PCA Articles
How to Figure Out What’s Holding Your Business Back
Growing a business can be challenging, and sometimes, what you think you need isn’t really what you need. Many business owners, not just in painting but in any field, often think they just need more leads to grow. However, needing more leads is often a sign of a deeper problem. To truly grow, you need to identify and address these deeper issues. This starts with understanding what your constraints are.
What is the Theory of Constraints?
The Theory of Constraints (TOC) helps you find the main thing holding your business back. By identifying and fixing this constraint, you can improve your overall business performance.
Step 1: Knowing Your Data
To find your constraints, you need to know your business data. Without good data, you’re just guessing. Here are some key numbers to track:
- Average Number of Leads per Week or Month: How many potential customers show interest.
- Lead Slippage Rate: The percentage of leads that don’t turn into estimates.
- Estimate Conversion Rate: The percentage of estimates that turn into sales.
- Close Rate: The percentage of sales made from estimates.
- Average Job Size: The average amount of money made per job.
- Charge Rate: The average hourly revenue per painter.
- Gross Margin: The percentage of revenue left after paying for materials and labor.
- Labor and Material Percentages: The costs of labor and materials as percentages of total costs.
- Productivity per Painter: How much work each painter produces per week.
- Weeks Booked Out: How many weeks your schedule is filled with booked jobs.
Step 2: Analyzing Your Data
Once you have your data, analyze it to find constraints. Here’s how:
Leads per Week
To know how many leads you need, work backward from your goals. For example, if you want to make $83,000 a month (about $1 million a year) with an average job size of $5,000 and a close rate of 33%, you need 65 leads per month. Here’s the math:
- $83,000 divided by $5,000 = 17 jobs per month.
- 17 jobs at a 33% close rate = 52 estimates per month.
- 52 estimates at an 80% conversion rate = 65 leads per month.
Divide the monthly leads by 4.3 to get a weekly average.
Lead Slippage Rate
Lead slippage can vary based on where your leads come from. Facebook leads might have a higher slippage rate (around 50%) compared to Google Ads leads (around 10%). Aim for a 25-30% lead slippage rate. To improve this:
- Respond Quickly: Get back to leads as soon as possible.
- Follow Up: Keep in touch with potential clients.
- Send Reminders: Remind prospects about their estimates.
Close Rate
A good close rate is about 33%. If yours is lower, look at:
- Pricing: Make sure your prices are competitive.
- Sales Skills: Improve your sales techniques.
- Lead Quality: Get better-quality leads.
Average Job Size
Larger job sizes are usually better. If your average job size is below $4,000, try:
- Upselling: Offer additional services to increase the job size.
- Targeting Better Areas: Market to wealthier neighborhoods where clients have larger budgets.
Charge Rate
Aim for a charge rate between $75 and $95 per hour. If it’s too low:
- Raise Prices: Adjust your pricing strategy.
- Boost Productivity: Make your painters more efficient.
- Performance-Based Pay: Use a pay system that rewards painters based on their performance.
Gross Margin
Your gross margin should be about 50%. If it’s lower, check:
- Labor Costs: Keep labor costs between 34-40% for in-house painters and 40-50% for subcontractors.
- Material Costs: Make sure paint costs are 10-12%. Negotiate better prices with suppliers or find cheaper materials.
Productivity per Painter
Track productivity by crew. Calculate the revenue produced by a crew and divide it by the total hours worked. Compare this to your average charge rate to see if there are any productivity issues.
Weeks Booked Out
If you’re booked more than four weeks out, hire more painters. Take a short-term financial hit to spend time recruiting and training new team members. This will help you handle more work in the long run.
Step 3: Implementing Solutions
Once you’ve identified your constraints, implement these solutions:
- Leads: Improve lead generation strategies and quality.
- Sales Process: Enhance your sales techniques and training.
- Pricing: Adjust prices to be competitive yet profitable.
- Productivity: Invest in training and performance-based pay systems.
- Hiring: Recruit and train more painters to expand your capacity.
Step 4: Continuous Improvement
Identifying and fixing constraints is an ongoing process. Regularly review your metrics to stay on track and continue making data-driven decisions. As your business grows, new constraints will appear, so keep monitoring and adjusting.
Conclusion
Understanding and addressing constraints is key to growing your business. By tracking and analyzing key metrics, you can find and fix the problems holding you back. Use the Theory of Constraints to make smart decisions, improve operations, and reach your business goals.
If you want help figuring out what your constraint is in your painting business, you can schedule a free coaching call with my team right now by clicking here.