January 3, 2025 • 24 mins
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!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
This is Daniel, the founder of Bookkeeping for
Painters.
Speaker 2 (00:07):
And this is Richard, the advising director for
Bookkeeping for Painters.
Speaker 1 (00:12):
How's it going.
Speaker 2 (00:14):
It is very, very cold today where I'm at.
We got up this morning we hadlike near zero temperatures all
night long.
I got up this morning to takemy son to school and our car
wouldn't start.
The cold had kind of hit thebattery pretty hard.
So we tried the other car, andthat one wouldn't start, and so
(00:36):
grandma fortunately came to therescue to get him to school.
A little bit late, but he didmake it, and now I've got the
vehicles on battery chargers.
So, uh, yeah, it's.
It's just the privilege ofliving in the upper Midwest in
December.
Speaker 1 (00:54):
Uh, yeah, same same deal with me.
I mean today, when I wentoutside um in Orlando Florida, I
almost put on something otherthan a t-shirt and shorts.
Almost.
I still went out in t-shirtsand shorts, but I considered
it's a little.
It's about 65 to 70 degreestoday.
It's a little brisk, yeah, butI ended up just going out in my
(01:17):
t-shirt and shorts.
So I completely understand yoursituation.
Speaker 2 (01:21):
Yeah, you might need like fingerless gloves or
something like that for for thisweather.
Um, the, the burden is real.
Don't, uh, don't let anyoneinvalidate your pain, daniel,
you, uh, you own that Right.
Speaker 1 (01:40):
Cool.
Well, not sure how to segueinto our topic today of
budgeting, but let's go aheadand dive into our topic, excited
to dive into it.
We're pretty well into Decemberat this point.
This is probably release inJanuary timeframe, so it's a
perfect time to be thinkingabout 2025 goals and budgeting.
(02:01):
And so just to be clear on whatbudgeting is budgeting is
basically just planning,planning for the future, with
dollars and cents, and so, goinginto the new year, this is a
time where we set goals forourselves and our business, and
so you might have a particulargoal in mind, like I want to hit
(02:23):
$2 million in revenue, orwhatever the case may be, and
that's great, but it definitelyhelps to come up with an
actionable plan on how you willactually achieve that goal, and
that's where budgeting comes in,and so we'll go through sales
budget, production budget andyour overhead budget, and those
(02:45):
three budgets should help giveyou a good plan to go into 2025
and crush it.
Now, just a caveat or a cautionwith plans.
As Mike Tyson said, everyonehas a plan until they get
punched in the face, orsomething like that, right?
(03:06):
So these plans that you're,these, these budgets they're not
going to.
They're going to be immediatelywrong as soon as you go into
2025, as soon as you hit it'sgoing to be wrong.
However, the thinking throughthe budget helps you plan ahead
(03:27):
and have some contingency planson making hires and things of
that nature, having certainbudgets 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 talkabout the sales budget.
(03:55):
All right, so let's first talkabout the sales budget.
So the sales budget is howyou're going to hit the top line
revenue of whatever your goalis.
So we'll just continue with ourexample of 2 million and your
average job size is $5,000,you'll need to have 400 jobs
booked approximately to hit yourgoal of 2 million in revenue.
So, if you don't know youraverage job size, definitely
(04:20):
look at your past jobs, kind ofget that average.
That's helpful to know, to kindof gauge.
Okay, moving forward, we shouldhave about the same average job
size.
Divide that into what your goalis and that should tell you the
number of book jobs you'll needNow from there, since you know,
okay, we got to hit 400 bookjobs to hit 2 million in revenue
(04:43):
, how many estimates do we needand you can refer to your close
rate.
So most close rates aresomewhere between 33% and 50%,
somewhere in there, and so maybeyou're at a 40% close rate.
So you take that 400 jobs anddivide it by 0.4, and that will
(05:06):
give you 0.4 being your closerate, and that gives you how
many estimates you need to do.
So if you have 400 book jobsthat you need, divided by 0.4,
that gives us 1,000 estimates.
So now we know okay, we need1,000 estimates, we need to do
1,000 estimates throughout thecourse of the year.
Thousand estimates we need todo a thousand estimates
(05:28):
throughout the course of theyear.
And then from there we need tounderstand how many leads do we
need to get to have a thousandestimates completed.
So this is our lead conversionrate, or our set rate, depending
on who you're talking to.
So, to take an example, let'ssay you're running Facebook ads
(05:49):
and whenever a Facebook leadcomes in, you have to set that
lead and put it in, actually getthem booked for an estimate,
and set rates for Facebook adstypically are somewhere between
50% 75%.
It could be lower Hopefullyit's not lower than 50%, but
typically you should be shootingfor at least 50% or higher for
(06:11):
Facebook ads, facebook leads.
So let's just say yourconversion rate is 50%.
So 50% of the leads that comefrom Facebook get set as
estimates on your calendar.
So if you need a thousandestimates and your conversion
(06:33):
rate set rate is 50%, we dividea thousand by 0.5 and that gives
us 2000.
So now we know we need 2000leads to hit our goal of $2
million in revenue.
Now, okay, that's great to know.
Now we know how many leads.
Now, if you do know your costper lead which with Facebook ads
(06:56):
you should know this prettyeasily, and typically Facebook
ads run the cost of lead issomewhere 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 tospend somewhere around 140,000
(07:22):
in marketing to hit our goal of2 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 withcold calling or direct mail.
Whatever your your mainacquisition channel is All right
(07:44):
.
So now we know 140,000 is ourmarketing spend.
And obviously that's not goingto be done all at once.
You're not going to pay yourmarketing firm $140,000 and say,
hey, go get me 2,000 leads.
You'll probably do ad spendthroughout the year and you can
break this down by week spendthroughout the year.
(08:10):
And you can break this down byweek so you can look at the
demand historically by lookingat your profit and loss to see
when is the.
Typically for a paintingbusiness, demand is pretty weak
in the first quarter.
It starts to pick up in Marchand then second quarter gets
really busy.
Third quarter is even busierand then it trails off in
November, december.
So that's a typical demandcycle for a residential repaint
(08:35):
painting business.
Your business might be slightlydifferent.
Take a look at that and you cankind of, you know, have your
marketing spend mirror thatdemand curve.
So for each week you could sayokay, this week I think we
(08:55):
should get 10 leads or 14 leads,and so our marketing spend
should be X amount of dollarsbased off of how much it costs
per lead.
And so you can kind of plot outokay, for each week this is
what we need to spend inmarketing and then with that
spend you should be able toapproximately hit your amount of
(09:19):
leads that you need to get andthen you should be able to hit
the amount of book jobs that youneed to hit.
And you need to hit your amountof closed work approximately,
and so you can track this byweek in a spreadsheet on what
your plan is versus whatactually happens, just to make
sure your budget is actually ontrack.
So that's the general idea ofyour budget.
(09:42):
So this budget, the salesbudget, should help you
understand how much should youspend on marketing.
And then, do you need to hire asalesperson?
Is 2 million in sales more thanwhat your current salesperson
can do?
Usually for a salesperson?
Is 2 million in sales more thanwhat your current salesperson
can do?
Usually for a salesperson theycan sell around 1.5 million 1 to
(10:06):
1.5 million.
So maybe you need to hire asecond salesperson to hit your
$2 million goal.
And then it really dials in howmany leads you need to get, how
many estimates, how many bookjobs.
You can break it down by weekso you can see if you're on
track to hit your goal by theactions you need to take
throughout the year.
Speaker 2 (10:28):
I really like this plan, daniel, because I think
it's easy to kind of fall intothis rut of you know we're
spending a certain amount, intothis rut of you know we're
spending a certain amount andit's just kind of based on how
we feel or comfort level ormaybe what we think our cash
flow should be.
And so we spend and we hopethat the revenue comes.
(10:49):
And you know what's that famousquote that a goal without a
plan is just a wish, right,we're throwing money at it and
we're wishing that the revenueand the profit come.
And what you're describing iskind of like working backwards,
where we start with our goal inmind.
This is what we want toaccomplish.
(11:09):
So then, what do we have to doin order to get to where we're
going?
And those will be.
So our decisions then are on howmuch we spend on marketing, how
many salespeople we need tohire, you know, how many leads
that we need to get.
Those decisions are beingdriven by this goal and it's not
(11:30):
being left to feelings orchance or you know happenstance,
but we're all kind of focusedon getting to the same
destination.
So I think that's reallyvaluable advice and I appreciate
how you were able to kind ofbreak down each step.
So accomplishing each step getsus just one step closer to our
(11:51):
end goal.
Speaker 1 (11:54):
And once you have your sales budget, that kind of
helps you determine yourproduction budget, because the
sales budget should tell you,like I said, your spend on
marketing, if you need anothersalesperson, how many leads you
need to get to hit your goals.
The production budget is okay.
We got all these leads and allthese book jobs, but how are we
(12:16):
actually going to produce it?
Right, we still got to producethat work, and so if we wanna
hit 2 million in sales, we gottaproduce that 2 million in
booked work.
And some helpful things to knowis what can one crew produce
and work per week?
(12:36):
So this will be helpful forplanning.
Typically, if it's a two-personcrew, they're often able to
produce somewhere between $5,000and $7,500 per week in revenue.
So if we use $5,000 times 52weeks in a year, it's around
(12:59):
260,000 per year.
And that's a rough number,obviously, because if you're
doing all exteriors and it'sraining and snowing at some
points in the season, obviouslythey're not going to be able to
produce work.
So you'll have to make thoseconsiderations when doing this
(13:19):
calculation.
But roughly speaking, onetwo-man crew can produce about
5,000 to 7,500 per week in work.
7,500 per week in work.
(13:48):
And so if you have 2 million toproduce and you have crews that
your typical crew, let's say,produces 260,000 per year, then
you'll need about seven, aboutseven, almost eight crews to
produce that that two million.
So you know and and you mightjust look at the the production
of your cruise, historicallyspeaking, maybe you have some
crews are super fast that canproduce things really, really
(14:11):
well, and maybe other crews arenot so much.
So you can go look at what yourcurrent crews produce and then
just what the difference isbetween what you did last year
and your new goal, and maybeit's in it.
Maybe you're at 1.5 millionthis year.
You just need to produceanother 500 000 to hit 2 million
and you know you could use the260 000.
(14:32):
So you got to get to to anothertwo more crews to hit that
additional $500,000 in revenue.
And then also breaking down yourproduction budget by week is
helpful because there's going tobe times where you're going to
have to produce more in a lot ofcases, like, for example,
(14:54):
during the summer.
That's usually when a lot ofresidential repaint are doing
the most work.
So, even though your salesmight be able to, you can sell a
project in the middle of thewinter, like sell an exterior
project in the middle of winterbut you can't paint the home in
the middle of the winter in alot of cases, so you might have
(15:17):
to wait until spring.
So, breaking down yourproduction budget by week, again
, to make sure that you actuallyhave enough crews to produce
the work during the year.
Because if you're a residentialrepaint that does mostly
(15:37):
exteriors and you're trying tohit 2 million and you're like up
north where Richard is, wherehe can't start his car because
it's too cold outside, you'regoing to have to crunch in all
your production between Marchand October or something like
that.
So, breaking it down by week,make sure, okay, how much do we
(16:00):
need to produce each week?
That will help.
And again, knowing how muchyour crews can produce will help
give the answer Okay, do weneed to produce each week?
That will help.
And again, knowing how muchyour crews can produce will help
give the answer okay, do weneed to hire maybe it's more
than two crews because of thecrunch time that you have during
certain months of the yearbecause of the weather.
So that's something to look at.
The other piece is productionmanagers.
(16:22):
So production manager, the roleof a production manager can
vary from company to company,and so some folks have their
production managers getting ahandoff from the salesperson and
then they do the scheduling ofthe client on the production
(16:42):
schedule, getting the colorscoordinated for and then getting
the crews assigned to theproject and then being
responsible for the quality ofthe project, doing a final walk
around and collecting the check.
Sometimes that's what aproduction manager does.
Other times you might have anoffice person that's maybe doing
(17:02):
the initial onboarding, gettingcolors and scheduling, and then
they hand off to a productionmanager a little bit later in
the process.
So, depending on what yourroles and responsibilities of a
production manager, it's goingto determine how much they can
actually take in revenue for aparticular year.
This ends up being somewherearound $.5 million for
(17:25):
production manager.
It could be less or more,depending on what the scope of
their responsibilities are.
So if you know a productionmanager can only handle 1.5
million and your goal is 2million, you might need to look
at bringing on anotherproduction manager at some point
in the year to get them spun upto handle that additional work
(17:48):
that you're planning on doing.
All right, so that's taking alook at your production uh
budget, the the other um thingsto look at for production would
be your margins for producingthe work.
So you know we've talked aboutmany times on the podcast ideal
(18:11):
margins.
The average gross profit marginfor 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 costassociated with the job.
So this would be materials andpainter labor.
When you subtract that out,that arrives at your gross
(18:34):
profit and on average this is40% for most painting businesses
.
For on average is 40%.
Now hopefully you're notshooting for average, hopefully
you're shooting for aboveaverage.
45% is a good target or higher45%, 50% are good targets.
If you're already at thosetargets, maybe you could shoot a
(18:55):
little higher and try toincrease that gross profit a
little bit.
But taking a look at what youhit last year in gross profit
and then seeing whatimprovements you can implement
for the next year whether that'sincreasing your pricing or
changing the compensation planfor your, your painters or
(19:18):
whatever the case is efficiencyin your process to to hit you
know to hit a higher goal foryour gross profit.
So that's another thing, abudgeting concern there taking a
look at your margins for grossprofit, because gross profit is
probably one of the mostimportant, if not the most
(19:44):
important, financial metric onyour profit and loss.
All right, once you've dialedthat in, figured out that piece,
then you can take a look atyour overhead costs.
So overhead, this is everythingnot associated with the job
site.
So this would be your insurance, bookkeeping and accounting
legal and accounting legal, yoursoftware costs, those types of
(20:07):
things.
Those are all your overheadcosts and for this, really, it's
helpful just to go through whatare all the things you're
paying for and do you still needthose things to run your
business?
You know, I've definitely feltvictim to paying for software
where I didn't need it formonths on end and go back and
(20:30):
look oh, we haven't used this insix months but we're still
paying $15 a month for it orwhatever it is.
So around this time of the yearis a great time.
We're going to have a littleextra time to do some planning,
go through those overhead costsand get rid of those
subscriptions that you don'tneed you're not talking about
netflix, are you?
(20:51):
I'm just kidding.
Yeah, it's absolutely talkingabout netflix.
Just talked to my wife aboutthis.
Um, she was on her youtube app.
Uh, she, she was playing, like,uh, she was playing.
She's like uh, she was playinga video and then, like she
turned off the screen and itkept playing the music or
whatever.
And I was like hey, isn't thatlike a paid subscription?
(21:14):
You have to have like a specialYouTube app to do that?
She's like I'm not paying foranything.
I was like I'm pretty sure youwould be if, if that's the
capability you have with YouTube.
And it turns out we were payingfor a YouTube app for the last
six months and definitely don'tneed that.
So take a look at those costs,make sure you're not paying for
(21:38):
anything you don't need and dialin those overhead costs and
dial in those overhead costs Ithink they make.
Speaker 2 (21:46):
There's companies that will actually like scour
your your bank account and lookfor subscriptions and help you
cancel them, but that that feelslike a slippery slope, like I'm
buying a subscription for aproduct to help me get rid of
subscriptions, but but yeah itis.
It is pernicious, like I.
(22:08):
I've done the same thing,daniel.
In fact, I guarantee youthere's things I pay for every
month that I haven't looked atin in a year.
But I know the minute I cancelit, my, my wife or my son will
be like you can't get rid ofthat.
I use that once in a while.
I used that last year.
Yeah, I use that once in awhile.
Speaker 1 (22:23):
I used that last year , yeah, yeah, cool, well.
So hopefully this podcast ishelpful in helping you
understand budgeting, how it canhelp you achieve your goals.
And again, once you come upwith these budgets, they're
going to be wrong immediatelywhen you set these numbers like,
(22:46):
hey, here's what I want to hitand here's how I'm going to get
there.
But it gives you some planningahead of time.
So you know, okay, I might needto hire that additional crew or
two around the spring to beable to keep up with production,
or maybe I need another.
You know, be on the lookout foran additional production
(23:07):
manager.
So halfway through the year tohit our goal and you can start
getting those processes ready,like getting your hiring process
or your recruiting processready to bring on those
additional team members.
So it can just get your mindmoving in the direction of
accomplishing your goals.
Speaker 2 (23:28):
Yeah, and I would just kind of put out there
because I have this issue as anaccountant I want everything to
be reconciled to the penny Ifyou set goals and you don't hit
it, don't hit it, but you comeclose, you are successful.
Right, we don't expectperfection.
If we get 80% or 90% to ourgoal, that is way further ahead
(23:55):
than we would have gotten had wenot set goals to begin with.
So don't get discouraged if thenumbers aren't quite lining up
the way we had hoped them to, ifwe don't quite make those goals
.
Just by having that directionand moving towards it, you have
already done better than nothaving a target to aim for.
Speaker 1 (24:15):
Yep, well said.
If you have any thoughts aboutbudgeting planning, definitely
go to Facebook, type in Growyour Painting Business and join
that group.
Love to hear your thoughts orany ideas for future episodes
and with that, we will talk toyou next week.
This is Daniel, the founder of Bookkeeping for
Painters.
Speaker 2 (00:07):
And this is Richard, the advising director for
Bookkeeping for Painters.
Speaker 1 (00:12):
How's it going.
Speaker 2 (00:14):
It is very, very cold today where I'm at.
We got up this morning we hadlike near zero temperatures all
night long.
I got up this morning to takemy son to school and our car
wouldn't start.
The cold had kind of hit thebattery pretty hard.
So we tried the other car, andthat one wouldn't start, and so
(00:36):
grandma fortunately came to therescue to get him to school.
A little bit late, but he didmake it, and now I've got the
vehicles on battery chargers.
So, uh, yeah, it's.
It's just the privilege ofliving in the upper Midwest in
December.
Speaker 1 (00:54):
Uh, yeah, same same deal with me.
I mean today, when I wentoutside um in Orlando Florida, I
almost put on something otherthan a t-shirt and shorts.
Almost.
I still went out in t-shirtsand shorts, but I considered
it's a little.
It's about 65 to 70 degreestoday.
It's a little brisk, yeah, butI ended up just going out in my
(01:17):
t-shirt and shorts.
So I completely understand yoursituation.
Speaker 2 (01:21):
Yeah, you might need like fingerless gloves or
something like that for for thisweather.
Um, the, the burden is real.
Don't, uh, don't let anyoneinvalidate your pain, daniel,
you, uh, you own that Right.
Speaker 1 (01:40):
Cool.
Well, not sure how to segueinto our topic today of
budgeting, but let's go aheadand dive into our topic, excited
to dive into it.
We're pretty well into Decemberat this point.
This is probably release inJanuary timeframe, so it's a
perfect time to be thinkingabout 2025 goals and budgeting.
(02:01):
And so just to be clear on whatbudgeting is budgeting is
basically just planning,planning for the future, with
dollars and cents, and so, goinginto the new year, this is a
time where we set goals forourselves and our business, and
so you might have a particulargoal in mind, like I want to hit
(02:23):
$2 million in revenue, orwhatever the case may be, and
that's great, but it definitelyhelps to come up with an
actionable plan on how you willactually achieve that goal, and
that's where budgeting comes in,and so we'll go through sales
budget, production budget andyour overhead budget, and those
(02:45):
three budgets should help giveyou a good plan to go into 2025
and crush it.
Now, just a caveat or a cautionwith plans.
As Mike Tyson said, everyonehas a plan until they get
punched in the face, orsomething like that, right?
(03:06):
So these plans that you're,these, these budgets they're not
going to.
They're going to be immediatelywrong as soon as you go into
2025, as soon as you hit it'sgoing to be wrong.
However, the thinking throughthe budget helps you plan ahead
(03:27):
and have some contingency planson making hires and things of
that nature, having certainbudgets 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 talkabout the sales budget.
(03:55):
All right, so let's first talkabout the sales budget.
So the sales budget is howyou're going to hit the top line
revenue of whatever your goalis.
So we'll just continue with ourexample of 2 million and your
average job size is $5,000,you'll need to have 400 jobs
booked approximately to hit yourgoal of 2 million in revenue.
So, if you don't know youraverage job size, definitely
(04:20):
look at your past jobs, kind ofget that average.
That's helpful to know, to kindof gauge.
Okay, moving forward, we shouldhave about the same average job
size.
Divide that into what your goalis and that should tell you the
number of book jobs you'll needNow from there, since you know,
okay, we got to hit 400 bookjobs to hit 2 million in revenue
(04:43):
, how many estimates do we needand you can refer to your close
rate.
So most close rates aresomewhere between 33% and 50%,
somewhere in there, and so maybeyou're at a 40% close rate.
So you take that 400 jobs anddivide it by 0.4, and that will
(05:06):
give you 0.4 being your closerate, and that gives you how
many estimates you need to do.
So if you have 400 book jobsthat you need, divided by 0.4,
that gives us 1,000 estimates.
So now we know okay, we need1,000 estimates, we need to do
1,000 estimates throughout thecourse of the year.
Thousand estimates we need todo a thousand estimates
(05:28):
throughout the course of theyear.
And then from there we need tounderstand how many leads do we
need to get to have a thousandestimates completed.
So this is our lead conversionrate, or our set rate, depending
on who you're talking to.
So, to take an example, let'ssay you're running Facebook ads
(05:49):
and whenever a Facebook leadcomes in, you have to set that
lead and put it in, actually getthem booked for an estimate,
and set rates for Facebook adstypically are somewhere between
50% 75%.
It could be lower Hopefullyit's not lower than 50%, but
typically you should be shootingfor at least 50% or higher for
(06:11):
Facebook ads, facebook leads.
So let's just say yourconversion rate is 50%.
So 50% of the leads that comefrom Facebook get set as
estimates on your calendar.
So if you need a thousandestimates and your conversion
(06:33):
rate set rate is 50%, we dividea thousand by 0.5 and that gives
us 2000.
So now we know we need 2000leads to hit our goal of $2
million in revenue.
Now, okay, that's great to know.
Now we know how many leads.
Now, if you do know your costper lead which with Facebook ads
(06:56):
you should know this prettyeasily, and typically Facebook
ads run the cost of lead issomewhere 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 tospend somewhere around 140,000
(07:22):
in marketing to hit our goal of2 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 withcold calling or direct mail.
Whatever your your mainacquisition channel is All right
(07:44):
.
So now we know 140,000 is ourmarketing spend.
And obviously that's not goingto be done all at once.
You're not going to pay yourmarketing firm $140,000 and say,
hey, go get me 2,000 leads.
You'll probably do ad spendthroughout the year and you can
break this down by week spendthroughout the year.
(08:10):
And you can break this down byweek so you can look at the
demand historically by lookingat your profit and loss to see
when is the.
Typically for a paintingbusiness, demand is pretty weak
in the first quarter.
It starts to pick up in Marchand then second quarter gets
really busy.
Third quarter is even busierand then it trails off in
November, december.
So that's a typical demandcycle for a residential repaint
(08:35):
painting business.
Your business might be slightlydifferent.
Take a look at that and you cankind of, you know, have your
marketing spend mirror thatdemand curve.
So for each week you could sayokay, this week I think we
(08:55):
should get 10 leads or 14 leads,and so our marketing spend
should be X amount of dollarsbased off of how much it costs
per lead.
And so you can kind of plot outokay, for each week this is
what we need to spend inmarketing and then with that
spend you should be able toapproximately hit your amount of
(09:19):
leads that you need to get andthen you should be able to hit
the amount of book jobs that youneed to hit.
And you need to hit your amountof closed work approximately,
and so you can track this byweek in a spreadsheet on what
your plan is versus whatactually happens, just to make
sure your budget is actually ontrack.
So that's the general idea ofyour budget.
(09:42):
So this budget, the salesbudget, should help you
understand how much should youspend on marketing.
And then, do you need to hire asalesperson?
Is 2 million in sales more thanwhat your current salesperson
can do?
Usually for a salesperson?
Is 2 million in sales more thanwhat your current salesperson
can do?
Usually for a salesperson theycan sell around 1.5 million 1 to
(10:06):
1.5 million.
So maybe you need to hire asecond salesperson to hit your
$2 million goal.
And then it really dials in howmany leads you need to get, how
many estimates, how many bookjobs.
You can break it down by weekso you can see if you're on
track to hit your goal by theactions you need to take
throughout the year.
Speaker 2 (10:28):
I really like this plan, daniel, because I think
it's easy to kind of fall intothis rut of you know we're
spending a certain amount, intothis rut of you know we're
spending a certain amount andit's just kind of based on how
we feel or comfort level ormaybe what we think our cash
flow should be.
And so we spend and we hopethat the revenue comes.
(10:49):
And you know what's that famousquote that a goal without a
plan is just a wish, right,we're throwing money at it and
we're wishing that the revenueand the profit come.
And what you're describing iskind of like working backwards,
where we start with our goal inmind.
This is what we want toaccomplish.
(11:09):
So then, what do we have to doin order to get to where we're
going?
And those will be.
So our decisions then are on howmuch we spend on marketing, how
many salespeople we need tohire, you know, how many leads
that we need to get.
Those decisions are beingdriven by this goal and it's not
(11:30):
being left to feelings orchance or you know happenstance,
but we're all kind of focusedon getting to the same
destination.
So I think that's reallyvaluable advice and I appreciate
how you were able to kind ofbreak down each step.
So accomplishing each step getsus just one step closer to our
(11:51):
end goal.
Speaker 1 (11:54):
And once you have your sales budget, that kind of
helps you determine yourproduction budget, because the
sales budget should tell you,like I said, your spend on
marketing, if you need anothersalesperson, how many leads you
need to get to hit your goals.
The production budget is okay.
We got all these leads and allthese book jobs, but how are we
(12:16):
actually going to produce it?
Right, we still got to producethat work, and so if we wanna
hit 2 million in sales, we gottaproduce that 2 million in
booked work.
And some helpful things to knowis what can one crew produce
and work per week?
(12:36):
So this will be helpful forplanning.
Typically, if it's a two-personcrew, they're often able to
produce somewhere between $5,000and $7,500 per week in revenue.
So if we use $5,000 times 52weeks in a year, it's around
(12:59):
260,000 per year.
And that's a rough number,obviously, because if you're
doing all exteriors and it'sraining and snowing at some
points in the season, obviouslythey're not going to be able to
produce work.
So you'll have to make thoseconsiderations when doing this
(13:19):
calculation.
But roughly speaking, onetwo-man crew can produce about
5,000 to 7,500 per week in work.
7,500 per week in work.
(13:48):
And so if you have 2 million toproduce and you have crews that
your typical crew, let's say,produces 260,000 per year, then
you'll need about seven, aboutseven, almost eight crews to
produce that that two million.
So you know and and you mightjust look at the the production
of your cruise, historicallyspeaking, maybe you have some
crews are super fast that canproduce things really, really
(14:11):
well, and maybe other crews arenot so much.
So you can go look at what yourcurrent crews produce and then
just what the difference isbetween what you did last year
and your new goal, and maybeit's in it.
Maybe you're at 1.5 millionthis year.
You just need to produceanother 500 000 to hit 2 million
and you know you could use the260 000.
(14:32):
So you got to get to to anothertwo more crews to hit that
additional $500,000 in revenue.
And then also breaking down yourproduction budget by week is
helpful because there's going tobe times where you're going to
have to produce more in a lot ofcases, like, for example,
(14:54):
during the summer.
That's usually when a lot ofresidential repaint are doing
the most work.
So, even though your salesmight be able to, you can sell a
project in the middle of thewinter, like sell an exterior
project in the middle of winterbut you can't paint the home in
the middle of the winter in alot of cases, so you might have
(15:17):
to wait until spring.
So, breaking down yourproduction budget by week, again
, to make sure that you actuallyhave enough crews to produce
the work during the year.
Because if you're a residentialrepaint that does mostly
(15:37):
exteriors and you're trying tohit 2 million and you're like up
north where Richard is, wherehe can't start his car because
it's too cold outside, you'regoing to have to crunch in all
your production between Marchand October or something like
that.
So, breaking it down by week,make sure, okay, how much do we
(16:00):
need to produce each week?
That will help.
And again, knowing how muchyour crews can produce will help
give the answer Okay, do weneed to produce each week?
That will help.
And again, knowing how muchyour crews can produce will help
give the answer okay, do weneed to hire maybe it's more
than two crews because of thecrunch time that you have during
certain months of the yearbecause of the weather.
So that's something to look at.
The other piece is productionmanagers.
(16:22):
So production manager, the roleof a production manager can
vary from company to company,and so some folks have their
production managers getting ahandoff from the salesperson and
then they do the scheduling ofthe client on the production
(16:42):
schedule, getting the colorscoordinated for and then getting
the crews assigned to theproject and then being
responsible for the quality ofthe project, doing a final walk
around and collecting the check.
Sometimes that's what aproduction manager does.
Other times you might have anoffice person that's maybe doing
(17:02):
the initial onboarding, gettingcolors and scheduling, and then
they hand off to a productionmanager a little bit later in
the process.
So, depending on what yourroles and responsibilities of a
production manager, it's goingto determine how much they can
actually take in revenue for aparticular year.
This ends up being somewherearound $.5 million for
(17:25):
production manager.
It could be less or more,depending on what the scope of
their responsibilities are.
So if you know a productionmanager can only handle 1.5
million and your goal is 2million, you might need to look
at bringing on anotherproduction manager at some point
in the year to get them spun upto handle that additional work
(17:48):
that you're planning on doing.
All right, so that's taking alook at your production uh
budget, the the other um thingsto look at for production would
be your margins for producingthe work.
So you know we've talked aboutmany times on the podcast ideal
(18:11):
margins.
The average gross profit marginfor 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 costassociated with the job.
So this would be materials andpainter labor.
When you subtract that out,that arrives at your gross
(18:34):
profit and on average this is40% for most painting businesses
.
For on average is 40%.
Now hopefully you're notshooting for average, hopefully
you're shooting for aboveaverage.
45% is a good target or higher45%, 50% are good targets.
If you're already at thosetargets, maybe you could shoot a
(18:55):
little higher and try toincrease that gross profit a
little bit.
But taking a look at what youhit last year in gross profit
and then seeing whatimprovements you can implement
for the next year whether that'sincreasing your pricing or
changing the compensation planfor your, your painters or
(19:18):
whatever the case is efficiencyin your process to to hit you
know to hit a higher goal foryour gross profit.
So that's another thing, abudgeting concern there taking a
look at your margins for grossprofit, because gross profit is
probably one of the mostimportant, if not the most
(19:44):
important, financial metric onyour profit and loss.
All right, once you've dialedthat in, figured out that piece,
then you can take a look atyour overhead costs.
So overhead, this is everythingnot associated with the job
site.
So this would be your insurance, bookkeeping and accounting
legal and accounting legal, yoursoftware costs, those types of
(20:07):
things.
Those are all your overheadcosts and for this, really, it's
helpful just to go through whatare all the things you're
paying for and do you still needthose things to run your
business?
You know, I've definitely feltvictim to paying for software
where I didn't need it formonths on end and go back and
(20:30):
look oh, we haven't used this insix months but we're still
paying $15 a month for it orwhatever it is.
So around this time of the yearis a great time.
We're going to have a littleextra time to do some planning,
go through those overhead costsand get rid of those
subscriptions that you don'tneed you're not talking about
netflix, are you?
(20:51):
I'm just kidding.
Yeah, it's absolutely talkingabout netflix.
Just talked to my wife aboutthis.
Um, she was on her youtube app.
Uh, she, she was playing, like,uh, she was playing.
She's like uh, she was playinga video and then, like she
turned off the screen and itkept playing the music or
whatever.
And I was like hey, isn't thatlike a paid subscription?
(21:14):
You have to have like a specialYouTube app to do that?
She's like I'm not paying foranything.
I was like I'm pretty sure youwould be if, if that's the
capability you have with YouTube.
And it turns out we were payingfor a YouTube app for the last
six months and definitely don'tneed that.
So take a look at those costs,make sure you're not paying for
(21:38):
anything you don't need and dialin those overhead costs and
dial in those overhead costs Ithink they make.
Speaker 2 (21:46):
There's companies that will actually like scour
your your bank account and lookfor subscriptions and help you
cancel them, but that that feelslike a slippery slope, like I'm
buying a subscription for aproduct to help me get rid of
subscriptions, but but yeah itis.
It is pernicious, like I.
(22:08):
I've done the same thing,daniel.
In fact, I guarantee youthere's things I pay for every
month that I haven't looked atin in a year.
But I know the minute I cancelit, my, my wife or my son will
be like you can't get rid ofthat.
I use that once in a while.
I used that last year.
Yeah, I use that once in awhile.
Speaker 1 (22:23):
I used that last year , yeah, yeah, cool, well.
So hopefully this podcast ishelpful in helping you
understand budgeting, how it canhelp you achieve your goals.
And again, once you come upwith these budgets, they're
going to be wrong immediatelywhen you set these numbers like,
(22:46):
hey, here's what I want to hitand here's how I'm going to get
there.
But it gives you some planningahead of time.
So you know, okay, I might needto hire that additional crew or
two around the spring to beable to keep up with production,
or maybe I need another.
You know, be on the lookout foran additional production
(23:07):
manager.
So halfway through the year tohit our goal and you can start
getting those processes ready,like getting your hiring process
or your recruiting processready to bring on those
additional team members.
So it can just get your mindmoving in the direction of
accomplishing your goals.
Speaker 2 (23:28):
Yeah, and I would just kind of put out there
because I have this issue as anaccountant I want everything to
be reconciled to the penny Ifyou set goals and you don't hit
it, don't hit it, but you comeclose, you are successful.
Right, we don't expectperfection.
If we get 80% or 90% to ourgoal, that is way further ahead
(23:55):
than we would have gotten had wenot set goals to begin with.
So don't get discouraged if thenumbers aren't quite lining up
the way we had hoped them to, ifwe don't quite make those goals
.
Just by having that directionand moving towards it, you have
already done better than nothaving a target to aim for.
Speaker 1 (24:15):
Yep, well said.
If you have any thoughts aboutbudgeting planning, definitely
go to Facebook, type in Growyour Painting Business and join
that group.
Love to hear your thoughts orany ideas for future episodes
and with that, we will talk toyou next week.
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