I want stain/paint to be $100/gallon

[plainpainter 217]

Yeah you heard me right - I want the cost of the average gallon of latex paint and oil based stains to be about a hundred bucks a gallon. Sounds crazy, eh? Well someone just taught me something that should have been blindingly obvious to me.

Guys, if the cost of materials skyrockets - it's an absolute blessing in disguise!!!! Pray for materials cost to skyrocket across the board, pray for the EPA forcing manufacturers to raise the cost of coatings in general - pray for the day that typical premium interior paint averages $60 as soon as possible. It's a good thing!

[Greg R 82]

ummmmmm...... your nuts Dan. Anyone ever tell you that :)

[plainpainter 217]

I had a eureka moment, you should think it over for a while - maybe you'll understand why.

[TNRoofCleaner 16]

Force less gov't regulation for one.

[PressurePros 249]

Dan, his thinking is based on gross dollars and is not only too simplified, its flawed.

I'll email my response to you.

[Greg R 82]

Well someone just taught me something that should have been blindingly obvious to me.

We'll lets not hold onto the secret now.... please justify your statement. Where theres a positive there's usually a or many more negatives :)

[rick77 14]

I hope this thread isn't going to be as lame and drawn out as the thread promising to have a great method of removing shotgun fungus from houses.

[Greg R 82]

So help me if he says "so the hacks can't afford to buy it....." :lolsign:

[PressurePros 249]

Dan's guy is saying that if labor costs constitute the majority of your sale, you are dead in the water. There is logic to that if what you are selling is high dollar and has good margin (lets say Pella Windows at a 40% markup).

I thinks Dan's guy is a bit caught up in gross dollars. I agree that gross dollars is one of the high functions of business. That's why I sell decks versus driveways or $200 house washes.

This is from the email Dan sent to me. Dan asked the guy what he meant by saying that if labor represents 85% of your business, you can get in trouble quick. This was the reply.

The simple answer is a question…how many jobs can you do a year with 5 men if your labor is 85% VS how many jobs if your labor is 50% ?

Simply, with 5 men working a 50/50 ratio, you’re grossing more dollars (more overhead and profit money) per year…based on the same man hours.

Ponder it and run some numbers. I'd like to see what others think about that statement. -KF

[Greg R 82]

Okay I admit I'm tired but......

How does this relate to wanting $100 a gallon stain? And who in the pressure washing / wood restoration business on this scale has an 85% labor cost???

I feel like we're missing some important points to this conversation Dan had :)

Edited November 2, 2009 by Greg R

[Beth n Rod 1,279]

Sucks to 'want' doesn't it?! Thanks to the EPA regs, I doubt we will ever see those prices again.

Rod!~

[James 625]

Dan, the price of materials have sky rocketed over the last few years? Plastic has doubled along with Gas , Mineral Spirits and any other Petro based product. Ready Seal has stayed low relative to all other sealing products which are 1/3 to 3/4 higher and up per gallon and five'er . I have done some specialty jobs where materials have been 40% of the job.

It always seems like you come up with theory's and hypothetical's ?

[plainpainter 217]

James - you have two companies where labor constitutes 85% of your overhead and another where labor constitutes only 50% of our overhead. The difference between the two companies is that materials cost is very low for one but not the other. Now say you markup your overhead to reflect a 10% net profit margin for your company. The company with a high materials cost has a lot more gross dollars to mark up and therefore will have a much greater net profit margin. I don't know if I agree with this statement or not - but the guy telling me is a 4th generation painter/estimator whose company has been freelancing job estimation for multi-million commercial jobs since the 60's. This guy knows his stuff. If all the Walmarts across the country need to be painted, and some national company is doing the painting - more than likely they have hired this guy to do the estimation off of blueprints - he estimates 100's of millions worth of work per year. Like I said - this guy knows his stuff - and if he says you are better off with a company with high materials cost - It's something to chew on!

Also think of it like this - last time I bought sheetrock, it was something like $7.56/board. You are company that buys 180k worth of sheetrock a year, you won't pay the same $7.56/board - more than likely you'll get 15%,20%,25% off of regular price. So marking it up 10% for the customer is no big deal. But that's an extra 18k of net profit in your pocket - that otherwise you couldn't have gotten with a company like our staining companies where materials are like only 15% max.

[PressurePros 249]

Dan, this is his statement:

"Simply, with 5 men working a 50/50 ratio, you’re grossing more dollars (more overhead and profit money) per year…based on the same man hours."

I am not understanding how more overhead is beneficial. Maybe just a mistake in terminology used?

"based on the same man hours". This is where he is correct as long as we are talking about identical install times AND the market can bear a higher markup.

His theories are based on his comparison to painter's labor rates which are generally what? $35/mhr?

I see where your logic is on the $100 gallon of stain. Keep in mind the higher the price, generally the lower the margin. So right now lets say a woodie marks up his stain 35%. The owner profits $14/gallon. On a job that uses 7 galllons that's $98 profit above the labor markup profits. A typical job that size costs the homeowner $1200.

At $100 per gallon, you may only be able to markup 20%. So on the above example you will now profit $140. Except, now the same job costs the homeowner $1,767.00. What do you think that would do to your closing ratio? Do you think you would have to increase your advertising budget to compensate for the loss in sales? Maybe the extra $42 you made on the stain would cover your extra costs, maybe it wouldn't. But let's pretend it does.

In 2009 you did exactly 100 jobs at $1200. $120,000 gross sales.

In 2010, with the stain at $100, you did the same amount of jobs at $1767. $176,700 gross sales. An increase of 33% ! Look great on paper. Oops, we forgot about the added advertising expense. Its a zero sum gain.

Except for one critical fact..

Every other expense was the same (labor, direct and indirect costs) and since the advertising killed the extra gross dollars, your salary stays the same. In terms of percentage, you would actually take a loss in salary.

Like I said, there is a line you can cross where your guy is correct. If you can sell something that costs $200, sell it for $300 and charge $300 to install it, you have a much better profit generator. Even that is a broad statement. How long does that $300 install take? What skillset (labor cost) is needed to install it? What tool/machinery cost is involved?

Profit margin is king in small business. Until you break about the $2M mark, gross dollars are nowhere near as important as maintaining margin.

[topcoat 14]

Dan

I think there are some holes in the bucket on that one.

Your gross dollars would jump big time, but so would your material costs. Yes, you would enjoy greater material markup potentially, but take Aura for instance. Its about the priciest interior paint. It retails for about $60. No one gets the same buying power on it that we get on Regal or Super Spec. So, you can buy Aura for $50, the homeowner can walk in and by it for $60. How much can you mark up your $50 cost before it becomes self defeating and you go back to using Regal or Super Spec (except for those cases where you need the labor savings of Aura coverage) and enjoy a very healthy markup?

Your source may be right. Speaking just for me, I spent about the first five years in business thinking too much in terms of gross. It really doesnt matter. You are enough of a numbers guy to be able to figure out the sweet spots between gross and net.

For the sake of easy numbers, say you grossed (sales) $300k this year at a net profit of 10% or $30k. Next year sales go down 33% to $200k but net profit increases to 15% or $30k. I know which year I would rather be having. My goal is to be as or more profitable doing less volume. Just like Ken Fenners goal is to get his marketing budget down to 0%.

[plainpainter 217]

Scott - I am still thinking this all out - but I think there may be a tendency to try and relate this back to what we know with hypothetical situations of 'what if'.

I think the point is, if you are in an industry where the bulk of your dollars goes into materials, a simple 10% markup can go a long way. Look at the guy installing Mahogany decks or Ipe for that matter. Say he builds a hundred decks in a season with a crew of 5 guys, let's say you have the same crew size - same amount of 'crew' hours but your materials simply paint. A 10% markup on all that lumber can go a long long way towards net profit margins.

Looked at it another way - why is it so hard to compete in the painting trades? Because our estimates are mostly man-hours. I think my man-hour needs to be $57/hr - you may think a good crew can make a handsome profit of $47/hr. Then there is local 'townie' that paints all day long for $21/hr. Since 85% of overhead is in labor - this translates to huge swings in the final price tags.

Now look at competing deck builders, let's say labor is 33% of the total estimate. The materials is a pretty much a non-negotiable item - it is what it is. Looking at the labor portion - say one guy charges labor at half of someone else - since labor is only 33% - this only translates to a 15% difference in price, unlike in painting. And the materials cost is what it is - you now have with the same labor hours per year as any other trade like painting or plastering - but you have an additional 66% of materials that you can easily markup 10% - and that will translate into huge profits.

[topcoat 14]

Dan

Your analogy to a ipe deck builder is a good one. I have talked to my builders about the fact that we are an 85/15 model and builders are generally more 50/50 labor to materials. They can only mark their materials up so much before they price themselves beyond all the other guys building at a standard markup. In the end, they both deliver the same ipe deck. I dont think this is the answer. For painters, I am pretty ok with the idea that we sell time. The answer is to sell more peoples time than just your own. A best case of 2000 man hours per year is very limiting. You know how many times Brian laid out different scenarios showing how numbers can shift pretty quickly.

[Greg R 82]

Scott - I am still thinking this all out - but I think there may be a tendency to try and relate this back to what we know with hypothetical situations of 'what if'.

I think the point is, if you are in an industry where the bulk of your dollars goes into materials, a simple 10% markup can go a long way. Look at the guy installing Mahogany decks or Ipe for that matter. Say he builds a hundred decks in a season with a crew of 5 guys, let's say you have the same crew size - same amount of 'crew' hours but your materials simply paint. A 10% markup on all that lumber can go a long long way towards net profit margins.

Looked at it another way - why is it so hard to compete in the painting trades? Because our estimates are mostly man-hours. I think my man-hour needs to be $57/hr - you may think a good crew can make a handsome profit of $47/hr. Then there is local 'townie' that paints all day long for $21/hr. Since 85% of overhead is in labor - this translates to huge swings in the final price tags.

Now look at competing deck builders, let's say labor is 33% of the total estimate. The materials is a pretty much a non-negotiable item - it is what it is. Looking at the labor portion - say one guy charges labor at half of someone else - since labor is only 33% - this only translates to a 15% difference in price, unlike in painting. And the materials cost is what it is - you now have with the same labor hours per year as any other trade like painting or plastering - but you have an additional 66% of materials that you can easily markup 10% - and that will translate into huge profits.

So the key to being wealthy is making 10% off a $100 gallon of stain rather than a $40 gallon of stain? :) Is that why you want stain at $100 a gallon? Markup on materials should be a given. If your not doing it already your losing a decent addition to your gross sales. We've been breaking down the stain as a seperate line item for probably 1o years now and we sell it for a profit just as the labor is. In fact in Indiana if you DONT break it apart from the invoice you have to charge 7% sales tax on the whole invoice rather than just the stain so for the customers sake we have to as well.

In a big business environment yes a 10% markup can yield a significant addition to gross sales. With a small business with the volume we do it might add a profit of $12 to 15k to the bottom line. Is it worth it? Absolutely... but it's still not the bread and butter of the business.

[acegot 14]

All I know is, there are somethings you should'nt wish for!