It’s not what you think. We’re not going to talk about having a good time. You’re a professional and you know that being a purveyor of painting services is like being in a touring rock band. If you can’t play, you don’t get paid. But we do want to shine a spotlight on what it takes for you to be able to afford to have a good time because you are a profitable purveyor of painting services.
You have worked hard to build a reputation as a reliable craftsman who does excellent work on time and within budget. The next career move is starting your own painting business. It’s important that you understand and consider the costs of contracting your services. A quote that accounts for the costs of doing business is foundational to your being able to accurately estimate the time and material on a project. Quality comes at a price. You can deliver it, but you should profit from doing so, not bearing the cost of it.
Today, business runs on data. The contractor who masters his data is the one who succeeds. The formula for mastering your data is:
QP = M + L + O/H + PM
QP is the Quoted Price, which equals the sum of the Materials, Labor, Overhead, and Profit Margin. Data includes expenses, so to be profitable, you have to calculate the costs to produce the profit. That starts with writing a comprehensive financial plan, so you can track your business status.
The first step to creating that plan is establishing a budget. A budget is simply an estimate of income and expenditure for a specific period of time. In a July 2016 article on Entrepreneur.com, the budget was identified as “the first step in creating a financial plan because it:
- Helps plan for the future
- Helps plan and manage your money
- Helps identify problems before they occur or get out of hand
- Helps you meet your goals and objectives
- Improves the decision-making process
- Increases employee motivation
- Helps keep costs under control”
There’s that word cost again. It is a small word that represents the difference between whether you succeed or fail. Costs are divided into several different categories; direct, fixed, and variable.
- Direct costs include project-related expenses like material, labor, and subcontractors. If you have employees, the labor costs also include taxes, multiple insurances, and benefits.
- Fixed costs are regular monthly expenditures made by the business such as salaries, facility rent and utilities, communications, advertising & marketing, the expense of purchase and customization of your professional vehicle, and bank service fees and interest. When we talk about salaries, it is important that you include your own salary. Too many contractors pay themselves out of what they think is their profit. Your profit is what is left after everyone gets paid, including you. Successful painters have learned that they must include themselves as part of the payroll and use their profits for reinvestment in their company’s growth by retaining good employees, buying new equipment, and upgrading their facilities.
- Variable costs, unlike fixed costs, happen regardless of your business activity. Variable costs change as business activity trends. Variable items include vehicle and equipment maintenance and repairs, supplies, advertising and marketing, and commissions.
Fixed costs and variable costs usually represent your Overhead. Finally, you add your profit margin. It is advisable to first calculate the base project price THEN add the target profit percentage. This will give you a more accurate Quote Price.
Only after you have covered these costs can you say you are breaking even. If you do it consistently, tracking your data and adjusting it as needed, you will soon become profitable.
That is when we can talk about celebrating and “painting the town” the right way.