After making the previous changes to the finances of my business over the past 2 years, I've been able to see a decrease in my expenses of about 30%, and an increase in my profit margin by about 12%. It wasn't nothing and I'm sure glad that I was able to implement those changes when I did.
The next phase of financial reform in my business is something I just implemented...
The decision to stop accepting large deposits had a ripple effect on the finances of my business in many ways.
The most significant adjustment that resulted was that I was no longer comfortable purchasing paint for my client's projects. It was too risky. Customers frequently change their mind, delay their projects, do it themselves, hire someone else, stop returning phone calls, or are indecisive about colours and sheens.
So with no or minimal deposits, it freed me from purchasing paint. This is a big change for a painting business. Most painting companies include paint in their quotes. This way they have more control over the materials they use and it can make things more convenient for the client.
But does it have to be this way?...
I've been thinking lately that a transaction between a home owner and a painting contractor is a very meaningful exchange, perhaps more than most other transactions.
In a previous post I've discussed that what we, as independent painting contractors, are in the trust business. I still believe that. I still believe that what clients are looking to buy is trust - trust that you know what you are doing, that you can solve their problem effectively, that you can join the family for a couple of weeks. Home owners need to trust you with their money, access to their home, care of their valuables and assets, safety of their family members, their schedule, etc. That is a lot of trust that they are shopping for. And all that trust has a high value to them - they are willing to pay a premium to deal with a company or craftsman they have confidence in.
But I no longer believe that what we are selling is trust. We should be marketing trust, our customers should be buying trust, but that is not what we are selling - the thing that we are exchanging for money is not trust, but it is even more valuable...
You might be thinking about taxes at this time of year. And that maybe causing you some stress.
Or you may be feeling taxed by the stress of a busy painting season just ahead.
I've been thinking about work stress recently, particularly about the toxicity of stress and the toll it takes on our health, relationships and general job satisfaction. Stress is real. The effects of stress can be as simple as being more irritable to more complicated - like the inability to sleep properly, addictions, memory loss, a compromised immune system. Stress can even lead to heart attacks and death. My observation is that some of us don't consider stress enough when looking at jobs. For me, I need to be more intentional about limiting it's influence in my work life where possible.
We are just painters after all, not surgeons, so why all the stress? Is it necessary? What factors lead to some projects being more stressful than others?
Governments tax behaviours that they deem unhealthy for individuals or society, to reduce consumption/exposure and raise money to finance the side effects. So...why not tax stress in your life, particularly in your business? Add a surcharge to jobs that involve more stress, put a premium on that stress to discourage and reduce the amount of stress and raise money to deal with the consequences of stress (vacation, massage, therapy, date nights, exercise, healthy food, etc...).
With that in mind I created a Project Stress Analyzer and Tax Calculator. I fill it out as part of the process for every project I quote in 2017. In fact, I print a bunch of these sheets and use the back side to make my notes during the site visit. If a project has an average (or lower) anticipated amount of stress there is no premium tacked on. But for every degree of stress above average I add 2% to the quote, to a maximum of a 100% stress premium...
An observation from the last 12 years of self-employment:
The more you charge, the better you are treated.
How does that work? I'm not sure, but I would guess a couple things are at play...
Last week on the blog we looked at Red Flags - signs that the project ahead may get stressful.
This week let's consider what could be another early sign that your prospective client may not be a good fit for your business.
If your client right away attempts to turn your service into a commodity by asking what you charge per square foot, or how much you charge per hour, this could be a clear sign that their project won't be a good fit for your business.
WHY: FEEL GOOD ABOUT WHAT YOU CHARGE
Earlier this month Seth Godin wrote a brief blog post sharing a simple formula for calculating hourly rates for independent contractors.
'Successful freelancers need to charge at least double the hourly rate that they'd be happy earning doing full time work. (In many fields, it's more like 4 or 5x).'
If the average proficient painter can make $20/hour ($40,000/yr) working as an employee, let's see what he should charge for contract work using this principle:
$20 x 2.5 = $50/hour
That should be your baseline figure. If you or your clients feel that is high - how can you reconcile the cost and feel confident about your ask?
One thing you can do is do the math...
As an entrepreneur, you will enter into negotiations on a regular basis with suppliers, employees, prospects or clients.
There are times people just need you to go the extra mile in order to keep a project moving forward toward the goal.
It's OK to trust your gut and make someone happy, making an investment in goodwill.
Other times, people may be out to squeeze the profit out of you, or pressure you to meet unreasonable expectations.
Their demands are a way of gaining control of the transaction and taking your power away. This is a critical stage in a business relationship. Will you blink first?
There is a lot of information available out there on negotiating. But one simple, easy to remember principle that I picked up along the way has served me well over the years...
WHY: DOING IT IS DIFFICULT BUT PROBABLY NECESSARY
Do you frequently find yourself tight on cash-flow? Are you too busy - is your customer service dropping? Are you attracting the wrong customers, ones that are unreasonable? Tired of offering a particular service that you don't enjoy or that offers little profit? Not enough time to pursue the things that are really important to you and your family?
The answer to all these problems (and more) might be as simple as raising your prices.
It's easy to say, but hard (and scary) to do. On another blog post we will deal with why you should raise your prices. But for now, lets assume you've realized that a price increase is needed. How can you implement your decision?
*something to consider before you think about raising prices: Am I as busy as I want to be? If not, raising prices may not be your first priority. Although, low prices may be driving good potential clients away...