Know the Numbers for Your Home Services Business
When I meet with small businesses, we constantly see the same missing information. There are numbers related one’s business that a general contractor should always know, but they often do not. This post is going to go over a few of these numbers, why it is so important for the business owner to know them, and how they can be used to make business decisions. We’re going to approach these questions as we would assuming you were running a local painting business.
How Is A Painting Customer Worth?
Notice that I didn’t ask how much it costs to get a job; we’re not calculating what it costs to get a one time gig. We don’t need to know how much your going to make off your very first job; we want to know what the customer lifetime value (LTV) is for your average customer. If you get a new customer that spends $2000 on average, but 1 in 3 of your new customers call you back to do a new job every 5-10 years, then the customer lifetime value is not $2000. It’s $2000, plus a fraction of the future work you’ll get, plus the value of the referral jobs that you might get. You can learn more about how to calculate this here.
How Much Should You Spend to Acquire a New Customer?
Once you know how much a customer is worth, you’re able to determine how much you can spend to acquire him. Knowing this number will help you to avoid overspending on advertising and marketing channels, or at the very least, force you to pay attention to the effectiveness of each channel. If you are selling painting supplies on the web through Google Adwords, you should know how much you’re likely to make from a new customer and how much you’re willing to spend to get him. There are a bunch of rules of thumb, but it is best to know the exact margins that you’re working with before spending money to acquire clients. These rules of thumb range from 20%-33% of revenue to be spent to acquire a customer, but it really depends on your margins.
Are You Spending Too Much (or too little!) on Your Painting Materials?
We all want to work with the best materials, tools, and equipment, but sometimes, emotions get in the way of reason. Do you really need to use the most expensive paint to complete your clients’ painting jobs? Is it a good idea to use the very cheapest, bottom-shelf painting supplies on your customers? You should take a cold, hard look at these decisions, completely devoid of any emotion or ego.
If you are using the most expensive or the cheapest painting materials, what is the cost??? If using the cheapest, what does that mean? Are you going to have to return to one in five jobs to fix peeling or cracking paint in two years? What will the cost to your business reputation be? How will that cost affect potential new client acquisition? You should calculate the cost of returning to redo jobs or the cost of potential lost customers due to problems related to using cheap materials and compare that cost to the savings of using the very bottom shelf painting materials. If you’re using the most expensive materials, is it helping you to save money on time, having to put up less coats? Could a slightly less expensive option do the same thing? These are critical questions that you have to ask yourself as you are managing your painting business, whether you are a massive corporation or a local painter such as this business.