Stop Pricing Like Everyone Else

We challenge the “industry standard” pricing rules that keep residential repaint contractors busy but broke. We explain why 40% gross profit is often too low, why 50% is a floor, and how close rate can tell you when it is time to raise prices. 

• common pricing advice that leads to mediocre margins and stress 
• the three questions to ask about markups, gross profit targets, and price increases 
• why 40% gross profit can work for GC work but fails for most residential repaint companies 
• how customer acquisition costs rise as you scale and why gross profit must rise too 
• a real-world example of 65% gross profit and what makes it possible 
• using close rate over 35% as a signal your pricing may be too low 
• why targeting 50% gross profit can still land at 45% to 47% after mistakes 
• the path from 10% to 15% net profit toward 15% to 25% plus through better sales and ops 

Click the link in the description to grab a free copy, just cover the shipping.

This episode was originally recorded as a video for YouTube.

If you hear me say things like “in this video” or reference visuals, don’t worry —
the content still works perfectly in audio form.

And if you ever want to watch the video version, you can find it on the
 Profitable Painter YouTube channel.

https://www.youtube.com/@BookkeepingForPainters

Transcript

Why Painters Stay Underpaid

SPEAKER_00 0:20

In this video, I'm going to tell you why some of the most common pricing advice in the painting industry might be keeping painters underpaid, overworked, and stuff with way less profit than they should have. If you click this video, you're probably wondering these three questions. Number one, are industry standard markups actually too low? Number two, what gross profit should a residential repaint company really be targeting? And number three, how do you know when it's time to raise your prices? If we haven't met, my name is Daniel Honan. I'm a CPA and former painting business owner. I've helped over 500 painting businesses from startup to 20 million over the last 10 years know their numbers and save big in tax. And one thing I've seen over and over again is this a lot of painters are following advice that sounds safe, sounds normal, sounds industry standard, but it leads to mediocre margins, mediocre profit, and a whole lot of stress. One of the most common pieces of advice I hear for painters is that you should shoot for a 40 to 50% gross profit. In fact, this past year, I was at a large painting franchise conference and people were talking like 40% gross profit was a good target. I'm just gonna say it plainly. Now, there is an exception. If you're doing GC work and you have little to no advertising costs, then 40% can work. But for a typical residential repaint business that has to market, sell, manage crews, deal with callbacks, and absorb mistakes, 40% usually leaves way too little on the bottom line. And it doesn't stop at 50% gross profit. As your company matures, as you get more social proof, as you improve your operations and you improve your sales process, your gross profit should keep going up. Why? Because as you grow, your customer acquisition costs usually grow too. At first, you may grow from referrals, warm leads, or low-hanging fruit, but eventually you have to reach colder and colder audiences. And the colder the audience, the more expensive it usually is to acquire that customer. So if customer acquisition costs go up, gross profit needs to improve too. Otherwise, you grow revenue, but don't actually improve your profit. If information like this is helpful, check out my book, Profitable Painter. I break down the numbers painting business owners actually need to understand if they want to grow without killing their cash flow or working for free. Click the link in the description to grab a free copy, just cover the shipping. I know a painting business owner, Jason Phillips out of Dallas, Texas, who runs a$15 million painting company. He's publicly shared that his organization consistently hits 65% gross profit. Think about that. 65%. How does he do it? One of the smartest things he does is use close rate as a signal for when to raise prices. When his sales team's close rate goes over 35% and stays there for a period of time, he raises prices. That is such a simple but powerful way to think about pricing. Because if your close rate is too high, that can actually be a warning sign that your pricing is too low. You may be winning too many jobs because you're leaving money on the table. From what I've seen working with hundreds of painters, if you target a 50% gross profit, you'll actually land around 45 to 47% gross profit because things go wrong. Estimates miss, labor runs over, material costs shift, there are callbacks, production isn't perfect. Then after overhead and customer acquisition cost, that usually leaves you with maybe 10 to 15% net profit in the best case. Now that's a decent starting point, but it's not great. If that's where you are right now, don't settle there. Keep improving your sales process, keep improving operations, keep building social proof and keep getting more efficient. And use that progress to push gross profit even higher over time so you can get net profit into 15 to 20 to 25 plus range. That's where the business starts to really reward you as the owner. So here's the bottom line: if you're a residential repaint company, 40% gross profit is usually too low. 50% gross profit is the floor, not the ceiling. As your company gets better, your margin should improve, not stay flat. If your close rates are very strong, that may not mean your sales team is amazing. It may mean your prices are too low. Do not hide behind industry standards if those standards are keeping you broke. In the next video, I go through how you can identify what's really holding back your painting business in five minutes or less.