Compensation Strategies to Elevate Your Painting Business

My name is Daniel. I'm a CPA that works exclusively with painting businesses, helping them from startup to $10 million. In today's podcast, we're going to talk about what to pay your team. And so this reminds me of a book by Brad Jacobs called How to Make a Few Billion Dollars. Really great book, definitely recommend you read it. And a significant portion of the book, it talks about how to treat your team, how to compensate your team, how to think about the levels of your teammates. One of the thought experiments that Brad Jacobs had in the book that was really impactful to the way I thought about this was he said basically you had A players, B players, and C players, and to figure out which of each of your teammates fall into which category, Imagine that they come into your office and say, "Hey, I'm quitting my job." Evaluate what your emotional reaction would be. And in the case of a C player, your emotional reaction would be, "Okay, that's fine. I was going to fire you anyway, so not a big deal." That would be a C player if you have that emotional reaction. If your reaction is, oh, this, this really sucks. This is going to take a month or two to, to get somebody to replace this person. It's going to be really inconvenient, but I think I might be able to get somebody that's better anyway. So it's not completely terrible. That would be a B player, where it's inconvenient, takes a little bit of time to recuperate from that. But in the end it might actually turn out better. That would be a B player. Then an A player, if they come into your office and say that they're quitting, you immediately panic and start wondering what, what went wrong, worrying that you won't be able to find someone as good as this person ever again. That would be an A player. So I think that's really helpful in classifying your team. And if you look through countless biographies of CEOs and founders that are killing it, like Steve Jobs, Brad Jacobs, Henry Ford, they're looking for A players, only A players, getting A players in their organization and trying to make sure that they avoid hiring B and especially C players. I think Steve Jobs said something to the effect of, you know, you're going to get some B players. If you're trying to only hire for A players, you're going to probably get some B players, but you gotta be really careful because when you get those B players in, they're going to start— when they get in management, they're going to start hiring C players. And then you'll get what's called a bozo explosion, where you're just, you have a whole bunch of bozos in your organization. Not a good thing, a bunch of C players. So, uh, understanding that when you're hiring in your business, you really need to look for A players so that they can grow safely without risking a bozo explosion, as Steve Jobs would say. And along with this, there's another idea in Brad Jacobs' book is compensating your team. For A-players, you shouldn't hold back on compensating them because an A-player is going to give you such outsized returns. They're going to create raving fans of your company if you're bringing in A-players because they're going to create such a great experience for your customers. So don't, you know, withhold a couple dollars per hour because you're trying to stay within a budget if it's truly an A-player. Don't hold back on compensation. So take— so when we go through what you should pay your team today, keep that in mind. Like, these are rough guidelines, but if you truly have an A-player, you might need to compensate them more. But what you're going to get in return should be a huge amount of value that you wouldn't otherwise get from a B or C-player. All right, so let's first look through direct labor. So this is job site labor, what should you pay your painters? So right here, I'm sharing my screen. If you're not watching this on YouTube, you're just listening, you can check out the YouTube version, we'll have this growth model on the screen. But if you're just listening, I will try to explain it so you don't need to see it necessarily. All right, so looking at painters, generally you want to keep painters somewhere to 33% to the high end, very high end, 40% of what you're charging your customer. So if the project's $10,000, you wouldn't want to pay your painters more than $4,000, and that would be like if they're subcontractors. But most of the cases, if you have employees, somewhere around 3,500 of that $10,000 job should go to your painters. And so this is a little bit variable in terms of the hourly rate that I see across the US, but it's somewhere around, you know, $20 to $30 an hour, roughly speaking, depending on what area of the country you're in, but kind of the The big thing is that you're not paying them more than, you know, 35 to 40% of the job with fully loaded burden accounted for. So fully loaded, the fully loaded rate would be like your payroll taxes on top of that. Let's say you're paying someone $25 an hour, you should multiply that by 1.3 to add in the additional burden because you have payroll taxes, you have workers' compensation, all those different fees added in there. So it usually comes up to somewhere around 30%. And so when you multiply $25 per hour times 1.3, that's actually $32.50. So that's the fully loaded rate. So when we're talking about that fully loaded rate, that should come in below 40% of the total price of the job after you multiply, you know, how many hours are on the job and everything. So that generally works assuming your materials are around 15%. Now sometimes materials are a lot less. In that case, you might have a little bit more of a labor budget, or maybe the materials are a lot more. and so you'd have less of a labor budget because usually folks are shooting for somewhere between 40% and 50% gross profit margin. All right, so those are some rough guidelines for painters. Now let's go to salesperson. How much did you pay a salesperson? So for a salesperson, this is typically somewhere around 8% of what they close. Now this is after again, payroll burden. So if you want to pay someone 8% of what they close, all costs built in, that fully loaded rate, probably need to pay them somewhere around 6.15% of what they close goes to them. Then you add in the payroll burden, it's going to come out around 8% of what they close. So that's typically a decent framework for salespeople. Obviously you can do it a little bit less, a little bit more, but that typically it's somewhere around 8%. Now let's take a look at like an admin person. So office workers, admin person, admin person, this kind of, this definition of what an office person does fluctuates business to business. But typically, you know, the office person is doing the invoicing. They're invoicing the customers after the job. They're potentially scheduling crews. So, once the proposal is signed by the customer, the office person might reach out to that new customer, get them scheduled, facilitate getting the colors, Those are the types of tasks that the office person typically does. Some maybe light, light bookkeeping, like paying the bills, invoicing customers, onboarding new customers, scheduling crews. That's typically the job description of an office worker. And that usually they're paid somewhere around 3 to 4% of revenue. So if you're doing $1 million in revenue, they're probably getting somewhere around $35,000 per year. Now, this could be less or more. Maybe they might have more responsibility, maybe they need to get paid a little bit more. Maybe they have less responsibility, they get— maybe they would be paid less. All right. Oh, and I forgot another thing. Office workers often are doing setting as well. Like if a lead comes in, they'll set that up, estimate appointment. All right. So, so that's office workers. Now the next one is production managers. So production manager and office worker, sometimes they have, depending on who you're talking to, they might have overlapping duties and responsibilities like for scheduling sometimes. The office workers scheduling crews, sometimes it's the production manager scheduling the crew. Sometimes the office workers facilitating bringing new customers on board, sometimes it's the production manager that takes on like getting colors and scheduling the crews. So it kind of depends on how you're defining what each role does, but typically you'll see production managers paid somewhere between 5% and 7% of what they produce. And they might be on the low end of that, you know, they might be closer to 5%. Maybe if you have an admin person that's onboarding the new customers, they're getting the colors, they're scheduling the crews, and then they're handing off the production manager. So the production manager will have less to do. And then another thing to consider is maybe you have really strong crew leads Maybe your crew leads collect the check at the end of the job, and you have a high amount of confidence in your crew leads. They're very strong. They have high-quality work. They can talk to the customer and do the final walk-around and collect checks. So there's less need for a production manager. So if you have really strong crew leads, maybe you don't need to pay your production manager as much because they— their roles and responsibilities will be reduced in that case. On the other hand, if you have crew leads that need to be QC'd, they need someone to communicate with the customer or do walkarounds at the end of the job, maybe you need a stronger production manager that who's, who's getting more of a percentage of what they're producing. So they might be closer to 7%. So those are some rough guidelines for those key positions. For direct labor, for salesperson, for production manager, for an office worker admin person. So hopefully that was helpful. Love to hear your thoughts on any ideas for future episodes. If you haven't done so already, go to Grow Your Painting Business on Facebook group, go to Facebook, Grow Your Painting Business, join that group, join the discussion, love to hear your thoughts. See you next week.