January 31, 2025 • 23 mins
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.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Daniel, the founder of Bookkeeping for
Painters, and this is Richard,advising director.
All right, I'm excited to jumpinto today's topic.
We're going to be talking aboutthe theory of constraints,
otherwise known as identifyingbottlenecks in your business so
you can get to the next level.
So this is a really cool topicthat I'm interested in and, as a
(00:26):
business owner, I woulddefinitely recommend to spend
some time to really understandthis concept of identifying
those constraints or thosebottlenecks in your business and
prioritizing your resources tosolve those things so you can
get your business to the nextlevel.
And so today we're going totalk about this theory and then
go through some typicalconstraints that I've seen other
(00:50):
painting businesses strugglewith, and hopefully this will
help you identify what is themain thing that's holding you
back to get to that next level.
So it reminds me of this.
Earlier this week I met with apainting business owner, a new
client that we're working with.
He signed up a few months agoand when he first signed up, we
(01:12):
took a look at his financialsand I was looking on his profit
and loss and his gross profitwas actually really good.
His gross profit is around 48%gross profit.
The average is like 40, 45%.
So he was above average forgross profit, which was pretty
awesome to see, because a lot oftimes when folks come to us
(01:35):
their gross profit's not thatgreat.
But he was actually doingreally well on gross profit.
But then we looked at his grossprofit to customer acquisition
cost ratio, which is basicallycomparing gross profit compared
to your marketing and salescosts, and that ratio was pretty
bad.
He was spending a lot of moneyon marketing compared to what
(01:58):
his gross profit was and so,digging into the details with
him, it turns out he wasspending a lot of money on leads
.
He was getting leads, but thoseleads he wasn't efficiently
converting into booked estimatesbecause he didn't have control
over the setters the people thatwere, when the leads came in,
(02:21):
the people setting theappointments on his estimate
calendar and so he had a reallylow set rate.
So out of 10 leads that came in, his setters were only setting
like one or two on the estimatecalendar, and it should have
been more like five or six.
So he had a really low set rateand he was closing pretty well
(02:46):
30%, 35%, so decent close rate.
But it was that set rate andbecause he had such a low set
rate, his marketing costs weresuper high and so this was a
limiting factor for his businessbecause he was not profitable
because of that issue of havingto spend so much money on
marketing to bring new customersin, and the ratio of gross
(03:12):
profit to customer acquisitioncosts was really low.
So it was like a two to oneratio.
It should be three to one orbetter.
So that was a bottleneck and Ijust talked to him this week and
he's made significant progresson getting his centers better at
(03:33):
setting appointments and sohe's already starting to see the
results of making that onechange, that one bottleneck in
his business, fixing that littlepiece in his sales process to
lower the marketing costs as apercentage of revenue and get a
healthier ratio of gross profitand customer acquisition costs,
and his profits are going up.
(03:53):
So that's an example ofidentifying the thing that's
broken in your business so youcan get past that bottleneck and
get to the next level.
So we're going to dive intothree of these bottlenecks.
Speaker 2 (04:15):
Awesome.
I love it.
So by looking at his salesprocess he found the constraint
or the bottleneck, and then hewas able to take steps towards
relieving that bottleneck andincreasing the efficiency of his
business.
And I think it's fair to saythat even the best run
(04:35):
businesses have at least somekind of a constraint, some kind
of a bottleneck.
We probably just don't knowwhat it is yet because we
haven't really looked at thenumbers and studied the process
to see where we're not being asefficient as we could be.
So I think it's well worthtaking that time to look for
those constraints and you'llfind more than one, more than
likely.
But look for the one that isimpacting your business the most
(04:59):
.
Focus on that one, try toidentify it, see what we can do
to, you know, fix thatconstraint without investing a
lot into it.
If we're still beingbottlenecked, you know, we can
then kind of elevate that to thepoint where we need to make
some investments, make somechanges, and once that
(05:21):
bottleneck is opened up, we canmove on to the next one.
And it's going to be acontinuous process where we're
always looking for theconstraints, fixing it and then
moving on to the next one sothat we have like the most
well-oiled machine we canpossibly build.
Yeah.
Speaker 1 (05:38):
And if you think about the most successful
entrepreneurs like Elon Musk,jeff Bezos, steve Jobs, all
these folks that created thesehuge value producing machines
and they have as much time in aday as we do right, they don't
(06:03):
get extra hours in the day, andso the things that they're good
at is exactly this.
They're really insightful onunderstanding what is the thing
that's preventing them fromgetting to the next level.
So they are working on theright things, and I know I have
(06:23):
definitely struggled with this.
This is working on the wrongthings or the things aren't
going to give you a return oninvestment.
Like spending my time doingthings that I should maybe
delegate or not do, uh, andinstead of do, focusing on the
bottleneck or the constraint inin in my business.
So this is like a reallyimportant topic to understand,
(06:45):
because we're, as businessowners, we're probably all busy.
No, I doubt anyone listening tothis 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 yougot to ask yourself am I working
on the right things?
Because that's the mostimportant concept to really put
(07:06):
this into practice.
Speaker 2 (07:08):
Yeah, Maybe that's why Elon is so focused on going
to Mars, because there's moretime in a day on Mars than there
is on Earth.
I'm sure that's it.
That must be it Impact overeffort, right?
We want to focus our time onthings that have the maximum
impact and not necessarily, youknow, making sure that that our
(07:32):
you know, our blows really count, Right.
Speaker 1 (07:37):
Yeah, all right.
So let's.
I'm going to cover threeconstraints that I see with
folks and maybe that will helpyou understand what your
constraint in your business is.
So number one is cashflowCashflow Do you have money in
the bank?
Shoddy, what you drank.
(07:57):
So one thing that could becausing 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 toprovide to their customers and
they're not profitable, and sothat's because of that it's
(08:18):
causing profitability issues andcashflow is weak.
So that's a big constraint thata lot of folks that come to us
they're not pricing correctly.
They're not charging theirclients enough based off of how
much time and effort it takesthem to produce the work.
A similar issue might becompensating wrong on the other
(08:40):
side of the coin.
So maybe they're pricing right,but then they're not
compensating their team.
Maybe they're overpaying theirsubcontractors because they
maybe don't have a goodnegotiating leverage over their
subcontractors, or whatever thecase is, they're paying their
subcontractors too much or theirteam too much to produce that
(09:01):
work, and so maybe the pricing'sright, but they're
overcompensating their team.
So this is kind of the samething, just the flip side of the
coin.
Speaker 2 (09:12):
They say that cash is the lifeblood of a business,
and if we're constantlystruggling to get our bills paid
on time, we're not going tohave the money to invest in
growth, in the marketing that ittakes, in the new hires that
it's going to take, the newequipment that it's going to
take, and that's definitelygoing to be a constraint on our
(09:33):
business.
And I know we talked aboutpricing.
It seems so simple, right, if Ineed more money, we'll just
raise the prices.
It might be simple, but it'snot easy, and I just want to
acknowledge like I get it.
Pricing is difficult to getright, and so it's worth
reviewing where you're at nowand making sure that you really
(09:56):
are pricing yourself correctly.
And there's a lot of emotiontied into pricing.
You know, sometimes we want toprice low because we want to be
able to help others.
We're afraid that our closerate will go way down and we
won't be able to bring in anyrevenue.
So it's not just a simplematter of raising prices, but
(10:20):
really taking the time to lookat it, understanding where our
pricing needs to be, why itneeds to be there, and then
having that confidence to knowthat we do incredible work and
that we are providing greatvalue to our customers and that
we deserve the price that we areasking for, because we are
providing more value than theprice of the job.
Speaker 1 (10:43):
Yep.
So cash flow pricing wrong,compensating your team wrong.
A third thing that might berelated to the cashflow
constraint is just mismanagementof your cash.
So this could be not chargingyour customers a deposit and
therefore you're paying yourteam, you're paying for
(11:05):
materials, all that cash isgoing out, but you haven't
received any cash from yourcustomers.
That can be hard on your cashflow.
And so getting paid quicklyfrom customers or maybe delaying
outgoing cash to your vendorsor your team.
So, for example, a lot of folks, a lot of successful painting
(11:26):
businesses we work with, theydon't pay their subcontractors
until they get paid, and sothey're good with managing that
cashflow, getting paid first andthen paying their
subcontractors.
So for cashflow, that can be ahuge constraint in your business
, limiting your growth, becauseif you don't have cash, it's
hard to invest for the futureand growing it in itself is
(11:51):
tough on the cash flow.
So you got to have a goodamount of cash flow to grow
without going into debt, and youdon't want to grow based off of
debt.
For a painting business, you donot need a significant amount
of debt, or really any debt, togrow, so we don't want to rely
on loans or credit cards to growour business, we want to rely
(12:13):
on cash that we're getting,that's being generated from our
customers and serving ourcustomers.
So cashflow is the number one,the first constraint that we're
covering here.
Flow is the number one, thefirst constraint that we're
covering here.
The next one is not gettingenough customers.
So this is another big one thatI see is the thing that's
(12:35):
limiting growth.
The constraint, the bottleneckis just not getting enough
customers, and so this can bebroken down into a few different
things.
First of all, not gettingenough leads.
So a lot of painting businesseswhen they start out, their
revenue is coming from referralsor repeat customers, and this
(12:56):
is great.
These are the best type ofcustomers to get.
The problem is the growth ratemight be slower than you desire.
Right, you might want to growfast.
You might have a goal I want tohit a million dollars but if
you're only relying on inboundwhat's inbound meaning?
Like they're coming to youbecause they're repeat customers
(13:19):
or they're referrals from yourcurrent customers those inbound
leads you're kind of sittingback and hoping with your
fingers crossed that you'regoing to get more work.
So that might not happen.
You might have to be moreaggressive with your outbound
sales, meaning you're goingafter, you're going doing
door-to-door marketing or you'regoing and doing Facebook ads to
(13:41):
attract more customers toattract more customers.
So not getting enough leads isdefinitely a big part of why a
lot of folks are struggling withthat growth.
Speaker 2 (13:54):
Yeah, I think that's kind of like the situation
you're talking about in thebeginning there.
In this case, the businessowner was getting enough leads
but it wasn't efficient and soit was costing him way more than
it should.
But he recognized that heneeded to have those leads if he
wanted to grow.
(14:14):
He just needed to go about itin a little bit more of a
cost-efficient way.
It can be hard to upgrade yourmarketing because we all start
off small right and doing thosefundamental things like having
the proper signage on your truckand door knocking and getting
referrals.
Those are all greatfoundational things.
But then, when you want to moveup to the next level, how do
(14:38):
you spend your money?
Is Angie's List and Thumbtack?
Are those worthwhileinvestments?
We know that Facebook andGoogle are happy to take your
cash for ads, but how am I gonnadeploy it in a way that is
targeted and I'm getting mymoney's worth out of it?
It's not a problem that we justwanna throw cash at blindly,
(14:59):
but we wanna target and makesure that we're getting the best
use out of our investment, andI think that can be a situation
where hiring a situation where,you know, hiring a marketing
professional, especially one whois focused on painting
businesses can help you so thatyou are spending your money in
the most cost-effective waypossible.
Speaker 1 (15:19):
Yeah, absolutely and to your point.
The next piece of not gettingenough customers I'd often see
is a constraint is not settingenough of those leads as
appointments for estimates.
So once you've sold the gettingenough leads, the next
constraint could be you're notsetting enough of those leads as
(15:40):
estimates.
And so that gets into my firstexample to open up the episode
is that penny business owner hadfolks that were not setting.
They weren't very good atsetting those appointments,
getting those leads to actuallyschedule an estimate.
So that's a common constraint,common bottleneck that I see as
(16:01):
well.
And then finally, as anotherpart of not getting enough
customers is not closing enoughjobs.
So this could be maybe you'regetting leads coming in and
you're getting estimates, butmaybe your close rate is below
30%.
If it's below 30%, take a lookat your sales process.
(16:24):
Are you presenting in-homeestimates?
Do you have a compelling salesprocess that is demonstrating
the value of what you're goingto provide and differentiating
yourself from the fly-by-nightpainter who doesn't have any
insurance and isn't legal, theydon't have the proper insurances
(16:48):
or works compensation and theydon't have a good reputation,
but they're really cheap?
How are you differentiatingfrom folks that can really
lowball their prices?
Is that being communicated inyour sales process.
So if you have a below 30%close rate, you might need to
take a look at that and thatmight be a constraint in your
(17:11):
business.
Is getting better, gettingyourself or your team better at
sales?
Speaker 2 (17:15):
Yeah, and I would say , if your close rate is low, it
might be tempting to just lowerprices, but we don't want to go
there because then we're goingto run into running out of cash.
So people don't buy based onprice, they buy based on value.
And so if we can improve oursales process to, like you were
(17:38):
saying, daniel, demonstratinghow we're providing more value
than those who might be tryingto 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 whoare going to be in their home
Then that creates the value thatmakes the price justified, and
(18:02):
folks will be willing to paymore if they think they're going
to get more.
So we just have to help themunderstand how we provide that
above and beyond service.
Speaker 1 (18:14):
Yeah, all right.
So we talked about cashflowbeing a limiting constraint or
bottleneck, not getting enoughcustomers being a constraint,
and then the third one is nothaving enough labor to do the
work in your business, and sothe way that I like to think
about this is you should have atleast a couple marketing
(18:38):
calendars.
You have your marketingcalendar to market to your
customers, to get more customersright, getting leads and
getting those leads to becomecustomers.
You have that calendar.
You should also have a calendarfor trying to recruit workers
(18:58):
so you can hire and train themto produce the work that you're
getting from the sales side, toproduce the work that you're
getting from the sales side, andso it should be a calendar, a
regular thing that you're doing,so that you don't get this
constraint.
So I do hear sometimescomplaints about oh, the labor
(19:19):
market in my area is really bad,there's nobody.
Nobody wants to work.
I would definitely challengethat.
There's probably nobody wantsto work.
I would definitely challengethat.
There's probably people thatwant to work.
You just got to go find themand take an active approach and,
again, having a calendar thatyou're regularly reaching out
and recruiting to get folks inyour organization so you can
(19:41):
produce the work that you'reselling.
So that's the third commonconstraint that I see, and this
could be crews actually thefolks working on the job site,
crews producing the work.
This could be getting asalesperson, getting a
production manager.
A lot of folks struggle to getpast around $750 to $1 million
(20:07):
in revenue because they're doingall the sales and all the
production management themselvesand so they're the constraint
in the business because theycan't do any more sales and
production management.
They need to hire a productionmanager or a salesperson so that
that new hire can focus on thatwhile they focus on the other
(20:28):
thing.
So that could be a constraintin 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 asalesperson so that then that
will get you to the next level.
So you can do 2 million, 2.5million with a sales team and
(20:55):
production managers and you'rejust running the business.
So that could be a constraint isnot having enough of a team to
do the work in the business andjust to throw some numbers
behind this, understanding howmuch each team member should be
able to produce.
It's helpful to know wherethese constraints might be.
(21:17):
So a two-man crew should beable to produce around $200,000
per year.
So maybe you're budgeting thisyear and you have a certain
revenue goal.
Let's say you have a revenuegoal of $2 million.
That's nice to know, okay,great.
Well, how many crews do Iactually need to produce that?
(21:41):
Well, using a rough ballpark of200,000 per crew, you need
about 10 crews, which, if it'stwo, a two-man crew, that's
about 20 painters.
So that's a rough, roughnumbers.
But that's just going to giveyou an idea.
So that's helpful to know, tounderstand, to plan for the
future on where your hiringneeds to occur, so you can make
(22:02):
sure that you have that markedon your calendar once again to
recruit those team members andget them in the pipeline to come
on board.
Production managers should beable to produce somewhere around
a million dollars in revenue,and this could fluctuate
depending on their exact dutiesand responsibilities, but
(22:22):
somewhere around a milliondollars is what a single
production manager should beable to produce.
And similarly, a salespersonshould be able to sell
residential repaint about amillion dollars per year.
Painting businesses number oneis cash flow as a limiting
(22:47):
constraint.
Either not pricing right,they're compensating wrong.
They're mismanaging their cash.
Number two is not getting enoughcustomers to grow to the next
level because either they're notgetting enough leads, they're
not setting enough of thoseleads on the estimate calendar,
or they're just not closingenough of those leads to turn
them into new customers.
And then, number three, they'renot getting enough labor to
(23:11):
work in the business so thatthey can produce the work that
they've received.
So either not enough crews ornot enough production managers,
not enough salespeople.
So hopefully this is helpful inthinking about your business
Try to identify which constraintyou have in your business and
then relentlessly focus on thatconstraint until it is solved so
(23:34):
you can unlock the next levelfor your business.
And, with that said, love tohear your thoughts.
If you go to Facebook, type inGrow your Painting Business,
join the community.
Love to hear your thoughts onfuture episodes or questions
about this episode.
With that, we'll see you nextweek.
This is Daniel, the founder of Bookkeeping for
Painters, and this is Richard,advising director.
All right, I'm excited to jumpinto today's topic.
We're going to be talking aboutthe theory of constraints,
otherwise known as identifyingbottlenecks in your business so
you can get to the next level.
So this is a really cool topicthat I'm interested in and, as a
(00:26):
business owner, I woulddefinitely recommend to spend
some time to really understandthis concept of identifying
those constraints or thosebottlenecks in your business and
prioritizing your resources tosolve those things so you can
get your business to the nextlevel.
And so today we're going totalk about this theory and then
go through some typicalconstraints that I've seen other
(00:50):
painting businesses strugglewith, and hopefully this will
help you identify what is themain thing that's holding you
back to get to that next level.
So it reminds me of this.
Earlier this week I met with apainting business owner, a new
client that we're working with.
He signed up a few months agoand when he first signed up, we
(01:12):
took a look at his financialsand I was looking on his profit
and loss and his gross profitwas actually really good.
His gross profit is around 48%gross profit.
The average is like 40, 45%.
So he was above average forgross profit, which was pretty
awesome to see, because a lot oftimes when folks come to us
(01:35):
their gross profit's not thatgreat.
But he was actually doingreally well on gross profit.
But then we looked at his grossprofit to customer acquisition
cost ratio, which is basicallycomparing gross profit compared
to your marketing and salescosts, and that ratio was pretty
bad.
He was spending a lot of moneyon marketing compared to what
(01:58):
his gross profit was and so,digging into the details with
him, it turns out he wasspending a lot of money on leads
.
He was getting leads, but thoseleads he wasn't efficiently
converting into booked estimatesbecause he didn't have control
over the setters the people thatwere, when the leads came in,
(02:21):
the people setting theappointments on his estimate
calendar and so he had a reallylow set rate.
So out of 10 leads that came in, his setters were only setting
like one or two on the estimatecalendar, and it should have
been more like five or six.
So he had a really low set rateand he was closing pretty well
(02:46):
30%, 35%, so decent close rate.
But it was that set rate andbecause he had such a low set
rate, his marketing costs weresuper high and so this was a
limiting factor for his businessbecause he was not profitable
because of that issue of havingto spend so much money on
marketing to bring new customersin, and the ratio of gross
(03:12):
profit to customer acquisitioncosts was really low.
So it was like a two to oneratio.
It should be three to one orbetter.
So that was a bottleneck and Ijust talked to him this week and
he's made significant progresson getting his centers better at
(03:33):
setting appointments and sohe's already starting to see the
results of making that onechange, that one bottleneck in
his business, fixing that littlepiece in his sales process to
lower the marketing costs as apercentage of revenue and get a
healthier ratio of gross profitand customer acquisition costs,
and his profits are going up.
(03:53):
So that's an example ofidentifying the thing that's
broken in your business so youcan get past that bottleneck and
get to the next level.
So we're going to dive intothree of these bottlenecks.
Speaker 2 (04:15):
Awesome.
I love it.
So by looking at his salesprocess he found the constraint
or the bottleneck, and then hewas able to take steps towards
relieving that bottleneck andincreasing the efficiency of his
business.
And I think it's fair to saythat even the best run
(04:35):
businesses have at least somekind of a constraint, some kind
of a bottleneck.
We probably just don't knowwhat it is yet because we
haven't really looked at thenumbers and studied the process
to see where we're not being asefficient as we could be.
So I think it's well worthtaking that time to look for
those constraints and you'llfind more than one, more than
likely.
But look for the one that isimpacting your business the most
(04:59):
.
Focus on that one, try toidentify it, see what we can do
to, you know, fix thatconstraint without investing a
lot into it.
If we're still beingbottlenecked, you know, we can
then kind of elevate that to thepoint where we need to make
some investments, make somechanges, and once that
(05:21):
bottleneck is opened up, we canmove on to the next one.
And it's going to be acontinuous process where we're
always looking for theconstraints, fixing it and then
moving on to the next one sothat we have like the most
well-oiled machine we canpossibly build.
Yeah.
Speaker 1 (05:38):
And if you think about the most successful
entrepreneurs like Elon Musk,jeff Bezos, steve Jobs, all
these folks that created thesehuge value producing machines
and they have as much time in aday as we do right, they don't
(06:03):
get extra hours in the day, andso the things that they're good
at is exactly this.
They're really insightful onunderstanding what is the thing
that's preventing them fromgetting to the next level.
So they are working on theright things, and I know I have
(06:23):
definitely struggled with this.
This is working on the wrongthings or the things aren't
going to give you a return oninvestment.
Like spending my time doingthings that I should maybe
delegate or not do, uh, andinstead of do, focusing on the
bottleneck or the constraint inin in my business.
So this is like a reallyimportant topic to understand,
(06:45):
because we're, as businessowners, we're probably all busy.
No, I doubt anyone listening tothis 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 yougot to ask yourself am I working
on the right things?
Because that's the mostimportant concept to really put
(07:06):
this into practice.
Speaker 2 (07:08):
Yeah, Maybe that's why Elon is so focused on going
to Mars, because there's moretime in a day on Mars than there
is on Earth.
I'm sure that's it.
That must be it Impact overeffort, right?
We want to focus our time onthings that have the maximum
impact and not necessarily, youknow, making sure that that our
(07:32):
you know, our blows really count, Right.
Speaker 1 (07:37):
Yeah, all right.
So let's.
I'm going to cover threeconstraints that I see with
folks and maybe that will helpyou understand what your
constraint in your business is.
So number one is cashflowCashflow Do you have money in
the bank?
Shoddy, what you drank.
(07:57):
So one thing that could becausing 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 toprovide to their customers and
they're not profitable, and sothat's because of that it's
(08:18):
causing profitability issues andcashflow is weak.
So that's a big constraint thata lot of folks that come to us
they're not pricing correctly.
They're not charging theirclients enough based off of how
much time and effort it takesthem to produce the work.
A similar issue might becompensating wrong on the other
(08:40):
side of the coin.
So maybe they're pricing right,but then they're not
compensating their team.
Maybe they're overpaying theirsubcontractors because they
maybe don't have a goodnegotiating leverage over their
subcontractors, or whatever thecase is, they're paying their
subcontractors too much or theirteam too much to produce that
(09:01):
work, and so maybe the pricing'sright, but they're
overcompensating their team.
So this is kind of the samething, just the flip side of the
coin.
Speaker 2 (09:12):
They say that cash is the lifeblood of a business,
and if we're constantlystruggling to get our bills paid
on time, we're not going tohave the money to invest in
growth, in the marketing that ittakes, in the new hires that
it's going to take, the newequipment that it's going to
take, and that's definitelygoing to be a constraint on our
(09:33):
business.
And I know we talked aboutpricing.
It seems so simple, right, if Ineed more money, we'll just
raise the prices.
It might be simple, but it'snot easy, and I just want to
acknowledge like I get it.
Pricing is difficult to getright, and so it's worth
reviewing where you're at nowand making sure that you really
(09:56):
are pricing yourself correctly.
And there's a lot of emotiontied into pricing.
You know, sometimes we want toprice low because we want to be
able to help others.
We're afraid that our closerate will go way down and we
won't be able to bring in anyrevenue.
So it's not just a simplematter of raising prices, but
(10:20):
really taking the time to lookat it, understanding where our
pricing needs to be, why itneeds to be there, and then
having that confidence to knowthat we do incredible work and
that we are providing greatvalue to our customers and that
we deserve the price that we areasking for, because we are
providing more value than theprice of the job.
Speaker 1 (10:43):
Yep.
So cash flow pricing wrong,compensating your team wrong.
A third thing that might berelated to the cashflow
constraint is just mismanagementof your cash.
So this could be not chargingyour customers a deposit and
therefore you're paying yourteam, you're paying for
(11:05):
materials, all that cash isgoing out, but you haven't
received any cash from yourcustomers.
That can be hard on your cashflow.
And so getting paid quicklyfrom customers or maybe delaying
outgoing cash to your vendorsor your team.
So, for example, a lot of folks, a lot of successful painting
(11:26):
businesses we work with, theydon't pay their subcontractors
until they get paid, and sothey're good with managing that
cashflow, getting paid first andthen paying their
subcontractors.
So for cashflow, that can be ahuge constraint in your business
, limiting your growth, becauseif you don't have cash, it's
hard to invest for the futureand growing it in itself is
(11:51):
tough on the cash flow.
So you got to have a goodamount of cash flow to grow
without going into debt, and youdon't want to grow based off of
debt.
For a painting business, you donot need a significant amount
of debt, or really any debt, togrow, so we don't want to rely
on loans or credit cards to growour business, we want to rely
(12:13):
on cash that we're getting,that's being generated from our
customers and serving ourcustomers.
So cashflow is the number one,the first constraint that we're
covering here.
Flow is the number one, thefirst constraint that we're
covering here.
The next one is not gettingenough customers.
So this is another big one thatI see is the thing that's
(12:35):
limiting growth.
The constraint, the bottleneckis just not getting enough
customers, and so this can bebroken down into a few different
things.
First of all, not gettingenough leads.
So a lot of painting businesseswhen they start out, their
revenue is coming from referralsor repeat customers, and this
(12:56):
is great.
These are the best type ofcustomers to get.
The problem is the growth ratemight be slower than you desire.
Right, you might want to growfast.
You might have a goal I want tohit a million dollars but if
you're only relying on inboundwhat's inbound meaning?
Like they're coming to youbecause they're repeat customers
(13:19):
or they're referrals from yourcurrent customers those inbound
leads you're kind of sittingback and hoping with your
fingers crossed that you'regoing to get more work.
So that might not happen.
You might have to be moreaggressive with your outbound
sales, meaning you're goingafter, you're going doing
door-to-door marketing or you'regoing and doing Facebook ads to
(13:41):
attract more customers toattract more customers.
So not getting enough leads isdefinitely a big part of why a
lot of folks are struggling withthat growth.
Speaker 2 (13:54):
Yeah, I think that's kind of like the situation
you're talking about in thebeginning there.
In this case, the businessowner was getting enough leads
but it wasn't efficient and soit was costing him way more than
it should.
But he recognized that heneeded to have those leads if he
wanted to grow.
(14:14):
He just needed to go about itin a little bit more of a
cost-efficient way.
It can be hard to upgrade yourmarketing because we all start
off small right and doing thosefundamental things like having
the proper signage on your truckand door knocking and getting
referrals.
Those are all greatfoundational things.
But then, when you want to moveup to the next level, how do
(14:38):
you spend your money?
Is Angie's List and Thumbtack?
Are those worthwhileinvestments?
We know that Facebook andGoogle are happy to take your
cash for ads, but how am I gonnadeploy it in a way that is
targeted and I'm getting mymoney's worth out of it?
It's not a problem that we justwanna throw cash at blindly,
(14:59):
but we wanna target and makesure that we're getting the best
use out of our investment, andI think that can be a situation
where hiring a situation where,you know, hiring a marketing
professional, especially one whois focused on painting
businesses can help you so thatyou are spending your money in
the most cost-effective waypossible.
Speaker 1 (15:19):
Yeah, absolutely and to your point.
The next piece of not gettingenough customers I'd often see
is a constraint is not settingenough of those leads as
appointments for estimates.
So once you've sold the gettingenough leads, the next
constraint could be you're notsetting enough of those leads as
(15:40):
estimates.
And so that gets into my firstexample to open up the episode
is that penny business owner hadfolks that were not setting.
They weren't very good atsetting those appointments,
getting those leads to actuallyschedule an estimate.
So that's a common constraint,common bottleneck that I see as
(16:01):
well.
And then finally, as anotherpart of not getting enough
customers is not closing enoughjobs.
So this could be maybe you'regetting leads coming in and
you're getting estimates, butmaybe your close rate is below
30%.
If it's below 30%, take a lookat your sales process.
(16:24):
Are you presenting in-homeestimates?
Do you have a compelling salesprocess that is demonstrating
the value of what you're goingto provide and differentiating
yourself from the fly-by-nightpainter who doesn't have any
insurance and isn't legal, theydon't have the proper insurances
(16:48):
or works compensation and theydon't have a good reputation,
but they're really cheap?
How are you differentiatingfrom folks that can really
lowball their prices?
Is that being communicated inyour sales process.
So if you have a below 30%close rate, you might need to
take a look at that and thatmight be a constraint in your
(17:11):
business.
Is getting better, gettingyourself or your team better at
sales?
Speaker 2 (17:15):
Yeah, and I would say , if your close rate is low, it
might be tempting to just lowerprices, but we don't want to go
there because then we're goingto run into running out of cash.
So people don't buy based onprice, they buy based on value.
And so if we can improve oursales process to, like you were
(17:38):
saying, daniel, demonstratinghow we're providing more value
than those who might be tryingto 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 whoare going to be in their home
Then that creates the value thatmakes the price justified, and
(18:02):
folks will be willing to paymore if they think they're going
to get more.
So we just have to help themunderstand how we provide that
above and beyond service.
Speaker 1 (18:14):
Yeah, all right.
So we talked about cashflowbeing a limiting constraint or
bottleneck, not getting enoughcustomers being a constraint,
and then the third one is nothaving enough labor to do the
work in your business, and sothe way that I like to think
about this is you should have atleast a couple marketing
(18:38):
calendars.
You have your marketingcalendar to market to your
customers, to get more customersright, getting leads and
getting those leads to becomecustomers.
You have that calendar.
You should also have a calendarfor trying to recruit workers
(18:58):
so you can hire and train themto produce the work that you're
getting from the sales side, toproduce the work that you're
getting from the sales side, andso it should be a calendar, a
regular thing that you're doing,so that you don't get this
constraint.
So I do hear sometimescomplaints about oh, the labor
(19:19):
market in my area is really bad,there's nobody.
Nobody wants to work.
I would definitely challengethat.
There's probably nobody wantsto work.
I would definitely challengethat.
There's probably people thatwant to work.
You just got to go find themand take an active approach and,
again, having a calendar thatyou're regularly reaching out
and recruiting to get folks inyour organization so you can
(19:41):
produce the work that you'reselling.
So that's the third commonconstraint that I see, and this
could be crews actually thefolks working on the job site,
crews producing the work.
This could be getting asalesperson, getting a
production manager.
A lot of folks struggle to getpast around $750 to $1 million
(20:07):
in revenue because they're doingall the sales and all the
production management themselvesand so they're the constraint
in the business because theycan't do any more sales and
production management.
They need to hire a productionmanager or a salesperson so that
that new hire can focus on thatwhile they focus on the other
(20:28):
thing.
So that could be a constraintin 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 asalesperson so that then that
will get you to the next level.
So you can do 2 million, 2.5million with a sales team and
(20:55):
production managers and you'rejust running the business.
So that could be a constraint isnot having enough of a team to
do the work in the business andjust to throw some numbers
behind this, understanding howmuch each team member should be
able to produce.
It's helpful to know wherethese constraints might be.
(21:17):
So a two-man crew should beable to produce around $200,000
per year.
So maybe you're budgeting thisyear and you have a certain
revenue goal.
Let's say you have a revenuegoal of $2 million.
That's nice to know, okay,great.
Well, how many crews do Iactually need to produce that?
(21:41):
Well, using a rough ballpark of200,000 per crew, you need
about 10 crews, which, if it'stwo, a two-man crew, that's
about 20 painters.
So that's a rough, roughnumbers.
But that's just going to giveyou an idea.
So that's helpful to know, tounderstand, to plan for the
future on where your hiringneeds to occur, so you can make
(22:02):
sure that you have that markedon your calendar once again to
recruit those team members andget them in the pipeline to come
on board.
Production managers should beable to produce somewhere around
a million dollars in revenue,and this could fluctuate
depending on their exact dutiesand responsibilities, but
(22:22):
somewhere around a milliondollars is what a single
production manager should beable to produce.
And similarly, a salespersonshould be able to sell
residential repaint about amillion dollars per year.
Painting businesses number oneis cash flow as a limiting
(22:47):
constraint.
Either not pricing right,they're compensating wrong.
They're mismanaging their cash.
Number two is not getting enoughcustomers to grow to the next
level because either they're notgetting enough leads, they're
not setting enough of thoseleads on the estimate calendar,
or they're just not closingenough of those leads to turn
them into new customers.
And then, number three, they'renot getting enough labor to
(23:11):
work in the business so thatthey can produce the work that
they've received.
So either not enough crews ornot enough production managers,
not enough salespeople.
So hopefully this is helpful inthinking about your business
Try to identify which constraintyou have in your business and
then relentlessly focus on thatconstraint until it is solved so
(23:34):
you can unlock the next levelfor your business.
And, with that said, love tohear your thoughts.
If you go to Facebook, type inGrow your Painting Business,
join the community.
Love to hear your thoughts onfuture episodes or questions
about this episode.
With that, we'll see you nextweek.
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