Helping a $600k Painting Business Boost Profitability

Learn how a professional painting business generating $600k in annual revenue can bridge the gap from a 6% cash flow to a target of 25% discretionary earnings. This discussion focuses on the critical need to raise gross profit from 40% to 55% by implementing a more robust sales process and a compelling "risk-reversal" offer. Discover why shifting from simple discounts to an "on-time, on-budget guarantee" can differentiate your company from competitors, allowing you to increase prices without sacrificing your close rate.

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Keywords: painting business profitability, improve gross profit painting, painting company sales process, risk-reversal guarantee, on-time on-budget guarantee, painting contractor marketing, increase painting close rate, home service business cash flow, painting business coaching.

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

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

A Real Profitability Check

SPEAKER_02 0:20

All right. Awesome. So I guess your question and basically the question is Am I running my business efficiently? Any additional context you want to add to that question before we get into it?

SPEAKER_01 0:31

So I feel like I have the pieces in place that I need as far as I have an office assistant. She works remotely. She helps book everything. I also have an estimator down in my lower territory. We were doing really well. Well, this year it's just been very slow. I don't know what's going on. It's just really slow. But um things seem to have starting to pick up. I have a few projects going on next week. But my thing is when it comes to I've I figured out my cash flow because I've started to take deposits as you spoke about last time at the conference. So that definitely has helped us out tremendously when it comes to cash flow. But I still feel like um I guess it just being slow as it is right now. I feel like uh me trying to build up my savings. I have a what's it called, a uh goodness, uh a uh a line of credit. I do have a line of credit with uh American Express, and I've used it, I've already almost I think I'm pretty much almost paid it off by at this point. But I just feel like uh there's other ways that I could be more profitable. I know that we have specials going on right now, different deals that we promotions that we have running, but I still feel like I could there's other ways that I could be a little bit more profitable, and other than obviously raising my price a little bit. I I'm trying to catch that that good median until I get to that point. That's when I want to, like you said, raise my price. So cool.

SPEAKER_02 1:50

No, great. I appreciate that context. And just to make sure I have the some additional context here, it looks like you've done about 600K last 12 months. Gross gross profits about 40%. Your your uh and then your gross profit to customer acquisition cost ratio is three to one. So that's leaving about a six percent cash flow

The Numbers Behind The Squeeze

SPEAKER_02 2:10

to owner at this at this point. Like you said, the cash flow is coming, is is a bit better now, but it's still the profitability is still has room for improvement for sure. Right. I would like to see you closer to 25% discretionary earnings, so to get you from six to twenty five percent. And so the the main way to do that, and you've already alluded to it, is to improve your gross profitslash pricing to get your GP gross profit to CAC ratio to four to one instead of three to one, because three to one is is the bare minimum for a painting business that doesn't have franchise fees, which you have. So at being a franchisee, you have those additional seven percent or so. So you really the minimum for you would be like three and a half to four percent GP to CAC ratio, and again, that's the comparison of gross profit compared to your marketing and sales together. So you're uh so the the main takeaway to what we need to do is is improve that that gross profit. Right now we're at 40%. We really need to get it closer to 55%, which is a big jump. And I'm not suggesting we should do it all at once, but that's kind of the the main thing to the biggest lever that you have to improve overall profitability is getting your gross profit from 40 to 55. So you you mentioned some things that I was gonna ask about, which is what is your offer right now? You mentioned some some deals and promotions. What's your current for for a homeowner? What do you say that you offer?

SPEAKER_01 3:40

So, right now, what we're offering is any project over three thousand dollars,

Promotions That Quietly Cut Margins

SPEAKER_01 3:46

we're offering 15% off. And if they refer someone that obviously books us, we give them a 50% or we give them a $50 gift card. And then we also have a promotion for Emerald Rain Refresh, Woodscapes Rain Refresh, and Loxon, where we can offer that pretty much at a super paint price and help the customer get a better product. And I actually closed a deal on that yesterday, so that seems to be helping out a little bit, especially on the exteriors, just because those can be get a little bit costly with the different materials. So just using the different materials and offering a better material for the lower material material price is almost a no-brainer for most homeowners.

SPEAKER_02 4:29

Right now, one other question here is your markup on labor and materials. I looked in your software, it looks like you have a hundred percent markup on labor and materials, correct? But but then you have some of these discounts which are cutting into knocking everything back down, exactly and so that's probably why we have a 40% gross profit, is because not everything goes perfect, but also we're adding in some discounts, so then we're at Lenny at 40% gross profit.

SPEAKER_01 4:53

So and that was one thing I spoke to my estimator about because a lot of that, and I had to get on him about that because I'm like, all right, if we're offering us a promotion right now, I said we can't offer a promotion and give them a discount because you're trying to get it to a percentage where you feel like you're gonna be able to close and get a get a what's it called commission. So I'm just like, hey, keep it where it's at, because he likes to offer super paint. But I told him I wanted to be the duration offer, I want that's our our product that I want to go with. But I let him continue to do that. It's a matter of, hey, we have these promotions for a reason. That way we can get into these neighborhoods, offer the the better product for a much better pricing for the time being. I said we only have this month here alone to do that, so help us get to that point to where hey, we're in these neighborhoods, we're offering the better product at a better price, and and all of the other benefits that come along with our company.

SPEAKER_02 5:42

So that makes sense. Is is the salesperson are they compensated off of just what they close? Is it based off of the dollar amount that they close, or they have a salary and commission, or how's that work?

SPEAKER_01 5:53

Correct, salary and commission.

SPEAKER_02 5:55

Is the commission tied to gross profit at all, or is it just tied to how much they dollars amount that top line they close?

SPEAKER_01 6:01

Gross profit.

SPEAKER_02 6:01

Oh, it is tied to it's tied to gross profit, so they get a certain percent commission if they hit a certain gross profit.

SPEAKER_01 6:08

Correct.

SPEAKER_02 6:09

Cool. So what I would say to to improve the biggest thing that we'll probably need to do is to raise prices. You you could get some some efficiencies with making the cruise more efficient or changing that compensation, but usually in this case, with your gross profit at 40%, we will have to raise the prices. Now, the way to do this without just plummeting

In-Home Presenting And Strong Follow-Up

SPEAKER_02 6:31

the close rate is that you have two things you can look at changing is one is the sales motion, what you're what your salesperson is doing and saying during the sales process to get the person to sign the dotted line. That's the sales motion. And then the second thing is the offer. So, what are you offering that differentiates yourself, your company from other painting businesses? Yeah, no, for sure.

SPEAKER_01 6:57

And I know one thing with my my estimator, we've been talking about what was it? Uh sure. We were talking about, so just like you said, when it came to promotions and stuff like that, he was trying to figure out because he he's not understanding what I was trying to get him to understand when it came to hey, because we already have the template set up for those the for the promotion. So literally you have to just go in there and plug and play like we do with anything else, but he can't get over in his mind that hey, we're already offering the the product at a lower price price. I said, We're and we're doubling the price when we sell to the customer. I said, So if you think about when they call that line and hey, hey, we said we're gonna sell them rain refresh at at a super pay price, they ask, hey, well, how much is super pain? How much is uh rain refresh? They're like, Well, hey, I'm getting it at this price. If they do ask the price, it's still gonna be lower than what they would typically get it at. So, and that's what I explained to him this morning. I feel like I don't know if I didn't do a good job at explaining it or what the case is, but I feel like that's that's where I'm at right now this today.

SPEAKER_02 7:57

So, what I would say, a couple quick questions, and you're probably doing this, but I just want to check the boxes for the sales process. He's presenting in home and he's he's trying to close on the spot, right?

SPEAKER_01 8:06

So that's the that's exactly what I knew would come back to me as soon as you said that. So that's one thing that we just started that because one he I trained that's how I trained him in the first place, but he didn't have once I finally got him a computer. I said within the last so I trained for about two months just for chat on me, and then I got him his own computer. And I was like, I didn't mind him starting at home just for the simple fact that I didn't have a hot spot for him, and he didn't have a phone to be able to have a hot spot. He doesn't feel comfortable asking for a Wi-Fi or anything like that. But uh, and I told him, I said, Hey, I got him a hot spot this month because he this he's coming up on his year, his year will be on the 16th. So I told him, I said, You're at your year mark. I said, There's no reason for you to not be able to do at least the small ones. I said, pre-position yourself before you go in there, already have your template and everything set up. So all you have to do is if anything, step outside, connect to your hotspot, change your numbers, add some notes, take away some notes or whatever the case is, and then go back inside and present. I said, That's the easiest way. I said, one, you don't have to worry about taking it back home. Two, you can sit there at any kind of rebuttal that they may have. You make you could have something back for them. Let them know if they and don't out. I said, Don't ask anything about price. I said, if anything, ask them what they were looking for, because some people don't know what they're looking for. And that's why I tell them in the process of him selling super paint, hey, make sure that you're covering the upgrades duration in Emerald. If that's especially if they have dogs or have younger kids or anything like that. So that's always a good selling point when it comes to those different products. I said, Not everybody it not everybody just wants the cheapest product or the cheapest price. People want quality and they want, and a lot of people don't know about paint, they just know that it's color that they're putting on the wall. So I said the education that you actually provide to them, that's gonna help them feel more comfortable as well. So just different things. I told him, I said, I'm gonna give him a little bit of time, but I I'm also growing my Charleston territory, so that's one thing for me, too. So, what the time that I have, what I have been doing in my time, I just finally got my uh door hangers, I got 500 of those here, and I gave he's got 500 coming down there to the Buford area, and I told him, I said, Hey, get out of here. I said, because it's been slow. I said, We have the ads and everything running, but I said we still have to do grassroots type deals too. I said, I'm not too keen on mailers just for the simple fact that I don't look at them. I look at door hangers for further than I do mail because I when I see a junk mail, I literally toss it in the trash.

SPEAKER_02 10:26

So it's it sounds like you're you've addressed the sales process, you're presenting in home, you're trying to close on the spot. So that's great. I'm gonna circle back to that. The next because that's the that's a big lever there to be able to charge more is having a solid sales process. The second thing is offer. So with with a good offer, you can charge more money. Now, from what I've heard so far, a lot of the things that you're offering is referral, 15% off if they close on the spot, and also the better.

SPEAKER_01 10:57

15% referral if they do refer somebody and they go with us, they'll get a $50 gift card.

SPEAKER_02 11:02

And I know freshcoat painters like you guys are fully insured,

The On-Time On-Budget Guarantee

SPEAKER_02 11:05

and you you also have a warranty, too, right?

SPEAKER_01 11:08

It's like a two-year warranty, license and bonded.

SPEAKER_02 11:11

There are any other aspects to the offer that you have outside of what we talked about? No. So the offer is is a very standard offer for a professional painting company. Now, so you're gonna be differentiated from Chuck on the Truck, who's just doesn't have insurance, they they don't use Sharon Williams or a good quality product, and they also they're not masking things off properly, that sort of thing. So you're differentiating yourself from Chuck on the Truck, however, and they also don't don't have a warranty, but but you're not really differentiating yourself from other professional painting businesses in your area. So, because most painting businesses they'll have a two, three, four, five-year warranty. They'll also be using something like Sharon Williams good quality products, they'll be fully licensed and insured, etc. So your your current offer is very similar to other painting businesses. So unfortunately, and when that's the case, then you're down to having to compete on this your sales process to build trust. And obviously, if you're not presenting in the home, that's an issue, which you're already correcting. So, one way you can, in addition to getting the salesperson on track with presenting in the home and actually doing the sales process you taught him, the other thing you can do is making your offer better. And so, what I would recommend doing is something called a on-time, on budget guarantee. So, this is a risk reversal guarantee. So it's different than a warranty, it's a guarantee. You're basically saying, hey, the the proposal that we're providing to you, this is an accurate proposal. It's not an estimate. The price that you see here is the price that you're gonna pay for the scope of this project. So we guarantee it's gonna be on budget. In addition to that, we also guarantee it's gonna be on time. We slated this project to be two weeks, it's not gonna take longer than two weeks. If we take longer than two weeks, or if we ask for more money and it's but it's the same scope of the project, you're gonna get a 10% refund because we have a an on-time, on budget guarantee. If we can't meet the on-time but on budget guarantee, you get a 10% refund of the job price. And so you can have conditions in this. It's a conditional guarantee. You can put this in the uh proposal. You can say it's if you have bad weather, obviously you can't paint outside in the rain. If you don't have access to the property, obviously you can't paint. They need to provide access to the property. Also, if there's other contractors working that are impacting your ability to finish the project, that's that's not on you. So you can put some conditions in there, but having that on-time, on budget guarantee can be very compelling for a homeowner who's had bad experiences in the past where they've hired somebody and they ended up saying one price but then asking for money later on, or they took a lot longer with the project than what was anticipated because they started the project, then they left, then they came back, then they left. And so that might be a more compelling offer. And it's a lower risk to you too, because you can control, I guess you put those conditions in there. Also, you can say, hey, that the project should only take a week, but you can add another week for buffer and say it's not going to take longer than two weeks. So you can add that buffer in there. So just in case something does go wrong, you you have some time to fix it. So it's relatively low risk to you, but it can be perceived as a very high value to your customer because they might have had bad experiences in the past and they they value getting in and out of their home in a timely manner, and they're they might be willing to pay more money for that. So trying out an on-time, on budget guarantee could improve your offer and also distinguish yourself, differentiate yourself from other painting businesses in your area because they're probably not offering something like this, and then that would allow you to start testing increasing prices do a five percent increase and see does that does that substantially decrease your close rate with that new offer? What's your close rate right now?

SPEAKER_00 15:02

Mine's is uh 47%. His my estimate

Use Close Rate To Raise Prices

SPEAKER_00 15:05

is around 23%.

SPEAKER_02 15:07

And that's probably because he's not presenting in the home, he's just sending emails afterwards, right?

SPEAKER_01 15:12

So if we can get hands, and his follow-up is weak as well. I told him, I said I was I was like that as well. But I told him I said that's one of my weaknesses also. But I told him, I said that's one thing we have to do, follow up. I said, especially with him not presenting in home, I said as soon as you send that proposal, you need to go ahead and give them a call. I said, if they don't answer, leave them a voicemail. If their voicemail box is full, send them a text message. I said, but get in contact with them somehow, letting them know that you've sent the proposal, ask them if they have any questions, if they answer the phone, anything else like that. And I said, and then the next day, follow up again. Because if they didn't get any of maybe they didn't have servers or something like that, call them again the next day. Then after that, by that time, generally they've either reached back out or we've seen that they've opened the proposal. But I tell them two, three days later, give them a call, shoot them a text or something, shoot them an email. I said, but we got to do the follow-up. I said, that's where a lot of our capture dollars are going down the drain. I said, Well, there's we have millions of dollars bid out here. We're riding around in the heat doing different things for measurement and stuff. Hey, we all want to get paid, so yes.

SPEAKER_02 16:16

So I I would uh definitely stay on him with the sales process. Uh, do you have any kind of recording advice advice that he wears to to see what he's saying during those estimates? They have some AI voice tracker of stuff that will transcribe the his calls.

SPEAKER_01 16:32

Oh, you know, through PMP, I do.

SPEAKER_02 16:34

I listen to those. Yeah. Okay, cool. So that's great. You I would do daily reviews with him to get him back on track. Do you have a video sales letter?

SPEAKER_01 16:44

No.

SPEAKER_02 16:45

This might be good if you change your offer to something like the on-time on budget guarantee, but also all the other things that you're offering. Having like a video sales letter can take some of the burden off of him to say all the things. If you just record it one time, have it professionally recorded where you're explaining the on-time on budget guarantee, the warranty, everything else that you offer working with fresh coat painters, then you can have that sent out before the estimate, and then also have him say, Hey, while I do the calculations, please watch this video. It goes through our our full process and what you get when you work with us. So to ensure that they watch it so that they get the full spill. And so that's a good way, an easy way to make it easier on your salesperson to follow the script because all they got to do is provide the video in their in this, and the video does a lot of the heavy lifting in terms of saying the offer and all that good stuff. So it can do a lot of the selling for you. But that might be a good addition as well to help improve that that sales process. So those would be the two things I would look at. One, adding differentiating your offer by adding that on-time on budget guarantee. And then number two, making sure your salesperson is presenting in home and trying to close on the spot and maybe add a VSL in to uh help do some of the sales for them with the the new offer. And then from there, I would start. Hopefully the close rate, the close rate goes above. Hopefully, we can get him to your level where he's closing 45% or so. Right. And then once he's over 40%, I would start increasing the prices. So whenever the price goes over 40%, I'm sorry, whenever the close rate goes over 40%, increase the prices, you know, two, three, four, five percent, and then evaluate and monitor that sales or that close rate. And whenever the close rate goes above 40, 40 percent, increase the prices again and try to keep your close rate around 35%. And that way you're basically using your close rate as a signal for when to raise prices.

SPEAKER_00 18:47

Sounds good. Sounds good.

SPEAKER_01 18:50

All right, awesome. Was this helpful? Yeah, no, definitely helpful. I think I should monitor it for for maybe what a month or two or a month would be good.

SPEAKER_02 18:59

Give it give it some time to once it once it goes above. Some people use 35%, some people use 40%,

Final Targets And Next Steps

SPEAKER_02 19:06

but once it goes above that threshold of whatever you're comfortable with, and it stays above that amount, that that percentage, then I would go to to increase prices. With the offer change and this improving the sales process, we he should be able to get up to your level and then and then from there start inching up those prices and let that and those those price increases are great because they go right to the bottom line because you keep everything else the same, how much you're paying the subs, how much paying everybody else, but that just goes directly to the bottom line. So if you raise the the prices by five percent, that'll bring your gross profit from forty percent to forty five percent, which is huge.

unknown 19:48

All right.

SPEAKER_00 19:48

Sounds good to me. Yes, sir. I appreciate it.