Why is it that sometimes it seems like you are working like crazy, but when all is said and done, you are dog tired, but still broke? Well, the answer may be surprisingly more simple then you may expect.
Let’s look at a few questions about your business. Ask yourself:
If you took your total revenues for a week and divided it by your staff’s total cleaning hours (not including drive time, meetings, office help or other non-cleaning times), would the result be your hourly billing rate (or within 5%)?
Hourly billing rate is $30.00 per person/ per hour
$6000 (revenues) / 256 (cleaning hours) = $23.44
The answer is “no” because $23.44 does not equal $30
Do you have a policy that limits and/or encourages your staff to spend the amount of time cleaning that is equal to the amount of time that is being billed for? Even on flat rate jobs?
If you answered “No” to any of the questions above this article may be able to help you keep more of your money. How much more? Well, I recently worked with a client (a 5 employee business) who found that they were missing out on over $50,000 a year in profits! Now that’s a lot of dough!
Let’s look at the source of this problem. In my experience low profitability in cleaning businesses can often be attributed to two areas:
1. Under bidding
2. Lack of Employee Efficiency
First, under bidding. Everyone has been on a job that looked smaller then it was, only to pay dearly for it later. The trick is to develop a system for accurate estimating, and contractual guidelines to protect you so that you can make a healthy profit every time you clean. I always ask cleaning business owners that approach me with low profitability problems the same question, and they almost always have the same answer.
Question: “How do you determine what to charge for a cleaning?”
Answer: “Well, I have been doing this so long that I can just look at the job and have a good idea of what it should cost?”
Now, maybe they do have a good idea of how much it should cost some of the time, but usually its not really the most reliable method every time. During a walk through clients are throwing all kind of questions at you, and you need to make lots of judgements about the job. It is easy to be so eager to sign up the new customer that you sub-consciously disregard some details that are really going to add to the time. The results are frequent underbidding, and the giving away of your profits.
The best solution that I know of is to have a rock solid estimating system so that you can beat your sub-conscious desire to sign up a new customer at all costs. Part two of this solution is to have a regularly scheduled price review time, where you will increase prices across the board, if the market warrants it. This way you avoid having once profitable clients still around 10 years later, still happy, but no longer making you any money.
Now for the second source of low profitability…lack of Employee Efficiency. Let’s say that you are bidding all of your jobs correctly, and regularly reviewing the prices to keep pace with the economy, and you are still not making a good profit…It’s time to look at your Employee Efficiency. This is a complicated issue that we can just touch on here, but mainly “Can your employees clean each of your locations to your standards, in the amount of time that the client is being billed for?” If the answer is “No”, or “not every time” then you may have a lack of employee efficiency. The source of this problem is worth some investigation and could be a number of things including lack of employee motivation, teamwork problems, miscommunication, inadequate equipment, poor method and procedure, lack of training, and a number of other reasons. To identify your source/s of lack of employee efficiency first start by looking at your numbers very carefully to identify where the leaks are, if they are for specific employees or specific jobs, do they happen at certain times, or any other specifics that can help you narrow down the source. (For help with identifying your employee efficiency problems and solving them, contact me, Renée O’Brien)
I hope that you got some ideas on how to improve your profitability, and stop throwing your money away. It can be very hard to identify why your profits are lower then expected, and if you need some help, I have developed a set of tools for you to: