're not getting enough labor to work in the business so that they can produce the work that they've received. So either not enough crews or not enough production managers, not enough salespeople. So hopefully this is helpful in thinking about your business Try to identify which constraint you have in your business and then relentlessly focus on that constraint until it is solved so you can unlock the next level for your business. And, with that said, love to hear your thoughts. If you go to Facebook, type in Grow your Painting Business, join the community. Love to hear your thoughts on future episodes or questions about this episode. With that, we'll see you next week.
