Profit – a dirty word?

When discussing pricing with decorators I always mention
profit. This is sometimes a bit of a dirty word (for some reason) and some
decorators add it to their price, and some don’t. Some add more for profit and
some add less.

Very few understand what profit actually is.

Most decorators will think along these lines. The job will
take me 4 days and for my labour I want £120 per day so that’s £480. The
materials will be £100 so that’s now £580. This is usually the price they give
to the customer. This is actually the COST price.

Some cleverer decorators will add on 20% for profit (£116)
making the job price £696. I think you can already see a bit of a problem
there.

You see no-one really understands what profit actually is.

What is profit?

Let’s look at another example. You decide to make bird
boxes. You look online and you see that the average cost of a bird box is £20

You price up the wood needed to make a birdbox and it’s £6.
You make one and it takes you half an hour. You want to earn £20 and hour so
the cost of your time is £10.

The COST price for you to make the birdbox is £16

The MARKET price for the birdbox is £20

The PROFIT is the difference between the two. In this case
£4 which also happens to be 20%.

Now imagine you do a couple of things.

1.
You buy a bird box making machine that makes one
in 5 mins

2.
You buy wood in bulk, so you get it cheaper.

So now cost to make is the birdbox is £1.60 and the wood is
£4, overall, £5.60 per box.

Now you’re making a whopping £14.40 profit. Over 70% profit
margin.

The market price may fall to £10 per box so that you only
make £4.40 profit but hey, it’s still good. You know however that if the market
price drops below £5.60 (your cost price) then you’re making a loss. Either
make them cheaper or find a new business.

Do we do this with our decorating business?

What is the market price for what we do? How do we find
out?

Do we understand the cost price of what we can produce? How do we
work that out?

Are you constantly try and improve our productivity to lower
our cost price and therefore increase the “profit margin?”

We probably don’t do any of these because when we think
about it, we get a headache. Go and get a job then because business is not for
you.

Why is Profit important?

Profit is important if you want to develop your business in
any way, If you want to invest in a new van, new equipment maybe invest in
yourself by doing some training. You could do a business course and learn about
profit. Without this little bit extra on each job you are funding your business
out of your wages. So, you tell yourself that you earn £120 a day but really,
you’re not. If all your business expenses come to £5000 per year, then that’s
approximately £100 per week so instead of earning £600 a week you’re only
earning £500. Don’t forget too that you have holiday money and the like to come
out of the £500.

If you got a job paying £11.60 an hour, then that’s £464 per
week. You would get holiday pay and sick pay. You would not be out pricing in
the evening. You would not have to worry about customers paying, in fact you
could be better off. You have always got to bear this in mind. If your business
is paying you less than a job, then maybe it’s time to change the way that you
price and start including a profit.

What percentage do you aim for?

There is something called a “normal” profit, and this is the
amount that typically a mature market will pay. This varies from industry to
industry. I would aim for 20% as a decorator working on small scale work. If
you go bigger you may reduce the percentage profit because a smaller percentage
of a bigger amount is more money that a bigger percentage of a small amount.

What percentage is actually possible?

Any percentage of profit is possible, just look at some of
the tech giants, like Google and Amazon. In our little example above, when we
got the birdbox making machine we were making big profits. However other people
would catch on, start making bird boxes and the amount of profit would settle
back to normal in time.

To earn the real big profits, you have got to be a bit of an
innovator in your business, this is something not a lot of people can do.

One last little story, the guy who invented the roller
(quite a big innovation) should have made massive profits but he didn’t because
he was a rubbish businessman. He didn’t patent or market the roller. Someone
else (Sherwin Williams) took the idea and improved it and made millions. So,
you don’t always have to come up with the idea, just be able to make a business
from one.

I feel that decorating has got loads of scope for
improvement, it just needs you to go out and do it and make that profit that we
all want. 

The Sprayers Industry Report 2021

The ultimate in-depth report for everything spray related.