Michael Murray: All right, welcome back to another episode of Price. Sell. Paint. I'm really excited because we're going to have a ferocious battle. John and I disagree vehemently on this topic, at least a little bit, but we'll see where we end up. How to include the cost of paint in your bid. Should it be a part of your hourly rate? Do you separate it out completely? John, get us started. What are your thoughts?

Jon Bryant: I can't see another way, Michael. I think you've got to include it with your hourly rate. It's the only way it makes sense to me. What I mean by that is when you're charging out using production rates, getting your time, you have one dollar per hour that you multiply that time by, and in that dollar per hour, it includes your materials. That's my perspective.

Michael Murray: Yeah, but that seems like way over simplifying things. How do you handle it when you have jobs that are material heavy or things like that? It seems too simple. Seems too easy. Seems like you're going to be losing some money here.

Jon Bryant: I look at it a different way. I look at the business as a quarterly, yearly animal. I don't look at it per job. We know that we have historical numbers that are almost always the same that we can draw off of. That means that some jobs are going to cost us more in materials and some are going to cost us less. We also don't manipulate our paint price if it's just a trim job and it requires two gallons of paint but it's a hundred hours of work. So we don't do the opposite. It balances out. We're looking for that long-term balance. We feel like if we do that, some people win, some people don't win as much, but it's about that long-term consistency that we're watching all the time. If that number is changing too much, then we've got to adjust our price.

Michael Murray: I need a little bit more explanation here. Help me understand it. Let's back up a couple steps. How do we get to this concept? We've talked about before that coming up with our hourly price, right? That's kind of where you're advocating for—we're going to include this in our hourly price. Let's say I've come up with my hourly price that does not include materials. How do I add in enough money into my hourly rate to not only take care of the labor side, overhead, the vehicles, all the things, plus I'm also going to take care of the paint? Versus how we do it, which is we are not going to include the paint. We're going to figure out rate per hour and then add to that what we believe the cost of the paint materials are going to be. How do you put that all together?

Jon Bryant: For those listening, we have another couple episodes on this about how to calculate an hourly rate. What we do is we look at the hourly rate in terms of representation of our entire business. Within that, you're going to have your labor—let's call it 35% in our world. That's what we shoot for, for our total labor cost on a job. We've got the 15% for materials and sundries. That's going to be their paint, our tapes, our plastic, whatever else gets us to our 50% gross profit overhead on top of that, that we've calculated over time. And then we've got our profit. That's the method—we look at the hourly rate as being representative of the entire cost of every hour we do work.

Michael Murray: Got it, okay. I think I follow you.

Jon Bryant: So when you guys do that, how do you calculate yours?

Michael Murray: Yeah, I would say pretty similarly except the materials are just going to be above and beyond. I'm getting to the same point you are except I don't remember if you've mentioned it in the episode. What is the percentage that you're using for materials for the year?

Jon Bryant: We use 15%.

Michael Murray: I know we talked about it leading up, but I just want to make sure that we were clear. It's like, what we're doing is essentially if all things being equal, if you and I had the same price on a bid, my hourly rate would be 15% less than yours. I think I'm doing that math right. And then I would add in 12 gallons of paint and some miscellaneous sundries material cost to go from whatever, $3,000 as my labor only plus $500 material, I have a total price of $3,500. You would also have a total price of $3,500. We would have the same number of hours. You would just multiply that same number of hours by a higher amount to account for that materials.

Jon Bryant: That's correct. Let me ask you this small challenge of the add the materials after approach—with sales, when you're building your sales team, you're bringing on new reps, how much work does it take to train them on material costs and amounts and all that kind of stuff?

Michael Murray: When you say cost, the cost is built into Paint Scout for us. What we've done is gone in and in all the substrates we've taken the time—which obviously does take time—of letting Paint Scout calculate the materials. How much paint do we need to do a door? To do a linear foot of baseboards, things like that. And then from that, Paint Scout's able to tell us based on whatever, 100 linear feet of baseboards, you're going to need whatever the number is, half a gallon of paint. And you said in this situation using the drop down that you're using Benjamin Moore Advance, and that costs—I'm making this all up, so please don't fact check me here—but let's pretend that it costs $60 a gallon or whatever is the appropriate price. And it's like, okay, so add to this room $30 in paint cost for the trim portion of what I just described. That's essentially how we're going to come up with that. Our sales reps aren't really doing any of that because by default it's all in the templates. If, for example, Benjamin Moore Advance or Sherwin Williams Emerald or whatever doesn't matter, is the trim paint du jour that we are currently using, then that's what's going to be put in as the default. But it does allow them to have some flexibility. If the client wants to maybe upgrade that, downgrade that, provide the paint themselves, or different things like that, they can have better visibility into it. I can see that we charged you $30 for the paint. You said you already have it. It looks like it's the same kind of paint we would use. So I can approve that, adjust the price accordingly. That would be kind of the thought.

Jon Bryant: Yeah, you're not wrong. That control piece is definitely missing when you put it into the overall hourly rate. We do struggle with that a little bit. We try to just offer customers the best paint options we feel. So it's rare that we get that adjustment. But I think in our other discussion about good, better, best, this definitely opens that up.

Michael Murray: I agree with that.

Jon Bryant: Do you ever find that there's issues in putting that in the sales reps hands? Do they, does the crew comment like, they didn't order enough paint, I guess that's on you?

Michael Murray: It certainly happens. I mean, it certainly happens, but I would say that it had more to do with mismeasuring than it did something else. And mismeasuring is hard to fix. That's just like, you got to double check that. We can't, you know, type 10 when the number should have been 100 into that box or whatever. I do agree with you though, that it is pretty rare that we are changing materials. I would say 90, 95 plus percent of the time, it is standard paint options, whatever those are—standard wall paint, standard trim paint, standard ceiling, standard exterior. And while there might be some conversation the sales rep is having with the client, you know, our standard paint is Sherwin Williams Emerald, and here's why it's great, it's very rare that the client says, well, I don't like Sherwin Williams paint. I want to use Benjamin Moore paint. Is that possible? And then the rep says, yeah, no problem. Let me go and adjust the quote accordingly. That, to your point, is very rare.

Jon Bryant: Right. So talk to me a little bit about how you guys look at profitability. I know you obviously look at it on the longterm as well, but are you pretty focused on individual jobs as well?

Michael Murray: What's profitability? Are we supposed to be making money doing this? Wait. Okay. Yeah, we do look at an individual job. And I would say it's funny because as much as we're talking about this, typically when we have conversations about profitability, it has to do with crew performance, crew leader performance, and job productivity or efficiency. It really has everything to do with the labor side and we really don't spend a whole lot of time thinking about materials. Where we do talk about materials is more on that macro side—looking at it from a perspective of what is it for the month or what is it for the quarter or for the year as a percentage of our revenue? And then from there, if it seems out of whack, we will go in and just go looking through the benchmarking or job costing sheets to say, okay, are there specific jobs here that really maybe skewed the numbers, where on a given job, we might have spent, I don't know, 25% of the revenue for that job went to material costs. It's like, what the heck? What happened here? And then it usually was some sort of an estimating mistake or purchasing mistake. You know, we bought the wrong color, something got screwed up. If the customer specified they had to have Benjamin Moore paint and then we bought Sherwin Williams paint and then we went and bought the Benjamin Moore paint. I'm sure that never happens to anybody else, but every once in a while we get things screwed up like that.

Jon Bryant: So overall, what do you see as the number you're shooting for? Is it that 15%, is it similar?

Michael Murray: Yeah. I mean, I would say on, so my opinion from our experience, from talking with people like yourself and a lot of other really successful business owners in this industry, I think 15% is the middle of the bell curve. That seems to be kind of the normal, I guess. I think some of the best in class is lower than 12. I've even seen companies that are under 10. I really have a hard time understanding how, other than just really high prices, which is great.

Jon Bryant: You can always water down the paint too. That's an option.

Michael Murray: That's true. Hold on. I got to go give that to one of our people here. It's a good idea. Yeah, no, I think we're going to avoid that one. The, yeah, so I think the number that we are constantly striving towards is under 14% of actual spend, but we budget for 15%, kind of like you're describing.

Jon Bryant: Right. Yeah. I mean, we're consistently trying to beat that number, but that is the benchmark number we're looking at. And to the earlier point about projects that have significantly more product, we are making those adjustments as well. When we see that, hey, it's an Elastomeric job, it's going to be heavy on the product, we've actually loaded into Paint Scout that we have a different hourly rate for that. So that kind of tries to tackle that problem because we know that it's just going to be heavy. Instead of that 15%, we're probably going to be like 25% on Elastomeric.

Michael Murray: Got it. Yeah. So how do you guys order paint? I think this is one of the things that seems a little bit different for us. We're able to use the Paint Scout work order and it'll tell us like, hey, we need 2.29 gallons of trim paint. And it's like, okay, well, we know that we're ordering two or ordering three. It's kind of hard to order that 0.29. But it does give us something to go off of from an ordering perspective. It's not exact because when we're putting together our rates and things like that, we're not looking at it as an exact science. Different substrates are going to absorb paint differently and it's never going to be perfectly perfect. But it gives us a really good, that's probably going to be pretty darn close most of the time. So we are able to have somebody in our office with no experience—probably literally never painted anything in her life—is able to look at a work order for every specific job and match that up with the color selection chart. We have clients fill out and say, OK, in the living room, we're painting the walls, whatever color. And I can see that I need to order two gallons of this product from Sherwin Williams. And she can go ahead and place all the different orders that we need. I see that as an advantage of what we're doing compared to the way that you guys do it. I don't, having never done it the way that you guys do it, maybe there's some advantages to how you're doing it as well.

Jon Bryant: We do the same thing. But we don't include a price. That's the only difference. As it's coming through the system, it's calculating the coverages. We have coverages loaded in. And then at the end of the day, it just says, you know, wall paint is this many gallons. The person goes, and generally we're trying to order a little less, maybe 75% of that on the first order. Just to try to balance that out. Because oftentimes the paint, we found just based on coverages and areas doesn't always equal out because you have openings, first, second coat, blah, blah, blah. So, yeah, that's what we do. You know, granted the sales rep has to go in after and ensure those numbers are correct. Because they're really responsible at the end of the day for making those budgets work. So they might leave a note on the work order being like, here's my rough calculations, order this amount. And then someone in the office is doing that because we need to get the color from the customer first. So our process is like sales rep does the estimate, gets the product amount correct. We do our whole color system, get the color from the customer. Then we're making orders. So, yeah, that's kind of what we're doing.

Michael Murray: That makes sense. Yeah. So it sounds like we're very similar in that perspective actually. Yeah. I think the one advantage that I see from how you guys are doing it is sundries. Because for us, it's like, how do we add in sundries? I'm not going to add that in as a specific line item into each area or substrate or things like that. We typically do that by just charging more for the gallon of paint than we're actually paying to cover the miscellaneous brushes and tape and caulk and all the things that we all know are part of a job. But what we found is that sundries are more significant. We are spending a lot more money on sundries than I guess I would have thought we should be. Our total material is right within the industry normal that we've been talking about. But more of that call it 15% is going to sundries than I would have guessed. And I think based on how we're charging for jobs, we might be not accounting for that accurately enough, not charging enough.

Jon Bryant: Right. Yeah, that's interesting. What do you think? Could you incorporate that into your hourly rate and then pull the materials out separately?

Michael Murray: I think so. Yeah. I think we could, yeah. And just, you know, charge the paint primer side as a separate line item. Because that's typically what's going to fluctuate more. So, John, we especially see that on carpentry projects or things that are outside of the normal where materials are definitely going to be more than the 15%.

Jon Bryant: Let me ask you this. So when we do our estimates and present our proposal to the customer, we are putting our standard products in there and we don't list them out separately for cost. Do you guys list it out separately for cost? Or is it just one bulk number?

Michael Murray: No, we actually don't even quote specific products on the contract. Yeah. So if you read one of our contracts, it will just say something like premium wall paint. Yeah, I believe we made that change back in like 2021 when Sherwin Williams and then everybody ran out of paint. And it was very frustrating to try to guess as to what's going to be available. I specifically remember that the year before we had started to use, I think it was a Loxon product for Sherwin Williams. It was like a rain refresh essentially is what became this Emerald rain refresh that's out now. And so we were like, yeah, this is great. We love this product. And then we get to the spring of 2021 and they don't make it anymore because they're consolidating their products to try to get certain things out the door. They don't have products. And so like, had we put on our contract that we're using this Loxon rain refresh, whatever it's called, it's not even an option. And what we realized was we needed to be flexible even between Sherwin Williams and Benjamin Moore or others. And just to be able to say, yeah, we're going to use a premium product. And if somebody has a specific request, certainly being here in Cleveland, we work with a lot of people that are employees of Sherwin Williams. They want to make sure we're using Sherwin Williams paints. In that situation, we will put something on the quote that says we're using Sherwin Williams products or even specifically which product. But it's not by default on our quotes, and most of the time it's not.

Jon Bryant: Do you list the price out separately? No, so it's all included. You still have one cohesive price. And here's a question that, man, I see this debated so much on social media. Do you mark up your paint?

Michael Murray: So I think that's a really stupid question. And I still love you, but I just think it doesn't matter. What's the difference at the end of the day? It's like sure. You know what? How about this? We're going to have a new pricing structure! The labor's free but I charge $1,000 a gallon. So your paint project is $5,000 which is by the way the same price it was yesterday when I priced it the way that we do it now. If I need to charge you $5,000 to cover labor, materials and get to a 50% gross margin so I can cover my overhead and make a decent profit, then how you get there doesn't really matter. And so if you want to charge more—if you pay $40 a gallon for your paint and you charge the customer 50, let's just say—that's great. But if you're charging the same labor rate that I am, or hourly rate I should say, then your price might be, air quotes, too high and you just better be able to go sell it at that rate. I'm going to be able to come in and compete with you otherwise. Right. And so it's just like, again, I don't necessarily have a problem with it. I just feel like put the money wherever you want. If you want to take that $40 gallon of paint, call it 50 bucks. Fine. Or if you want to raise your hourly rate enough so that you're making a 50% gross margin, then great. I think at the end of the day, how you get there isn't really all that...

Jon Bryant: Yeah, I think what's interesting is that the debate is so strange to me though, that we already sell a product that needs to be marked up. In general, we have to mark up our product, our labor, everything in order to make a profit. I love your point about how does it matter how you get to your price? But why do we feel so bad about marking up our product? We're doing it anyways. Do we feel bad about marking up our labor? It's like, no. Part of me is confused at the question from people who are in business. And maybe you can clarify for me.

Michael Murray: I think it comes back to the question of how much profit should we be making? It really just comes back to the question of what is a fair price? I think a fair price is one that allows a business to make a 50% gross so that then they can afford to be—and here's the most important part—fair to their employees. Because I feel like whenever we talk about what's the fair price I want to say fair to whom? And typically if somebody's asking that question online it's fair to the client, which is certainly a stakeholder in this situation. And we need to be aware that if you can go charge $300 an hour and that's fine, but don't be surprised when somebody who's able to run a more efficient business comes in and takes all the market share. That's what Amazon did in their industry and a lot of industries. The reality is that we need to be fair to our clients but also to our employees. And if we're not making a 50% gross margin we're not going be able to afford things like healthcare and logoed vehicles that are safe and reliable for our team members. We're not going to be able to afford fun events. We're going to maybe feel pressure to cheat them out of some of their paycheck or all the other nonsense that happens in our industry. And it's just like, all of those things need to be solved by charging the customer the correct amount so we can go run an actual business where we can take care of our team, where we can take care of our families and do all that kind of stuff. So yeah, absolutely we should be marking up the labor and the materials and whatever accordingly to be able to afford to do all those things. My rant is over. Sorry.

Jon Bryant: Right. Yeah. So you can come down from your soapbox now. But it's high, this conversation, because how you put your materials in. I mean, we both have approaches that get us similar results that we feel comfortable with. But the idea here is that we're still charging an overall price. We're not breaking this out. I don't love the idea of showing the customer all the price for the paint or them going to pick it up. I think this is confusing. I think people hire us because we're professionals and they just want us to do that. They think they're saving money if they get their own paint, which isn't particularly our perfect type of customer anyways. There's all those questions about paint—it's a weird one in our industry to be honest. It's like, why does this become such a big deal? It's only when you break it down, it's 10% of the cost. Why are we fussing about this so much?

Michael Murray: Yeah. I wonder if the question comes from if you're breaking out your material price from your labor, right? If it's how much does it cost to paint a bedroom? Well, it's $500 plus $150 material or whatever. It's just like, you know, again, or it's $900 plus $200. Don't get caught up in the numbers. It's the concept of what I'm trying to describe here. In that situation, I'm going to have to be really careful as to what am I showing the customer as what I'm paying for the paint. Because if I say it's $200 in paint for that room, their next question is going be like, wow, that's a lot. That's $200. Now I've got two price objections I'm going to have to deal with, which is we're making this way harder. But now it's like, OK, I can live with the $900 for the labor. But man, that $200, how many gallons of paint are you guys buying? And whatever, it's four. It's like, wow, $50 a gallon. That's way more. I'm going to go up to the store and get it myself for $45, because you're marking up the price or the paint or whatever. And it's just like, that whole thing could have been avoided by just saying that the price to do a great job for you, take care of this problem and give you an awesome bedroom is $1,100 bucks. You ready to get this thing done? And it's just like, that's the only way. Stop. Why would you? Don't separate those things out. Don't make this harder for yourself.

Jon Bryant: Yeah, that's a really interesting point about the separating. I mean, we've talked about this before in other episodes about giving area prices, specific prices. The more prices you give the more objections you get. Which is like you really want to deliver an $8,000 estimate and be arguing about the bathroom that's $350? Or why you charged? It doesn't compute. To me at least. I mean I'd love to hear other people's comments if you think that I'm wrong. But the idea here is that I include paint with my hourly rate. You don't. We still deliver one price. For you, it makes more sense because you can dig into some of the details. There's probably some takeaways from me there too, but we've gone for simplicity just because we're trying to keep everything simple at end of the day. That's just the approach, but we deliver one price. We sell in one price. And I don't really think twice about any of the specifics of it. It's one price.

Michael Murray: I've got a fun question. We didn't even talk about this before. I just, it just hit my brain. So literally today—we're recording this the beginning of November. I don't know when it's going to be released—but literally today, our Sherwin Williams rep came in and said, gentlemen—because he's actually talking to my director of operations, he really handles this stuff and I overheard it—price increase coming at the beginning of January. So there you go. That's like, what? We're not, it's not going down.

Jon Bryant: Get out of here! They never increase prices.

Michael Murray: Man, I for sure thought this was going to be the time. My goodness. Yeah, anyway, so I digress. How do you account for that? Does changing of paint prices, whether they go up or down—although it's always up—how do you account for that in your bidding? Are you, paint prices are going up, I remember now, six percent, five percent, something like that. Whenever they go up, but it's like, okay, so are we going in? How do I adjust that hourly rate? It's easier for me, right? Because if I'm currently charging my customer whatever, $45 for a gallon and it's going up 5%, I just do the math...

Jon Bryant: Make those adjustments.

Michael Murray: Yeah, exactly. Figure out what's 5% of $45 and I can just punch that right in there. Obviously I got to make sure I account. How do you guys...

Jon Bryant: My method requires math, which I think we've talked about before. It's kind of a four letter word. Exactly. Anyone who's zoned out, please put up their hand. So essentially if we know that the paint cost is 10% and it's going up, for simplicity, the price is going to go up 10%, that means that that cost is now 11% in my hourly rate. And I have to do math to get that back to 10%. Which means...

Michael Murray: So raise your price a little bit. So just raise your price a little bit and hope it works.

Jon Bryant: You just got to raise your price enough where that now fits back into the 10%. And I think if you're doing a 10% increase on something that's 10%, that means that it's going to go up to 11%. So math, from a math perspective, you have to, I believe, okay, I'll know this one. You have to, I believe, raise your price ten... Exactly. I will put the math in the comments, all right? It is a simple equation.

Michael Murray: And we're off the rails. I win. My way is better. This is why we have accountants that work for us. My goodness, this episode's insane.

Jon Bryant: Yes. But the idea is you got to get back to that ideal range.

Michael Murray: No, yeah, I get what you're saying. There is a math to be done. I think you would agree that the math you're doing is more complicated than the math that I would have to do in that situation.

Jon Bryant: Not that, no, no, definitely not. It's not that hard. We could all do this math. I had to do it six times over last year. Come on.

Michael Murray: It's not that hard, but you have no idea how to explain it. All right, I will give you the benefit of the doubt.

Jon Bryant: Let me work it out here, hold on. It's okay. I'm going to put it in the comments. It's coming soon.

Michael Murray: I'll give you the benefit of doubt that I have to go and change that in like 25 different products within Paint Scout. You have to go and change that in one place, which is your hourly rate. And you know, maybe in a couple, if you guys, you said before, like you have different hourly rates based on the type of project, but that part of it is a lot simpler. There's a lot fewer places that you need to go and update material prices, I guess, as those things are being changed by our vendors. So I do think that that is something that needs to be understood and accounted for in this conversation, is that we are able to go in and make those types of adjustments relatively easily.

Jon Bryant: Yeah, I mean, Paint Scout makes that pretty simple at end of the day, but yeah. All right, you got me on the math side. I'm normally super good at math too, but for some reason I don't want to get this wrong, so I'm gonna put it in the comments.

Michael Murray: Having to do math on the spot is like when you have to type on the projector or whatever on the TV screen and everybody's watching, you're just going to have spelling errors. Right. So.

Jon Bryant: It's just bad. I don't want it, exactly. And it's probably so simple. Once I get off this podcast, I'm gonna be like, yeah, you just do this and wow.

Michael Murray: People already think we don't know what we're talking about. The last thing we want to do is prove them right.

Jon Bryant: That's proof of right, exactly. Exactly.

Michael Murray: All right. Well, this has been fun. I think we giggled like schoolgirls more in this episode than in all the other episodes combined. So we'll take it. Hopefully this was helpful. I do think it is a conversation that people do need to understand. Like you brought up, there's a lot of nuance. There's a lot of conversations that are really related to this in terms of marking up our products and different things like that. So if this was helpful, we would love it if you would share this with somebody else in the industry. Please like and subscribe. Certainly comment if you're checking this out on YouTube. We would love it if you have any questions. We try to incorporate those into future episodes. We'll also try to answer your questions on YouTube as well. So John, this was fun. I think I won. I'm going to say I won this one. But at the very least, I hope somebody got some good value out of this.

Jon Bryant: Absolutely. That's what I hope for too. I'm not, I'm going to stay humble and say, you know, this may not be the best method, but it's pretty good. But Michael, you can be cocky all you want. So appreciate that. Stay humble. Exactly.

Michael Murray: It works for you. Stay humble, stay hungry. I like it. We'll see you on the next one. Thanks.

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