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
Strategic Budgeting for Painting Businesses: Achieve Your Revenue Goal
Unlock the secrets of strategic budgeting for your business's growth as we sit down with Daniel, the visionary founder of Bookkeeping for Painters, and Richard, the insightful advising director. Set your sights on a prosperous 2025 with actionable strategies tailored for painting businesses, like setting and surpassing revenue goals using a $2 million target as our benchmark. Discover how to craft a robust sales budget, calculate the required number of jobs, and estimate your marketing expenses with precision, all while keeping your focus on key metrics like average job size and lead conversion rates.
In our exploration, we unravel effective production budget planning, shedding light on the crucial roles of crews and production managers in meeting your business aspirations. We delve into the importance of achieving and exceeding gross profit margins, ensuring your financial efficiency is top-notch by reviewing overhead costs. Goal-setting takes center stage as we champion the value of progress, even when goals aren't fully realized. Join our "Grow your Painting Business" community on Facebook to share your insights and prepare to set the stage for a successful year ahead!
This is Daniel, the founder of Bookkeeping for Painters.
Speaker 2:And this is Richard, the advising director for Bookkeeping for Painters.
Speaker 1:How's it going.
Speaker 2:It is very, very cold today where I'm at. We got up this morning we had like near zero temperatures all night long. I got up this morning to take my son to school and our car wouldn't start. The cold had kind of hit the battery pretty hard. So we tried the other car, and that one wouldn't start, and so grandma fortunately came to the rescue to get him to school. A little bit late, but he did make it, and now I've got the vehicles on battery chargers. So, uh, yeah, it's. It's just the privilege of living in the upper Midwest in December.
Speaker 1:Uh, yeah, same same deal with me. I mean today, when I went outside um in Orlando Florida, I almost put on something other than a t-shirt and shorts. Almost. I still went out in t-shirts and shorts, but I considered it's a little. It's about 65 to 70 degrees today. It's a little brisk, yeah, but I ended up just going out in my t-shirt and shorts. So I completely understand your situation.
Speaker 2:Yeah, you might need like fingerless gloves or something like that for for this weather. Um, the, the burden is real. Don't, uh, don't let anyone invalidate your pain, daniel, you, uh, you own that Right.
Speaker 1:Cool. Well, not sure how to segue into our topic today of budgeting, but let's go ahead and dive into our topic, excited to dive into it. We're pretty well into December at this point. This is probably release in January timeframe, so it's a perfect time to be thinking about 2025 goals and budgeting. And so just to be clear on what budgeting is budgeting is basically just planning, planning for the future, with dollars and cents, and so, going into the new year, this is a time where we set goals for ourselves and our business, and so you might have a particular goal in mind, like I want to hit $2 million in revenue, or whatever the case may be, and that's great, but it definitely helps to come up with an actionable plan on how you will actually achieve that goal, and that's where budgeting comes in, and so we'll go through sales budget, production budget and your overhead budget, and those three budgets should help give you a good plan to go into 2025 and crush it. Now, just a caveat or a caution with plans. As Mike Tyson said, everyone has a plan until they get punched in the face, or something like that, right? So these plans that you're, these, these budgets they're not going to. They're going to be immediately wrong as soon as you go into 2025, as soon as you hit it's going to be wrong. However, the thinking through the budget helps you plan ahead and have some contingency plans on making hires and things of that nature, having certain budgets set aside, certain money set aside for certain things, and you'll be more well-prepared going into the year. All right, so let's first talk about the sales budget.
Speaker 1:All right, so let's first talk about the sales budget. So the sales budget is how you're going to hit the top line revenue of whatever your goal is. So we'll just continue with our example of 2 million and your average job size is $5,000, you'll need to have 400 jobs booked approximately to hit your goal of 2 million in revenue. So, if you don't know your average job size, definitely look at your past jobs, kind of get that average. That's helpful to know, to kind of gauge. Okay, moving forward, we should have about the same average job size.
Speaker 1:Divide that into what your goal is and that should tell you the number of book jobs you'll need Now from there, since you know, okay, we got to hit 400 book jobs to hit 2 million in revenue, how many estimates do we need and you can refer to your close rate. So most close rates are somewhere between 33% and 50%, somewhere in there, and so maybe you're at a 40% close rate. So you take that 400 jobs and divide it by 0.4, and that will give you 0.4 being your close rate, and that gives you how many estimates you need to do. So if you have 400 book jobs that you need, divided by 0.4, that gives us 1,000 estimates. So now we know okay, we need 1,000 estimates, we need to do 1,000 estimates throughout the course of the year. Thousand estimates we need to do a thousand estimates throughout the course of the year. And then from there we need to understand how many leads do we need to get to have a thousand estimates completed.
Speaker 1:So this is our lead conversion rate, or our set rate, depending on who you're talking to. So, to take an example, let's say you're running Facebook ads and whenever a Facebook lead comes in, you have to set that lead and put it in, actually get them booked for an estimate, and set rates for Facebook ads typically are somewhere between 50% 75%. It could be lower Hopefully it's not lower than 50%, but typically you should be shooting for at least 50% or higher for Facebook ads, facebook leads. So let's just say your conversion rate is 50%. So 50% of the leads that come from Facebook get set as estimates on your calendar. So if you need a thousand estimates and your conversion rate set rate is 50%, we divide a thousand by 0.5 and that gives us 2000. So now we know we need 2000 leads to hit our goal of $2 million in revenue.
Speaker 1:Now, okay, that's great to know. Now we know how many leads. Now, if you do know your cost per lead which with Facebook ads you should know this pretty easily, and typically Facebook ads run the cost of lead is somewhere between $16, $80 per lead. So if we just say $70 per lead, 70 times 2,000 is 140,000. So we know that we'll need to spend somewhere around 140,000 in marketing to hit our goal of 2 million in revenue. Now I used facebook ads as the, the marketing spend here, but as the as an example. But you can still do this with cold calling or direct mail. Whatever your your main acquisition channel is All right. So now we know 140,000 is our marketing spend. And obviously that's not going to be done all at once. You're not going to pay your marketing firm $140,000 and say, hey, go get me 2,000 leads.
Speaker 1:You'll probably do ad spend throughout the year and you can break this down by week spend throughout the year. And you can break this down by week so you can look at the demand historically by looking at your profit and loss to see when is the. Typically for a painting business, demand is pretty weak in the first quarter. It starts to pick up in March and then second quarter gets really busy. Third quarter is even busier and then it trails off in November, december. So that's a typical demand cycle for a residential repaint painting business. Your business might be slightly different.
Speaker 1:Take a look at that and you can kind of, you know, have your marketing spend mirror that demand curve. So for each week you could say okay, this week I think we should get 10 leads or 14 leads, and so our marketing spend should be X amount of dollars based off of how much it costs per lead. And so you can kind of plot out okay, for each week this is what we need to spend in marketing and then with that spend you should be able to approximately hit your amount of leads that you need to get and then you should be able to hit the amount of book jobs that you need to hit. And you need to hit your amount of closed work approximately, and so you can track this by week in a spreadsheet on what your plan is versus what actually happens, just to make sure your budget is actually on track. So that's the general idea of your budget. So this budget, the sales budget, should help you understand how much should you spend on marketing.
Speaker 1:And then, do you need to hire a salesperson? Is 2 million in sales more than what your current salesperson can do? Usually for a salesperson? Is 2 million in sales more than what your current salesperson can do? Usually for a salesperson they can sell around 1.5 million 1 to 1.5 million. So maybe you need to hire a second salesperson to hit your $2 million goal. And then it really dials in how many leads you need to get, how many estimates, how many book jobs. You can break it down by week so you can see if you're on track to hit your goal by the actions you need to take throughout the year.
Speaker 2:I really like this plan, daniel, because I think it's easy to kind of fall into this rut of you know we're spending a certain amount, into this rut of you know we're spending a certain amount and it's just kind of based on how we feel or comfort level or maybe what we think our cash flow should be. And so we spend and we hope that the revenue comes. And you know what's that famous quote that a goal without a plan is just a wish, right, we're throwing money at it and we're wishing that the revenue and the profit come. And what you're describing is kind of like working backwards, where we start with our goal in mind. This is what we want to accomplish. So then, what do we have to do in order to get to where we're going? And those will be.
Speaker 2:So our decisions then are on how much we spend on marketing, how many salespeople we need to hire, you know, how many leads that we need to get. Those decisions are being driven by this goal and it's not being left to feelings or chance or you know happenstance, but we're all kind of focused on getting to the same destination. So I think that's really valuable advice and I appreciate how you were able to kind of break down each step. So accomplishing each step gets us just one step closer to our end goal.
Speaker 1:And once you have your sales budget, that kind of helps you determine your production budget, because the sales budget should tell you, like I said, your spend on marketing, if you need another salesperson, how many leads you need to get to hit your goals.
Speaker 1:The production budget is okay. We got all these leads and all these book jobs, but how are we actually going to produce it? Right, we still got to produce that work, and so if we wanna hit 2 million in sales, we gotta produce that 2 million in booked work. And some helpful things to know is what can one crew produce and work per week? So this will be helpful for planning. Typically, if it's a two-person crew, they're often able to produce somewhere between $5,000 and $7,500 per week in revenue. So if we use $5,000 times 52 weeks in a year, it's around 260,000 per year. And that's a rough number, obviously, because if you're doing all exteriors and it's raining and snowing at some points in the season, obviously they're not going to be able to produce work. So you'll have to make those considerations when doing this calculation. But roughly speaking, one two-man crew can produce about 5,000 to 7,500 per week in work. 7,500 per week in work. And so if you have 2 million to produce and you have crews that your typical crew, let's say, produces 260,000 per year, then you'll need about seven, about seven, almost eight crews to produce that that two million. So you know and and you might just look at the the production of your cruise, historically speaking, maybe you have some crews are super fast that can produce things really, really well, and maybe other crews are not so much. So you can go look at what your current crews produce and then just what the difference is between what you did last year and your new goal, and maybe it's in it. Maybe you're at 1.5 million this year. You just need to produce another 500 000 to hit 2 million and you know you could use the 260 000. So you got to get to to another two more crews to hit that additional $500,000 in revenue.
Speaker 1:And then also breaking down your production budget by week is helpful because there's going to be times where you're going to have to produce more in a lot of cases, like, for example, during the summer. That's usually when a lot of residential repaint are doing the most work. So, even though your sales might be able to, you can sell a project in the middle of the winter, like sell an exterior project in the middle of winter but you can't paint the home in the middle of the winter in a lot of cases, so you might have to wait until spring. So, breaking down your production budget by week, again, to make sure that you actually have enough crews to produce the work during the year. Because if you're a residential repaint that does mostly exteriors and you're trying to hit 2 million and you're like up north where Richard is, where he can't start his car because it's too cold outside, you're going to have to crunch in all your production between March and October or something like that. So, breaking it down by week, make sure, okay, how much do we need to produce each week? That will help. And again, knowing how much your crews can produce will help give the answer Okay, do we need to produce each week? That will help. And again, knowing how much your crews can produce will help give the answer okay, do we need to hire maybe it's more than two crews because of the crunch time that you have during certain months of the year because of the weather. So that's something to look at.
Speaker 1:The other piece is production managers. So production manager, the role of a production manager can vary from company to company, and so some folks have their production managers getting a handoff from the salesperson and then they do the scheduling of the client on the production schedule, getting the colors coordinated for and then getting the crews assigned to the project and then being responsible for the quality of the project, doing a final walk around and collecting the check. Sometimes that's what a production manager does. Other times you might have an office person that's maybe doing the initial onboarding, getting colors and scheduling, and then they hand off to a production manager a little bit later in the process. So, depending on what your roles and responsibilities of a production manager, it's going to determine how much they can actually take in revenue for a particular year. This ends up being somewhere around $.5 million for production manager. It could be less or more, depending on what the scope of their responsibilities are. So if you know a production manager can only handle 1.5 million and your goal is 2 million, you might need to look at bringing on another production manager at some point in the year to get them spun up to handle that additional work that you're planning on doing.
Speaker 1:All right, so that's taking a look at your production uh budget, the the other um things to look at for production would be your margins for producing the work. So you know we've talked about many times on the podcast ideal margins. The average gross profit margin for a painting business is 40% and so that's that's the average. You know that's and again, gross profit is your revenue minus the cost, the cost associated with the job. So this would be materials and painter labor. When you subtract that out, that arrives at your gross profit and on average this is 40% for most painting businesses. For on average is 40%. Now hopefully you're not shooting for average, hopefully you're shooting for above average. 45% is a good target or higher 45%, 50% are good targets. If you're already at those targets, maybe you could shoot a little higher and try to increase that gross profit a little bit. But taking a look at what you hit last year in gross profit and then seeing what improvements you can implement for the next year whether that's increasing your pricing or changing the compensation plan for your, your painters or whatever the case is efficiency in your process to to hit you know to hit a higher goal for your gross profit.
Speaker 1:So that's another thing, a budgeting concern there taking a look at your margins for gross profit, because gross profit is probably one of the most important, if not the most important, financial metric on your profit and loss.
Speaker 1:All right, once you've dialed that in, figured out that piece, then you can take a look at your overhead costs. So overhead, this is everything not associated with the job site. So this would be your insurance, bookkeeping and accounting legal and accounting legal, your software costs, those types of things. Those are all your overhead costs and for this, really, it's helpful just to go through what are all the things you're paying for and do you still need those things to run your business? You know, I've definitely felt victim to paying for software where I didn't need it for months on end and go back and look oh, we haven't used this in six months but we're still paying $15 a month for it or whatever it is. So around this time of the year is a great time. We're going to have a little extra time to do some planning, go through those overhead costs and get rid of those subscriptions that you don't need you're not talking about netflix, are you?
Speaker 1:I'm just kidding. Yeah, it's absolutely talking about netflix. Just talked to my wife about this. Um, she was on her youtube app. Uh, she, she was playing, like, uh, she was playing. She's like uh, she was playing a video and then, like she turned off the screen and it kept playing the music or whatever. And I was like hey, isn't that like a paid subscription? You have to have like a special YouTube app to do that? She's like I'm not paying for anything. I was like I'm pretty sure you would be if, if that's the capability you have with YouTube. And it turns out we were paying for a YouTube app for the last six months and definitely don't need that. So take a look at those costs, make sure you're not paying for anything you don't need and dial in those overhead costs and dial in those overhead costs I think they make.
Speaker 2:There's companies that will actually like scour your your bank account and look for subscriptions and help you cancel them, but that that feels like a slippery slope, like I'm buying a subscription for a product to help me get rid of subscriptions, but but yeah it is. It is pernicious, like I. I've done the same thing, daniel. In fact, I guarantee you there's things I pay for every month that I haven't looked at in in a year. But I know the minute I cancel it, my, my wife or my son will be like you can't get rid of that. I use that once in a while. I used that last year. Yeah, I use that once in a while.
Speaker 1:I used that last year, yeah, yeah, cool, well. So hopefully this podcast is helpful in helping you understand budgeting, how it can help you achieve your goals. And again, once you come up with these budgets, they're going to be wrong immediately when you set these numbers like, hey, here's what I want to hit and here's how I'm going to get there. But it gives you some planning ahead of time. So you know, okay, I might need to hire that additional crew or two around the spring to be able to keep up with production, or maybe I need another. You know, be on the lookout for an additional production manager. So halfway through the year to hit our goal and you can start getting those processes ready, like getting your hiring process or your recruiting process ready to bring on those additional team members. So it can just get your mind moving in the direction of accomplishing your goals.
Speaker 2:Yeah, and I would just kind of put out there because I have this issue as an accountant I want everything to be reconciled to the penny If you set goals and you don't hit it, don't hit it, but you come close, you are successful. Right, we don't expect perfection. If we get 80% or 90% to our goal, that is way further ahead than we would have gotten had we not set goals to begin with. So don't get discouraged if the numbers aren't quite lining up the way we had hoped them to, if we don't quite make those goals. Just by having that direction and moving towards it, you have already done better than not having a target to aim for.
Speaker 1:Yep, well said. If you have any thoughts about budgeting planning, definitely go to Facebook, type in Grow your Painting Business and join that group. Love to hear your thoughts or any ideas for future episodes and with that, we will talk to you next week.
