Raise Your Damn Prices!

Jon Bryant: Welcome back to the Price. Sel.l Paint. podcast. I'm Jon Bryant here with Michael Murray. For those who don't know us, we've been in the industry now for what's combined, 40 years? Something crazy like that. We've got some experience, we'd love to share it with you. And today, we're talking about a topic that's pretty near and dear to our hearts, which is you gotta raise your price, let's charge more money. Michael, what do you think about when I say that?

Michael Murray: Long overdue. I think one of the biggest weaknesses in our entire industry is this misunderstanding of trying to stay busy, that if I'm just busy eventually, I'm going to make money. And unfortunately, as I personally experienced with low prices for way too long in my own company, that's not actually how it works. You need to be charging a fair price, a correct price. And if you can't find work at that price point, you need to improve your sales skills, which we are all about here, or you need to go find something else to do because there's no point in being in this industry not making money. We are all working way too hard with way too much risk. And our team members, as business owners, the people that work for us deserve to have a really good wage with good benefits, great place to come to work. And the only way that we can make that happen is by charging the right price.

Jon Bryant: Totally. So I'm excited to talk about this too, because I see the same thing you do, which is that a lot of people confuse busy with success. And then I guarantee they get to end of the year and they talk to their accountant and they're like, my goodness, I lost money. Well, at least we were busy. It doesn't work for me. We're running businesses here. People need to understand that this is built as a profit making endeavor. This isn't a charity. And I think what a lot of people get wrong is they think what's the price that's going to get me the job? Ultimately, it's like, that's the lowest. What's the price I need to charge the customer is like, never going to not choose me. And so it's this race to the bottom in our industry that really gets me charged up to be like, we got to do something about this as a whole industry, because like you said, our time is worth way too much. Our effort is worth way too much. And the big part of this is figuring out how to price. We see time and time again, people are pricing too low to get a job, not realizing that maybe that customer only got one estimate. And so today I want to really get into this and figure out how to just share what we know with the audience in order to get them to a place where they feel comfortable and confident to charge the price they're worth. I know we've talked about this a little bit before, the price you're worth versus the price that everyone should charge. What are your thoughts there?

Michael Murray: When you say what everyone should charge, you're saying maybe what the market is charging or what do you mean by that?

Jon Bryant: Yeah, like a market price, that there's this special price that everyone should charge. I know we've talked before and I think you're passionate about this idea that your company is not my company. Our price is not going to be the same. Can you maybe walk the listeners through that? Cause I think we've talked about before and the way you talk about it really resonates with me.

Michael Murray: Yeah, for sure. I think one of the best things about being a business owner is that we get to shape out of clay, if you will, this idea of a great place to come to work. My own personal journey, I've been doing this, I've run my business since 2006. For the first about 10 to 12 years, we had a really unprofitable, not fun business that I worked way too hard in. For the most part, we're busy and we didn't make any money. I didn't make any money. And at the end of all of that, I had hundreds of thousands of dollars of debt. And I think at that point, really the only people that had any real satisfaction were my Sherwin Williams vendors, cause I was buying a decent amount of paint. My employees weren't having a great experience because they weren't paid as much as they should be and they didn't have any benefits at that point. And I wasn't making any money and it just sucked. We didn't have any management level opportunities for people, cause we weren't able to afford to grow. And so what I decided at that point was I really had a couple of choices. One of them was to go bankrupt. Cause I owed so many people money. I really didn't want to do that. Probably just out of pride and ego. I didn't want to admit that I had failed so poorly. But I also think that I realized that there is opportunities for people to be successful in this industry. And I think a lot of it, once I got more involved in the industry through PCA, through Nolan Consulting, through some Facebook groups and things like that, I realized there's people out here that are running good businesses. And I've seen their numbers. This isn't just bravado at the bar at the expo. Maybe people inflating numbers. It's like no, this is real and a lot of these people didn't seem to be these super magician, Steve Jobs business titans or whatever. They're hard-working good people that had just something figured out that I didn't. And so what I decided to do was I said, all right, I'm gonna fix this. And I'm going to create a business that I want to come to and that will attract people to come work here that I want to work with and will attract the type of clients that I want to work with. And so I sat down, I thought about that. What does that mean for me personally? Some of the things that I wanted to be able to provide for myself, as well as our team members were health insurance, retirement plan, paid time off. I wanted us to be able to afford to buy decently nice vehicles. It didn't have to be brand new, but I didn't want to be driving around in a rust bucket that was breaking down all the time. We had a couple of those 10 years ago, cause that's all we could afford. And I wanted to be able to have a decent office. I want to be able to have some office staff. Certainly some people around me that could do some of the other things. We talked a lot about hiring sales reps. I didn't want to work 60 plus hours a week. I wanted to be able to spend time with my family and my really young kids at that point, now getting older kids. And all the things. And so I sat down, I said all right, what does that cost? What would that look like? And then from there I started to figure out what I should be charging as opposed to saying, here's how much customers say they're willing to pay, which I think is a really interesting point that we need to come back to at some point, because customers are lying to you. Or instead of saying, what is a customer willing to pay and then working backwards from there and saying like, okay, with my few pennies that I have left, what are the things I can afford? And saying, no, not doing that anymore. I'm going to say, this is the business I'm going to have. And if I can't sell work at the price that I need to, to have that business, I will go find something else to do. And what I found is still doing it. And there's plenty of people that are willing and not only willing, excited to pay a good higher price for a great company and a great experience.

Jon Bryant: Absolutely. I mean, obviously you and I are aligned in this concept and there's a few points in my life where this became really apparent. To your point, the first year I did this, I wanted to go bankrupt. That was my goal. I wanted to learn what it was like to run a business. And let me tell you, the painting business is pretty easy to go bankrupt at. So if you're looking to do that same thing, definitely start a painting business. The thought processes that occurred to me were number one, how much should I get paid per hour? And so I was like, okay. Well if I just got paid a little bit more than I might make somewhere else, that should be good. That was my first thought process. I remember that vividly and it wasn't until I got, we were busy like I was working with a couple friends. We were busy throughout the summer. I was so proud of that. Got to the end of the summer having charged just a little bit more than I was paying the staff and we charged the paint out without a markup, which we can talk about that too, that my accountant was like, Hey John, congratulations. You lost thousands of dollars. Outside of my goal of learning what it was like to have failure, it was a shell shock for me. I was like, wow. This is how easy it is to lose money. And so it wasn't until similar to you that I was exposed to production rate estimating and how my hourly rate for my time reflected my business and how to calculate that, that I could put those two things together where I could figure out how long a job would take, figure out how much my time was worth based on my company. And to your point, the values that I had, the company structure that we were looking to do. I could put those together and consistently make money. And that was a game changer. That moment, it was a pivotal moment in my life to say, you know what? This makes sense. This finally makes sense. It's not square footage pricing because I couldn't figure out why that actually translated to my business values. It wasn't random days of people's work where I just ballparked, this is six days. Oh, it turns out it's 10. Oops. That sucks. And so, once I got exposed to that, I can't even begin to tell you the change in my life that occurred. And it sounds similar to yours, where it's like, I could actually attract the customers I was looking for. I could attract the staff that I felt like, the team that was going to make this thing really come to life. We could actually have a mission and a vision and all this other stuff. This wasn't a, if I don't cut corners tomorrow, I'm going to lose my house kind of situation. And so, that was really, really important. The other thing that I will say in this discussion is that inherently, a diamond is a rock. What is the price of a diamond? Do you know? It's a rock. This is a made up value system. And once you kind of understand that, that the diamond now has certain cuts and certain clarity and all this other stuff that's also all made up by the way, now it costs different amounts. That we can start to understand how marketing, how sales actually impact the value of a business. And it's not just a commodity. Diamonds aren't a commodity. In fact, if you go and look at the Tiffany box, like a Tiffany diamond ring. I don't know, what does a Tiffany diamond ring cost these days? Do you know?

Michael Murray: I can say that my wedding anniversary is coming up here soon. So don't know if my wife got to you and put you on the spot here. I feel like I'm gonna have to raise my prices here again soon. I don't know what, 25,000? I mean, more than that? Really? I don't know. Okay.

Jon Bryant: That was, I was gonna say 20, 25k. And I've heard this analogy before where if you take that diamond out of that box and you go get a ring that you got in a crackerjack box, they're the same design. Whatever, you throw that in a paper bag and shake it around, you bring that out. The average person can't tell which is the Tiffany diamond, which one isn't. And so that box that costs them $2, probably, who knows, it could be less, is actually worth probably $24,900 to the whole process. That diamond, obviously there's processing and whatever else, but they're making the value of their brand through the delivery of that product. And I think a lot of us here in the industry get wrong as we think that our product is our value. Our product is not the value. We got to stop thinking that the product is what the value is in the customer's mind and how they perceive your brand, how they perceive what they're going to receive at the end. It could be the trust factor, your reputation, the way you do things, the way you handle color, massive deal to customers. These are value builders that don't have a dollar value. And we can't figure out what that is to the customer until we help build it in the process.

Michael Murray: Yeah, I agree and I think it's also taking that one step further. You've probably heard this in a sales setting or sales book before, if you're selling blenders don't sell the blender, don't sell the blades and the motor, sell the healthy lifestyle and the longevity and maybe reducing your inflammation or the weight loss in the byproduct of what the blender can be in your life. Don't just sell those features and benefits, but what is the long-term, that's why somebody's buying that blender. It is a tool to get to this desired state. And I think again, to your point, too often we see ourselves, what we do in a less than reality of what it is. We are creating a space for people to be able to do so many different things, whether they're looking for a cozy and comfortable space in their home, where they can relax and get away from life stresses, or they're looking for a more invigorating space where they can entertain and be creative and build community with their friends and neighbors. And as I'm saying that, many people listening are thinking of darker colors and lighter colors and all the different ways that color theory plays into the emotions that we all experience. And certainly anyone with an interior design background can certainly understand that, that's really what that is. And it is significantly important. I heard something recently, I remember it came from a study that some patients in hospitals that are going through really bad cancer treatments and stuff have much better outcomes when they have a window in the room and a more comfortable environment versus no windows, no outside nature and just a dreary drab room. And it's just like that shouldn't make sense. It's the same medicine, same stuff, but the environment that we're in dramatically affects our life experience. And that's what we do in our industry. And it's just like, it's so much more than we're just putting paint on stuff.

Jon Bryant: Absolutely. So let's come back here to, so say you're talking to someone, Michael, and they're like, look, all that sounds great, but I just got to get some work. I've lost the last five jobs and I'm pretty sure it's my price. How often have you, I've heard this so much in my life. What do you say?

Michael Murray: Yeah. I dealt with this myself. To say what you just said a different way, cause I was going to ask you the same thing is this thought of, yeah, but if I raised my prices, I'm going to sell less. I'm going to sell fewer jobs. I can understand where that comes from. This basic economics class of supply and demand. We've seen the lines and all of the things and I get it. I'm not trying to say that that's 100% incorrect. I'm saying it's just not a full picture of what's happening. That would make sense if we were selling a commodity to the point you just made, where what we sell is exactly the same as what somebody else sells. It is not, it's not even close. And that we work in a perfect market where customers have access to all of the different options, they don't, and where customers are logical and they aren't making emotional decisions in things like this that are going to be based on their experience or so many different things. I can speak to my personal experience. When I was a college freshman, I started running my own painting company, like many people in the industry. And at that point, my concept of money was, like most college students, maybe a little bit different than it is today. At that point, 50 bucks was a ton of money. And I specifically remember adjusting my prices lower because I knew in my being that there was no one on the planet that would spend more than $3,000 on a paint job. That if I calculated a price, I was using production rates even back then, on pen and pencil and paper, Eddie's pencil, because there were mistakes. And I would walk around and I'd calculate how many hours it was going to take and figure out my rate, how much I need to charge somebody. And if my price was over $3,000, I would go back through and I would take out some time and figure out a way to get the price to be under $3,000 so I had a chance to book it. I didn't sell that many jobs. I had a really low win percentage. I remember being under 30%. It's a little foggy now, but I remember being very bad. Yeah, I was really bad. I worked hard, so give me some credit here. I did a lot of door-to-door marketing, a lot of estimates, and a lot of lowering my price to try to win jobs. And I didn't win that many jobs. And I probably don't need to say this, but at the end of summer, I had made no money. So I'd worked really hard and looked up and literally had made no money. So that was super. And the biggest thing I realized is I needed to learn how to sell better. And we talked about that a lot, is that a lot of times if you're not selling jobs, it's not because your price is too high. It's because the value that your customer is perceiving that you are providing is too low, which is different than the value you're providing. That sales skill is helping a customer to understand the value that you're providing in a super positive way and making sure that it matches what they're looking for. But there's also just a bunch of studies out there. I didn't do my homework to reference it, but you can do quick studies or a quick search to find these studies that show us that most customers will tell us that the reason they didn't go with us is because the price was too high. And sometimes that's true, but that is often not the case. There are so many other reasons as to why they didn't do it. And then they just justify it with your price was too high because I think for most customers, it is a non-confrontational way to get out of this sales experience. And the sales rep is just going to go away if I said, your price was too high. We're not going with you because that sounds nicer than I didn't really like you. You didn't give me a good first impression. I don't trust you. I don't think you have a good reputation. Or, maybe put it a different way, I found somebody who I trust more, they have a better reputation, they gave me better feelings when they were here, and I'm more confident that they're going to be able to do the job. Which, by the way, might actually be more money than what you quoted me. And I think we both experienced that quite a bit, where we have sold many jobs where we were the highest price.

Jon Bryant: Absolutely. Yeah. And so, that's the interesting part of what actually asking questions and learning what the customer's really trying to get at. We're in this unique position in our industry where we build the product while we're with the customer. And so part of it is, we need to understand how to ask the questions of what the customer's really looking for and not assume we know what the product is they want. I think a lot of cases people get this wrong where they just give a customer, we walk in, we show up, we tell them what we're all about. We assume they know, we know what they want and we give them what we think they want versus what oftentimes allows a better sales process is understanding what the customer is looking for and building that experience as well as the product and building the value. And so that only happens through an actual interaction and this process of really wanting to understand what your customer wants.

Michael Murray: Most customers don't even know what they want until they've had a really good conversation with somebody from our industry. Oftentimes, we're the first quote somebody gets. We're very responsive, easy to find, do a lot of marketing, things like that. When we're not, if we are the second or third quote somebody's received, we often find that they have no idea what they're looking for. Nobody's asked them any of the right questions. They don't have any idea what the options might be in terms of products, in terms of timeline. There might be ways to maybe only certain areas the project actually are things that you really need to paint. You might be able to get the goal that you want, which is to feel more comfortable in this space or to get this problem to go away without having to do exactly what maybe they think they have to do.

Jon Bryant: Also, this is an interesting point too, when you actually do get honesty from a potential customer. And I've even seen this in my own life when I've been working with people. What we believe is occurring on the outside is not what's occurring for the customer. And that's that they've got this wild price spectrum. It's oftentimes crazy. We'll come into jobs, we'll bid them and our price might be, let's call it 10,000. There's someone coming in at 20 and there's someone coming in at 2000. We're not talking about a few hundred dollars difference. That's why they chose the other person. It's like, these are, it's never that close. And the reason is, I'd like to believe our companies are different, but I think the reality is that so many people need help pricing. And we're going to get into that because people don't understand what, a lot of people in my network and people in this industry, when they figure out their price, they figure out their company, everything works, but a lot of people are guessing. And so you're bidding against people who are guessing, people who don't have a system. That's probably, I want to say, unfortunately, really, really high. 90, 95% of contractors in our industry don't have a system. And so when a customer says, it's because of the price, it's like, let's talk about that for a second. Is it an $8,000 difference that you're going with here? Cause that is a huge difference. Are you concerned about that? Cause I know I would be. If you're not, what are we doing here? So someone else presented the value that they were willing to resonate with. And maybe they just wanted to spend two grand and roll the dice. I don't know. Or maybe they actually chose the $20,000 contractor, which has happened to me, by the way. I've been in bidding situations where we came in at 10, the other contractor came in at 50,000, that person chose the 50,000. And that's to me, I was like, that's crazy. How could they choose that? This is a bungalow. What are they doing? Well, the value resonated with them. Do you think that contractor goes around thinking, it's my price why I'm not winning jobs? Maybe, because that's a pretty high price, but he's also getting work in the neighborhood he wants with the customers he wants. And my value didn't resonate with that person as well.

Michael Murray: Well, I mean, so use that number though. Let's just use maybe something that's a little closer and just say it's a $20,000 project and a 10 versus a 10. That person who's winning that project at 20,000 needs to do half as many projects that you would need to do at 10 to hit their revenue numbers. And then we can get to, which is kind of the whole point of this conversation is the profitability that should be there doesn't necessarily mean it will be, there's so much greater opportunity for profit on what, at that price point. And so fewer customers, fewer headaches, fewer opportunities for problems and greater opportunities for profit. All seems like a pretty good combination to me.

Jon Bryant: That's the dream. I think a lot of us, if you're listening and you're feeling like you need to raise your price, we're going to talk about that. But that equation is the perfect equation. The worst equation is tons, especially in our industry, which is an art in a lot of ways. It's like, I'm going to go provide art to as many people as possible while making the smallest amount of margin I possibly can, maybe even lose money, just be busy. And then at the end of it be like, well, here's my volume of work I did. Let's talk about, I think what's the saying, volume is vanity, profit is king or something.

Michael Murray: Yeah, revenue for vanity and profit for sanity.

Jon Bryant: That's exactly there it is. Yeah. So let's, should we get into that? How do we price these jobs to make sense? Or do you have anything else? Okay. So Michael, take us away. How did you go from? Yeah, go ahead.

Michael Murray: Yeah, I think there's a lot of different ways to think about this. We're going to, this is going to be our math part. Hopefully, for the one person that's still tuned in here. Talking about math. I think the reality is just that this is, I think where a lot of people in the industry get stuck where it's like, this does take a little bit of effort, but if we can do it on a podcast with, you know, maybe if you're watching on YouTube or if you're listening on your Spotify or your Apple podcast, it's just like, imagine, this is so much easier if you're just like grab a piece of paper or you're whiteboarding it, but it's to the point of this isn't that hard. So I think that's kind of work our way up from the price. Let's build into our price. And then we can also talk about price in some other ways, kind of heat check ourselves and maybe ways that we would think about what happens if we raise our price. So the number one expense for, just to be clear, we are going to price based on an employee model. That's what you and I know. Pricing really should be about the same. It's just a slightly different way of describing the expenses.

Jon Bryant: I want to just explain that really quickly. I don't think that our pricing model is exactly for employees. We'll talk a bit about that. But if you run a sub model, you need to think about what it's like to have employees because essentially you're just sending that piece out, but you still need to charge appropriately in order to make all this work. Right. Okay. Back to you.

Michael Murray: For sure. Yeah. I mean, the price really should be the same. If you're doing things the right way, it's like, you're paying people and they're paying their taxes and everybody has insurance and all the different things. It's actually just a different way of slicing up the same pie. There might be reasons to do that, to have a flexible workforce or things like that, which makes a lot of sense. If we're doing it so that we can just justify paying people less than their worth or justify not paying taxes. That's not very ethical. We personally think I hope you leave the industry if that's kind of what your goal is. But maybe we'll save that for a different episode. Okay, so let's kind of get into it. I think the number one expense for a business like ours is going to be labor.

Jon Bryant: And are we going to talk about percentages here? Yeah, okay. Yeah. What do you think?

Michael Murray: Sure. Yeah, give us, yeah, I think we both know the same number. Give us an approximation of labor as a percentage of your revenue for the year. Yep. So that's a pretty good idea. Are you talking with labor taxes or let's call that burden?

Jon Bryant: We go at one third. So.

Jon Bryant: Burden, yep. So all in labor rate of percentage of 33%. And that's going to be, yeah, your workers comp, what else is in there?

Michael Murray: Yeah, I mean, employment taxes, again, obviously, here in Canada, I'm in the United States. Some of our listeners are in different countries, certainly different states. So everybody's tax burden in that sense is going to be different. And so when you take their direct wage plus the cost to employ them on a minimum basic, we're not talking health insurance or stuff yet, that should be about a third, about 33% of your total revenue. So again, first of all, I think we need to maybe just back up a step and define how we get to this point is just the average hourly wage. And so let's just come up with a real number here. Give me some, I've got five employees that work for us, John. Give me some wages. Let's do this real quick. How much are they getting paid?

Jon Bryant: So we got Shelly, she's getting paid $15 an hour. She's new, new to the industry. We got Marcus, he's making $20. He's in the industry, not quite an expert. He can do most of the major things. And then we've got someone who's more of an expert, $25 an hour. So we got three people in here. Does that sound about right to you? I mean, I'm making these numbers up.

Michael Murray: Okay. Sure. Give me two more just for fun. 20, 21 and 18. Perfect. Okay. And so somebody listening, and this is where, again, sometimes we get stuck, having these conversations in person at an expo or something. So you can't hire somebody for $15 an hour or $25 an hour. That's too high or whatever. Again, this is fine. You know what you're paying your individual team members to do what they need to do, substitute the real numbers, but understand the exercise that we're doing here. All right, so we've got these five people. We're going to add that up. So let's grab our cellular telephone devices. 25, 20, 21, 18, and 15. I've got.

Jon Bryant: And while you're doing that, Michael, the one thing that I would suggest is if you are running a sub model or if you're even just wondering what the average wages, just go on glass door, indeed, and look at what people are actually offering and paying. There's a lot of great info on there. Give you a good sense of what your market, that's one area where I believe there is a bit more of a market rate, so to speak, is you can kind of tell roughly what people are paying. So anyways.

Michael Murray: But I would think at this point, as we're talking here, second half of 2024, in most parts of the country, the average wage, hourly wage, non-union company like ours is somewhere in the neighborhood of 20 to $30 per hour. I would think some of your coastal cities, your big cities, maybe it's a little bit more than that. Perhaps pushing 35 in some places like New York city or San Francisco as an hourly wage. And I could be way off. We don't work in those areas. I have some access to talk to people that are in those areas and just like you do with PaintScout and things like that. Does that resonate with you?

Jon Bryant: Yeah, absolutely. Yeah, that's obviously crept up quite a bit over COVID, but yeah, that's roughly what we see.

Michael Murray: So in this example, the numbers that you just gave me, that adds up to $99. So when I add the five wages, 25, 21, 20, 18, and 15, I get $99 in total. So to get the average, we just have to divide that by the five, 99 divided by five is just about the same as 100 divided by five, which we're going to call 20. All right. We're a hair under 20. I'm going just round it up to 20. And so if we go, so first of all, that is just the wage. And so now we need to add the burden onto that and it's going to be different everywhere. I would say what I've heard in most places it's going to be about twenty to twenty five percent.

Jon Bryant: That's exactly what I've heard and experienced. There you go.

Michael Murray: Okay, right. And so again, this is where we get caught up. You and I are in different countries with different experiences here, and it's pretty similar. And so let's just add another four or five dollars to that. For the sake of fun, let's just make it five bucks, we're at $25. And so the cost of labor per hour without extra benefits or anything like that yet is $25. And so if we take that and multiply it by three or divide it by a third, it's going to give us the same thing. We know that a rough idea, this is not how we come up with a price. We're going to keep working here. But just as we kind of heat check ourselves, anybody that's listening, you can figure what is your average wage plus burden multiplied by three. And if that's not pretty close to what you're currently charging, especially if that number is higher than what you're currently charging, you really need to raise your price. So in this situation, we're at $75.

Jon Bryant: Yeah, and in a lot of cases, this is, yeah, it's a good back check and it might be an indicator of why you're not making the money you're hoping to make. For those who are wondering where we're going with this, your hourly wage is a reflection of your whole business and it works into a production rate model and that once you figure out the time, you can now multiply it by the dollar per hour. And assuming you get that project done on time, you make the money you were hoping to make. Now, a couple of random things. What if, we're assuming everyone's working full time with this model. So keep that in mind if you feel like making a comment down below, like, Hey, what if this happens? It's like, yeah, you're going to make some adjustments over time. But what we're talking about here is just a back check of where your rationale is. This isn't meant to be 100% accurate. Michael, I know you're going to talk a little bit more about how to get there. But it's like, we need to know at a baseline if we're even in the ballpark of where we need to be. Cause so many of us don't even know how to get there. So I'm going to keep going.

Michael Murray: Yeah, and I think that's where, again, to your point, we might get complicated and say, well, what about overtime? It costs more. And it's just like, sure. We can talk about overtime. It's kind of a side conversation. But it's not overly significant to understanding, am I charging the right price? OK, cool. So the next, I would say, big expense for most painting companies after paying the labor is.

Jon Bryant: Da da da, paint and materials.

Michael Murray: Paint and materials. So good old Sherwin Williams and Benjamin Moore and all of our friends. They occasionally raise their prices. I don't know if you've heard that John.

Jon Bryant: I've never had a price raise in the last 10 years. Maybe I just not get in the mail. That's the problem. Yeah. Right.

Michael Murray: That's amazing. I think that's what it is. Or they're sending them all to us because I've gotten more than my fair share. So yeah, if we want to better understand that you can run a successful business and raise your prices, look no further than your biggest vendors. Over the last four years, most of us in this industry have experienced something in the neighborhood of 40 plus percent price increases, go back and look at what you were paying back in 2019 for that gallon of whatever, super paint. See where you're at. Anyways, so what percentage would you expect that to be in a healthy, profitable residential painting company?

Jon Bryant: I know it ranges from about 12 to 15%, 12 to 18, sorry, so I go 15%. What about you?

Michael Murray: It's exactly correct. You nailed it. That would be the correct answer. Good job. You get a gold star. We are doing well. All right, so we've got 33% going to labor. We've got about 15% going to materials. That is 48%. If I'm doing my math correctly, and we would call that cost of goods sold. Generally speaking, that's kind of the main stuff there. There's some other small things that you might put into your cost of goods sold.

Jon Bryant: And for those who just glazed over when Michael said cost of goods sold, I mean you can even abbreviate this to COGS, which even more makes my head spin. But yeah, what we're trying to get at here is what actually goes into doing the work. So this is the stuff that once the job is actually happening, what are the costs associated with actually making the job?

Michael Murray: Yes. And to say it another way, right? These are our variable costs. So if we do more painting projects, we have to have more paint, more labor. If we did less, we would have less materials and less labor. If last year, if your company did a hundred projects and maybe this year, we're going to do 80 and let's just pretend they're the exact same projects, exact same size. You would expect that you're going to buy less paint, probably about 20% less. And so, that's why these are considered variable costs, because as the amount of work we're doing goes up, the amount of expenses are going to go up. They fluctuate in pretty much tandem, especially if we're using production rates and we've got a really good dialed in system as to how we're calculating these things.

Jon Bryant: So variable, what's the other type of cost, Michael?

Michael Murray: That would be known as fixed costs, also known as overhead.

Jon Bryant: What? Okay.

Michael Murray: So this is our account. We're just going to call this Accounting is Fun. That's going to be the name of this episode and no one's going to listen. Good old accounting and making money in our business. All right. So.

Jon Bryant: Yeah. So what's interesting though, let's just stop here for a second. If you don't care anything more about fixed costs and overhead, the funny thing is that you can just take your price of labor and your price of paint, multiply that by two, hey, and work your way back. But all this is gonna play into what we previously talked about, which is what kind of business you want to run. And this is where a lot of those costs fit in. So let's talk about that, Michael.

Michael Murray: Yeah. Right. So, yeah, I think people in our industry, hopefully most of the people listening, everything we were just joking about with understanding overhead and cost of goods sold. A lot of people already understand that. Many people don't. When you hear gross profit or gross margin, that's what we're talking about right now. So gross profit tells us revenue. How much money did we bring in from our customers minus the cost of goods sold, again, labor and paint, gives us our gross profit. And put that in the form of a percentage and that would be your gross margin. John, what would you say is a healthy gross margin or gross profit percentage for a profitable business?

Jon Bryant: 45 to 50 percent.

Michael Murray: Okay. Great. I think it's certainly possible to get over 50%. I know you would agree with that. I think personally, if you're over 55%, that actually might not be a good sign. And my reason for saying that is you're cutting corners somewhere most likely, cause again, Sherwin Williams, generally speaking, is going to get their money. So it might be in the form of labor. If you're able to get all these painting projects done and you're using the right best products and things like that, and you're paying your people really well and you're at 55%, that's awesome. But if we're not paying our employees very well, then what's going to end up happening is they're going to leave and we are going to pay this cost in the future in the form of turnover. And so just a quick side note, but 45 to 52, 55% somewhere in there is a really healthy benchmark. The, you know, obviously that 48 to 52 number I would say is that sweet spot. Resonate with you?

Jon Bryant: Yeah, I mean at a basic level, if you're listening and you just want to keep it simple, 35, 15, so 35% labor, 15% materials, 50% gross profit. And now we're talking. Now we can make some money.

Michael Murray: And so where does that other 50% go? Right. We've, customer gave us a hundred percent revenue. We spent 50% of it to get the job done. At the end of it, we have 50% gross profit. And that's awesome as business owners. That means we all get to have yachts and swim in our pool of money.

Jon Bryant: I have so many yachts, Michael. It's like, it's hard to keep track of how many I have.

Michael Murray: It's hard to keep track. That's what most people think of business owners. Those that are listening that are business owners might be wondering where their yacht is.

Jon Bryant: Yeah.

Michael Murray: John took their yacht. That's how you get so many yachts.

Jon Bryant: That's how you get so many yachts.

Michael Murray: Yeah, so there's a lot of other things that now have to be paid for. So what are some of the other things that you want to put into this overhead bucket specifically?

Jon Bryant: Yeah, so I'm gonna list out a bunch and I think for the sake of this conversation, these are numbers that you're gonna get from your accountant. And this is kind of something they can provide. Those other ones we talked about are ones that you can pretty quickly calculate per job. But we're talking about things like marketing, office expenses, vehicles, insurance, licensing, phones, any type of overhead labor and that's going to be management.

Michael Murray: Wait, wait, wait, wait, wait. Are we supposed to pay ourselves as business owners? What is this crazy talk?

Jon Bryant: Wildly, this is a wild concept, I know.

Michael Murray: As business owners, we don't just make profit.

Jon Bryant: Well, not if you want to ever sell your business, Michael, or invest back to your business. Yeah, sales, they fall into this category. So these are the people and any labor that goes into managing the company. And this is a little bit of a different concept. You might have someone that answers phones. They don't actually do the job. They're an overhead expense. You might have someone that is managing crews, but not painting. That might be an overhead expense as well as accounting management of other areas of your business, that type of stuff. And part of it is that we all need to play a role in our business. If you are not doing anything well, then maybe you should just take a bit of profit, but we all, most of us have roles in our business. We need to compensate ourselves for those roles in order to make sure that we can replace ourselves one day if needed. Is that a wild concept, Michael?

Michael Murray: Or me, or for too many people. That's my goal. I hear you. Yeah. Again, I shared the story at the beginning of episode. There was no making money. Forget, I mean, profit. Me taking a salary. That wasn't happening. But no, 100%. So there's a lot of different tax implications and there are some strategies behind this, but as a business owner, you should be paying yourself a, let me rephrase that. At least you should be able to afford to pay yourself a good salary. That might be, again, depending on where you live, somewhere between, I don't know, $75 and $150,000. Seems like a pretty decent thought.

Jon Bryant: Yep. And so, I mean, we want to obviously keep this pretty simple today, I think, without getting too far into the weeds of it. How do we attribute this other 50% into our hourly rate we're charging?

Michael Murray: Yeah. I mean, so again, you mentioned it before. I mean, you can simply just double, if you go backwards to what we were talking about before, I mean, once we know kind of what our labor cost is, and we can triple that once we know our labor, plus our materials, we can double that. And that's going to get us pretty close. When we think about what we can afford to spend on overhead. So we take that revenue minus cost of goods sold equals our gross profit. Minus our overhead equals our net profit. Okay. Net profit. You weren't paying attention. So that's our net profit. And so that's the whole point of doing this is also known as, we need to be running a profitable business. Why? Okay. I'm going to ask you two questions. We're going to come back to the first one. Why does someone, why is it good to run a profitable business for everyone besides the business owner. So I think we all, if you're the business owner, I think you understand why having a profitable business probably makes sense. But it's actually really important for everybody else involved here, your employees, your vendors, your customers. Let's come back to that and quickly, what's a good profit percentage here? What's reality in our industry? Give me a benchmark.

Jon Bryant: So I think the reality, we'll start with that, is way too low. If you're making a profit, to me, this is going to sound crazy, but to me, anything below 10% is a challenge. I think this is not going to offer you the opportunity you need to grow, to provide opportunity, all that kind of stuff. Am I off base, Michael? What do you think? Yeah.

Michael Murray: 100% agree. The reality in our industry, in all industries really is that not every year is going to be the same profitability. There are going to be some years where things are more profitable than others. Again, vendors raising prices, wage inflation, just pressure on overhead expenses and things like that might cause you to go below 10%. Again, that happens for sure. But as a, if we were to look over the course of 10 years, we need to be averaging over 10% throughout that time in order to be able to reinvest back into the business and grow and do all these things that we should probably not talk.

Jon Bryant: For sure. Yeah.

Michael Murray: So why is profit important?

Jon Bryant: I mean, there's so many reasons. I mean, I think you talked a little bit about why it's important for all stakeholders in the business. And I think opportunity, being able to reinvest in people, being able to offer an environment that people want to work in. These are really important things. And that comes from reinvestment of profit. If you're trying to buy vehicles, upgrade vehicles, where's that money going to come from? It has to come from some retained earnings or something else. And so that's a big reason. The second thing is just, you got to take it. Starting a business is a big risk. Whether we, we're not talking about that right now. Like everyone's probably listening like, well, was it a risk? I don't know. I just feel like somebody should do. The reality is that it is a risk. It's a risk reward system. And without a reward, this doesn't work for the risk you're taking. We should be working in other businesses to make money. And this whole business adventure needs to have that in order to make sense. So yeah, that's my feeling.

Michael Murray: Yeah. And I think, I mean, that's just, even specifically talking about that, right? You talked about insurance before, right? That's part of our risk mitigation strategy. But sometimes that doesn't cover it all. Sometimes the risk is just, like I said before, economic trends and things like that, where we might experience a couple of years, even in a row of not making profit there, or losing money. Again, I shared my experience. I had plenty of years of losing money. Most of them in my first 12 years of doing this. And if I'm not making good, healthy profit in the good years, I don't have the money to set aside into a savings account so that I can afford to take care of my people and pay my bills and take care of my family in the years that we aren't making that profit. And if I'm an employee and I'm working somewhere that they aren't doing that. One, I probably don't know it. And two, if I did, I should be very scared because it's a house of cards. It's only a matter of time. Yes, this business works great. As long as every customer pays, that doesn't happen and nothing bad ever happens and no jobs go sideways. And there's never any problems. And it's like, if you've been doing this more than two weeks, you probably know that that's not the reality of situation. Okay. Somebody's probably had a good two weeks start.

Jon Bryant: I was going to say two days, but that's generous. That's generous. A couple of good days. At least they haven't run their job costing yet, so they don't actually know.

Michael Murray: Why do customers want to hire a company that is profitable?

Jon Bryant: Well, there's, I mean, the first thing that comes to mind is that you're going to be around in two years. Because that whole trust thing we're talking about, that whole reputation thing we're talking about, that doesn't happen without time. And if you're going to provide a warranty and you're not going to be around in two years. What use is that warranty? I also think that culture, right? The culture of a work environment affects everybody. And in a positive one, it's great. It's so much better to work together in that environment. And that takes reinvestment. There's a cost to staying relevant. And I think it's something we so rarely consider that it's easy to think of this as a short-term game, but it's actually a really long-term game. And profit is one of those things that allows you to play the game properly for a longer period of time.

Michael Murray: Yeah, I mean, right. And it gives you the ability to reinvest. It's part of our human condition, I guess that our expectations are going to go up as employees, as customers, et cetera, et cetera. And if we're going to be able to keep up with those things and invest in the technology that customers are going to want, invest in, you mentioned before vehicles or employee benefits or things like that. We have to be able to do that by making profit, raising our prices, et cetera, et cetera. Yeah, for sure.

Jon Bryant: Yeah. So here we've got the whole picture. I mean, you've got labor, we've got materials, we've got our overhead, we've got our profit. Is there anything we need to know here to put this all together? You think Michael or yeah, walk us through that.

Michael Murray: I'm not sure I follow your question. What do you think? I guess maybe give me some thoughts.

Jon Bryant: So yeah, so for those listening, you're thinking, what's my hourly rate? How do I know that I'm charging the right amount? And I'm just going to help out with the question. Part of it is that I mentioned this earlier, you have to have a bit of experience and a bit of, some projects have to have happened in order for you to start seeing if these numbers are playing out properly or where you need to make adjustments. And so that's an accounting function. And the other thing, so you can start looking at your accounting numbers and know your numbers. And I know for a lot of people that's hard. And I'd encourage you to find a good accountant and find a way to track this stuff because that's really where the gold is. If you want to figure out how to make it work, we need to know what's currently working or not working and move that forward. But I would say to our earlier point, the thing that you were talking about, which is the average hourly wage. If you're new to the industry, or if you're trying to figure this out, or even just back check what you're doing, that's such a great place to start. These other numbers should flow out of that. Really. And so if you're in a lot of cases, there's going to be some percentages in the overhead that you're going to try to hit. And those are in relation to the amount of work you're probably going to try to do. Caveat there is that there's going to be hinge points in the business where you have to add overhead and you're not going to get the same bang for your buck, it takes a little bit of time to bring up your revenue to that point. The thing that I would take away from this is that find your average labor rate, multiply that by three and see where you stand, and then look at some historical data if you have it and see how you're actually doing. And the way to do that is to take, this is a pretty simple equation as well, find out how many total hours have been worked over a time period and how much revenue you made in that time period, divide the amount of revenue by the amount of hours, that's going to tell you how much you charge per hour. So that's really what I was getting at is we want to bring this all together for everybody.

Michael Murray: Got it. Yeah, yeah, no, yeah, I love it. I mean, I think, going back to the idea we said before is that in most parts of the country, the average hourly wage in 2024 is somewhere in the low twenties to low thirties. It's kind of what we talked about before, call it, roughly 20 to 30. And so we add a few bucks to that and we're going to be somewhere in the neighborhood of 25 to 35, maybe. Although that seems high, but I'm sure in some metros, that's maybe accurate with labor burden. So that 25 to 35, maybe 40 times three. And so what's that giving us is somewhere between 75 and a hundred, maybe as much as 120, 115, somewhere in there. That's a pretty good idea of what a labor rate looks like, hourly charge rate in 2024. Sorry, not labor rate, your sales rate in 2024, that's how much you should be charging per hour. And so somebody charging, let's just use that 75. If somebody's charging less than 75, they better have a lot less overhead and they need to make sure though, that they're making enough profit to invest in the future overhead. That's one of the biggest problems I see is you could get away with charging maybe 60, $65 an hour in some of the mid size areas like maybe Cleveland or whatever, where cost of living is less. You can, your average hourly wage might be 20 bucks. Like we were talking about before. And so you can get away and you can not lose money at $60 an hour. But the problem is that you're not making enough profit to invest in the future overhead that you need and want to be able to grow your business. How are you going to hire that salesperson? How are you going to hire that office admin or the production supervisor or to rent that office or shop to buy those new vehicles? All those things we talked about before are overhead. And so in order to do that, you have to raise your price and then raise the price, work on enough jobs, get that profit, and then you have that money to be able to go for those things or people. And that's where I think, again, we talked about at beginning, it's not a how low can I charge. It doesn't necessarily have to be how much can I charge, but it's just, what is the right price is the thought process that we need to be thinking about here.

Jon Bryant: So let's move this forward a little bit further. So say you've gone through this process, you've now followed the math with us. You managed to push through, got it down. You have a rough idea of how much to charge per hour. You need to think about now how this impacts getting the price for your job. And this is really where production rates come in. We've done a couple other videos on this and how that actually works. Michael for you and your transition from not profitable to profitable, was all of your issue in the hourly wage or was it in the production rates or walk us through how these things play together?

Michael Murray: Yeah, I mean, I think it was both. As we started to realize like, Hey, we need to raise our prices, there are two components to the price, how many hours and how much per hour? If we're going very simple, how many hours times the price per hour equals the price. Sure. We can get complicated with how we charge for materials and whatever. But again, from what we're doing today, we're going to keep things pretty simple. And so what we realized is that for I think most people, most people that I've ever helped with, looked at their accounting with and things like that in our industry, it is always both. There's always an opportunity in both places. We need to probably be charging for some more hours. We also need to be charging more per hour. And you mentioned the words before job costing. That's really where that's going to come from. If your crew is getting the project done on time, this was a hundred hour project they got it done in a hundred or one hundred five or ninety five or something pretty close to what we thought it should take, then we know we're charging for the right number of hours and then if we're not making profit after that point it's because we're not charging enough per hour. If we're charging sixty dollars an hour and our average labor wage per hour is thirty, you're not going to make money. It isn't a number of hours problem. Actually charging selling more hours just means you're going to go out of business faster. Which I think is maybe something we should talk more about. I'll say that again, staying busier, put that another way, selling more painting jobs that are not profitable just helps you go out of business faster. So anyways, yeah, I mean, that was I think the big realization specifically for us. And this is the fun of job costing and having software like PaintScout is it allowed us to be more granular. It's not just more hours, that's kind of broad, but it was more specific hours in the space of prep work and set up and cleanup. That once our painters were painting, they could paint that window in the amount of time, or they could paint that door or that square footage of siding or whatever it is. But it was just taking them longer to get to that point at the beginning of the day or to clean up the supplies and the equipment at the end of the day. And so when you sometimes on smaller jobs, we didn't really see it right. Because we would, it would only be there for a day or two. And that part that we had undercharged for, that setup and cleanup at the beginning and end of every day, it wasn't really that significant over two days. But if it was a two week project, well now each one of those, off by a couple hours per day, let's just say we were four hours low per day, in those two days that might only be eight hours, but over the course of 10, now we're talking 40 hours, that's a huge difference of profitability. So that was one of the things that we really identified.

Jon Bryant: For sure. Yeah, so I mean, for my experience. So production rates were critical in terms of having control over the number of hours. And so for those listening who aren't familiar, production rate is just an amount of time associated to different tasks that we do. So how much work can you do? How much drywall can you paint in an hour? How much window trim could you paint in an hour? That kind of stuff. And it allowed us to get control over the actual production process and what that meant for our company. And now we can watch and adjust and control that through a system. And our salespeople can sell, using PaintScout, they can sell a job and be confident in knowing that their hours are fairly right. And because they have an hourly rate that we've actually calculated that we know is reflective of our values and our business, compare those two things and get a price in minutes, which is revolutionary for a lot of customers. And that is such a unique thing that's weirdly hidden in our industry. But that is the equation that has worked for us. That's worked for you, Michael, and has worked for thousands of top contractors. It's just not talked about a lot. And so we're happy to share that and answer any questions, leave them in the comments below. Feel free to get the algorithm to let other people know about this stuff. That's the right approach here guys, because people need to know.

Michael Murray: That's right. For sure. Yeah. I mean, this isn't, this needs to not be the secret sauce. I think to many, what I realized that this is the secret sauce, that this is the right thing. Once I started to get around successful business owners in our industry, I realized that they're charging the right price and they know their numbers. And knowing your numbers, production rates, charge rates, basic accounting. That's the difference. And it's not that hard and there's a lot of people that you can bring in in very low cost ways to help you with that in terms of accounting help or things like that. I want to take our conversation in a related but slightly different way. Is there anything else that you wanted to touch on though before I steer the ship here?

Jon Bryant: No, charge more, learn the numbers, run a profitable business and you'll be happy. Over to you, Michael.

Michael Murray: Yeah, okay, so you just mentioned we've got to charge more, raise your prices. I 100% agree. Now we need to talk about discounting and what about staying busy and how does that factor in here? You just said raise my prices, but I've also heard maybe sometimes I want to do a discount or maybe I should never do a discount. People on the Facebook groups talk about discounts and I don't really know how to think about this. I mean, I don't know, those might be some of the questions that somebody's coming to this episode thinking about. Let's talk about discounts.

Jon Bryant: Yeah, so you have people kind of staunchly on both sides, no discounting. I discount everything by a hundred dollars in order to get a job, because that's the difference. So what's interesting, I've talked to many, many people about this and it's like, some people say, well, it's against the brand principle or kind of it's starting to cheapen our work a little bit. And the thing that I've heard you say, and I reference it now all the time is top brands that we purchase from discount. I don't go to Banana Republic and ever have a non, I don't go there when it's regular price. I know their process and I still think that the quality is decent. I'm not completely against that. It's a motivator. We know this, consumers are conditioned a little bit to think about discounts, but some brands don't, you don't go to see Apple discounting. And so we need to figure out what this means for our businesses, I think. But let's talk a little bit about maybe the approach of discounting a little bit and how that reflects on the price. So Michael, go ahead.

Michael Murray: Yeah, I mean my favorite way to think about from a pricing strategy, right? Because that's a lot of what we're talking about here is pricing strategy. I love the analogy of the airline industry because I think most people have experienced that and we just kind of can, we don't really understand it but we conceptually do that not everybody on the plane paid the same price for that ticket. And I'm not talking first class versus regular class, I just get the economy. And so it's like the economy tickets generally are never the same price. And we know that. We go on these different websites, Google or trip advisor or kayak or sites like that. We're looking for the best deal. Well, because we know that they're not all the same price. And we also can see on Google, it tells us, hey, this price is higher than normal. You might want to wait, you might want to time this thing up a little bit. And so there's different prices. So why is that? Well, because part of what the airline needs to do is fill the seat. And so they're going to incentivize purchasing based on capacity. And so as a painting company, we are very similar. We have a specific amount of capacity in a given week, day or month. And the way that we like to think about it is on a monthly basis, what's our capacity? How many hours do we have available based on how many employees or team members do we have working for us? That's going to give us a pretty good idea of how much work we can get done. And so we know that, okay, in a given month, if we have, we need to sell X number of hours to get to full capacity. And so as we are thinking about it, it's like, how close are we to capacity is going to determine how willing we are to provide a discount. And so one of the strategies that we do to really help to stay, keep our painters busy and keep ourselves fully staffed in the winter is we offer discounts starting in July and August, especially up until Thanksgiving off of our normal price. It's a real discount for a customer for interior work and some cabinet painting related work. If they're willing to wait until after the holidays in first quarter, January, February, and March. We know that in those months of July, August, September, October, even into November, there's a lot of demand. We still have a lot of leads, a lot of customers talking to us about projects, significantly more demand than we were going to get, especially in December and January. And so we want to capture as much of that demand as possible, but we can't get all those painting projects done in the next two months or whatever. And so some customers are not very schedule sensitive. They just need their project painted, but not before they move in or before their party or whatever it is. And so they're willing to wait until after the holidays if we give them incentives to do so. And so that might be a five, 10, even 15% discount. And we're willing to do that because we know that we're going to book some projects for January with people who need it done in January, who want it done in January. Maybe they contact us in December. There will be some demand in December for leads and for estimates. And so that work, if the customer wants it done in the next month of January, they're going to generally pay the normal price because we've already kind of filled the seats at a discount that we can afford to. And at this point, now we need to make sure that we're filling some of those seats at a regular price so that when it averages altogether, we're selling that capacity, that bucket, if you will, of January, maybe not all at top dollar, but not all at bottom dollar at a good kind of average of that price that affords us to still pay for our overhead. And at least break even, hopefully make a little bit of profit even in those slow months. That's a big part of our pricing strategy.

Jon Bryant: Yeah, I love it. One of the things you said, which is interesting, and I think worth looking at, just talking a little bit about is this idea of it's a real discount. And I think I've heard people say before, I just raised my price and then I give a discount. It's like, well, is that a good thing? I don't know. I don't believe it is, but I think that takes away credibility from our industry. But you're saying you offer a real discount. How do you do that? How are you taking 15% off what might be only a 10% profitable profit margin?

Michael Murray: Yeah, how or why? I mean so reality again is we have overhead. We have overhead and we have well-trained employees and in the form of overhead. Most of my overhead I don't want to get rid of in the slow season. Sometimes I can. There might be some expenses that I can cut, maybe some, I don't know, magazine subscriptions or I don't know whatever it is, things that just aren't all that significant. But I, for example, I can't, I don't want to lay off my sales rep or my office admin in the slower time of year because oftentimes that person's just going to go find a job somewhere else. So I need to be able to afford that overhead. So I know what is my breakeven number? How much does my overhead cost for the month? That's going to give me, that plus the cost of goods sold is going to give me my break even. And so it's like, okay, if I know that, what do I need to do to cover that number? And that's my revenue. I need to produce that much in revenue to get to my break even. And it's not that everything I produce after that is just straight profit because I still have the cost of goods sold that is going to go into all that additional work, but at least I've covered my overhead. And so I'm able to basically discount knowing that we need to do at least this much work to cover that overhead. I also, so that's one side of the equation. The other side of the equation is I, again, I want to keep my team busy. As busy as possible on jobs that we're not necessarily maybe losing money on, but maybe on jobs that we're not necessarily going to be making money on, again, that breakeven concept. So that I don't have to go and rehire somebody to take the spot of a good person who left because we weren't able to keep them busy. And I think that's something we can all probably relate to in our industry.

Jon Bryant: For sure. So what you said there is interesting. I think we're just making a point of is that in some cases, busy strategically can matter. Right? So we use this word upfront of, it's not about staying busy. It's really about staying profitable. However, strategic decisions can be made to stay busy. The issue is when that happens all the time in your business. And so we have a rate. We have our summer rates. That's the rate we always want to be paid. Cause that's what we feel like we are always worth. But in the winter, hate to say it, sometimes we've got to keep our team a little bit busier, but we understand, to your point, we understand the decisions we're making. It's not a wild, just change everything just to get the work and now lose a ton of money. What's crazy. And I don't know it's the same in your market, Michael, but all of our money gets made in the summer. And we need to be able to have as much, push that rock up as high enough on the hill we can, run down in the summer. And that takes hiring staff and competent people, having systems because turning on a company of a hundred people just randomly is going to be a disaster. Or whatever size you are at, turning that back on is going to be much harder than running it through the winter. At least that's our philosophy here.

Michael Murray: And that's again, that's the overhead. You need to have enough overhead to support the volume of the business that you're going to have. If in the summertime you get, whatever, a hundred calls a month, you need to have enough people to answer a hundred calls a month. Whatever that is. Maybe it's one. Let's just say and in the winter you might only get 20 calls. Well, you can't have one fifth of a person to answer the calls. So I've got to still pay somebody to answer the phone in the winter to make sure that they're there in the summer when I need them to answer the phone. Again, there are some overhead things that have a little bit of flexibility. It's not perfect here. Maybe it's marketing, maybe, I don't know, there's not a whole lot. At least quickly comes to mind. So those fixed costs are going to be the same month after month after month. We need to make sure that we're paying for those in the slowest part of the year so that we can have that big machine of a business during those really profitable months.

Jon Bryant: For sure. Yeah. So just, yeah.

Michael Murray: We also need to make sure, let me just call it what it is. We need to make sure that we're charging a high enough price during those profitable months. And I think that's where so many business owners get it wrong is in the busy months, they're charging too low. And so they're not making enough profit. Let's just say in those six to eight months where then in the other four to six months of slow season, they can't afford to discount. Because they haven't built up that savings in that reserve of extra profit to be able to afford those things. That's a big focus that we have here. We do something and I think you guys do something similar, every year at the end of the summer and into the fall called the war on winter. And a lot of what we're doing at that time is are we producing as much work as we possibly can? We incentivize our team to work overtime while we've got these more highly profitable exterior projects, or things like that going on. So that it's not so that Michael can make all sorts of extra profit and go buy another one of those yachts from John. That's not it. Yeah. No, I can't afford to pay your lifestyle at all. But the reason for that is so that I can afford to do some more discounting for the winter. It's so that I have more money to do marketing in the fall for winter work. It's so that I have a savings reserve built up so that even if we have to maybe lose money for a month or two in the winter, I can afford to do that and still pay for all that great overhead labor and office or whatever. I need to be able to charge enough during those high times so that I can afford those lower times. Just like we talked about from a 10 year cycle, some years we need to, the good years, we need to make sure that we're making enough profit again, not so that the business owner can just pull it all out and go buy a bunch of boats and toys and big houses or whatever, which too many business owners, not specific to our industry do. Yes, you can do some of that. We've got to make sure though, is that we also have enough savings in the business to afford those low times, whether they're low years or low months of the winter and things like that.

Jon Bryant: For sure. Yeah, so well said. All right, well, I think this is a lot for today. Yeah.

Michael Murray: I think, I think we've covered it pretty well. Yeah. I mean, I think there's certainly a psychology behind raising our prices. We talked about it earlier that I think there's a lot of fear around it. Too many people in our industry operate from a scarcity mindset, not from an abundance mindset. And that scarcity mindset is going to keep you from charging what you're worth. And I was so afraid for so long of, if we raise our prices, we're not going to have the next job and if we don't have the next job, I'm not going to be able to pay my bills. And I tell you that there's actually something a lot worse than not paying your bills. It's paying your bills for a really long time and not having any profit. That's not the point. The point of going into business isn't so that we can pay our Sherwin Williams bills. It's not even so that we can pay our employees. Although there's definitely something noble about providing people with good jobs, but there's a reason that we went into this and it's so that we can give our team members and ourselves and our families a better standard of living. And I think we just need to have that abundance mindset and realize that there is so much room at the top. There are so many customers that are clamoring for companies that are going to provide an exceptional experience. And there is a glut of companies in our industry and in a lot of home improvement type industries that are going to provide that cheap, low cost experience. And there's actually not a lot of companies out there who are trying to figure out ways to provide the high end, call it white glove type of an experience. And I would encourage, company, people that are listening to try to figure out, how do we do that?

Jon Bryant: Yeah, man, we've covered a lot today. Guys, thanks for sticking with us. Questions, please leave questions down below. I know this is a sensitive subject for a lot of people and we'd love to hear your thoughts and follow and subscribe guys. This is information that I think a lot of people need to hear. The algorithm is a powerful thing and by doing that, it's going to help other people get access to the information and make our industry better. So thanks for tuning along. We hope you raise your price and have a wonderful day.

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