While reviewing paint companies in my area, and a bit beyond, I noticed a trend. So many companies focused on price. In a way, it makes sense. Painting a house is an expensive ordeal. Statistics show that the average family in the United States can’t afford a $500 emergency, let alone a $3,500 paint job.
So what’s a painting company to do? Lower their job price to a point where more homeowners can afford it? Increase the percentage they pay their subs & take a lower cut so they can sell more jobs at a lower price point? Or maybe hire more employees, so your company can do everything ‘in-house’ with the hopes that your margins don’t go down the drain?
“No – Literally, Never – No”
You see, so many painting companies play this business like it’s a numbers game. They do as many jobs as they can, for as cheaply as they can, and wonder why they never turn into a million-dollar painting business. This is one of the WORST ways you can set up to do business.
In this article, we’ll go over 5 of the main of the reasons why you should never structure your business to function this way.
Before we get into those 5 reasons though, you may want to write this down:
Business is Fickle & History Repeats Itself
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Price wars were addressed in a study published by Harvard business review. You know, Harvard, the leading institution in, nearly, all-things academic. Though the ivy-league school doesn’t seem like an obvious choice for painting business advice, they do know a thing or two about business in general. And no matter where your company is on it’s path to being worth a million bucks, the rules of economics still apply.
What the study showed was that the reduction of prices for the purpose of gaining more business, almost always results in a devastating impact to the respective industry. Here’s how it works. Let’s say a painting company (we’ll call the owner Jeff) wants to drum up business & delivers mediocre quality on his paint jobs with a mediocre customer service structure. Well, Jeff’s reputation isn’t for high standards, so in order to get more customers, he puts out an online ad & implements a huge direct-mail campaign with the slogan “We’ll Paint 3 Rooms for $300.”
Now, this ad has good intent. Jeff’s hopes are that he’ll get a foot in the door & upsell bigger paint jobs using this crazy offer (that’s priced at a loss)… and HOPEFULLY turn a profit by the end of it. If not, well he got a customer, his subs got work, & maybe he’ll get a good review on Yelp! that will help bring even more business in.
But remember… Jeff doesn’t offer outstanding quality & customer service… only middle of the road type stuff. So those reviews, when they do come in, don’t brag about the quality of the paint job, or the care the customer received. They’d, most likely, state that they got what they paid for. What does that say when they only paid $300 for 3 rooms? Considering a homeowner could expect to pay somewhere in the neighborhood of $200-$225 if they did it themselves, it says this: “Jeff’s company does about as good a job as I could do (and I don’t paint).” So… Jeff’s mid-quality work is now being perceived as low-quality, AND he’s taking business from his competitors who would have done a better job for more money.
To make matters worse, Jeff has now become the cheap painter in town. Perhaps you think this is easily changed by removing the ad & raising your prices back up. Think again. Here’s why:
Think back about 16 years. What did a typical McDonalds look like? You might recall that the majority of establishments were run-down, boasting faded paint jobs from the 80’s, full of stale scents that reeked of low quality food. Fast forward to today. Though the scents haven’t changed much, the imagery has. McDonalds spent MILLIONS on revitalizing their store front, bringing in professional designers to unify & revamp the visual expectations of their brand. You’d be hard pressed to find one of the burger joints that wasn’t filled with flat screen TV’s and décor that you’d expect to see in a chìc magazine.
"But when was the last time you decided to go somewhere fancy... and chose McDonalds?"
Fact is, once you’ve developed a negative image for you and your business, climbing out of that hole is nearly impossible – and it’s very expensive…
Come on, you saw it coming. You lowered your prices. You took some business. The market in your area is only so big. So your competition responds by lowering their prices. Their competition responds by lowering their prices, and so on. This is the beginning of a price war. Something which, Harvard business analysts suggests can trigger the decline of a market area as a whole.
Here’s how it works. Let’s take, for instance, your market hosts 1000 homeowners that are ready to paint the interior of their houses this year with an average job size of $3500. That creates a market valuation of $3.5 million in your area. But your company consistently offers to perform a job for less than market value. Sticking to “Jeff’s” marketing plan ($300 for 3 rooms), that is an 55% decrease in total market valuation. So, worst case scenario, the total market value for that area has just dropped to $1.6 million dollars. Of course, this is a grossly extrapolated scenario, assuming that all customers receive a “Jeff’s” discount (or one similar). However, with a nearly 55% potential drop in total market value, everyone in the business loses out.
The only positive to such a promotion, is that more customers, as a consequence of price decrease, become ready to hire out painting jobs. But is this really a good thing? Owners & contractors, alike, can only handle so much work with reasonable quality in a reasonable timeframe.
So what suffers? Find out in Reason Number 3
You and your competitors have changed the way painting jobs are sold in your market. The focus has shifted from supplying quality work & craftsmanship, to booking as many jobs as possible to recover losses from dwindling profit margins.
However, this rule applies to anyone in any industry:
Try to do too much, too fast, and you… will.. fail
There are only 24 hours in a day. Overloading your subs & employees with cheap, quantity-in-mind, jobs will have a negative impact on even the best paint crews. And your customers will notice.
The drop in quality won’t be unique to your business. Anyone falling victim to the price war will follow suit. Ultimately, the overwhleming reputation of painting companies in your area will suffer.
Don’t think this can happen? Studies show that business managers commonly go to slashing prices as a way to boost business due to their belief in the fact that it’s an easy, reversible method to acquiring more customers. Unfortunately, what this often results in is industry deflation (not a good thing while the rest of the country undergoes inflation).
Don’t believe us? Ask around your neighborhood, and find out what the general impression is of painting contractors. We can tell you from experience, it isn’t pretty. Most painting contractors are presumed to be sloppy & unprofessional. Which is one of the major problems with this industry, but also one of the prime opportunities for leveraging against other paint companies.
More on that in Reason Number 4…
Someone WILL slash prices in your area. Let them.
“You should be excited about this!”
They’ll most likely never outgrow the reputation they create… but the market WILL recover.
That’s the beautiful thing about this business. The market renews itself over and over. And if you don’t get sucked into the fray, you may help mitigate the damage done to the market valuation in your area.
Now, what you SHOULD do is capitalize on their mistakes. Stand your ground. And sell your work as quality craftsmanship. Present yourself professionally from initial contact all the way to finishing the job. Convince your customer to leave an awesome review online & leverage those testimonials in future sales.
If you’re not sure on how to present yourself professionally, head on over to our home page & get all the FREE templates and guides. These go over how to draft an estimate, how to market your business, & even how to properly put together proposals & contracts. Remember, maintaining your image WILL set you apart from your competition. Whether you need to win more sales based on price OR on quality, you have the power to improve without lowering your standards.
Even if everyone around you is lowering their prices to win a price war amongst competitors, you’re not actually losing anything by standing your ground.
Sure, some customers may decide to go the cheaper route, but most of the people that go this way aren’t really your customers. You should be targeting people that value good work… not a lot of work. Your focus should be on becoming the go-to painter in your area, and that kind of reputation is built on quality & relationships.
The jobs you DO end up winning are going to be from much more valuable customers with a much higher lifetime value than the cheap wins your competitor made. To be honest, your so-called competitors aren’t even that. If you stick to your business model & continue to provide quality service & products, you’ll be in a league all your own. You’ll be able to draft estimates with profit margin in mind & deliver more than what your customer expects, not the bare minimum.
Your market will love you for it, and you’ll quickly find yourself becoming the premiere painter in your area. Creating a company model like this will put you well on your way to building a million-dollar business. We know this, because we’ve done it. Time and time again. If you are looking for help with other topics focused on starting a painting company, like Homeadvisor, or how to estimate, then visit our homepage to get started.
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