The Price is RightBy Sharon L. Cowan | July 3, 2019 << Back to Articles
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The most important skill a service business owner needs to learn is the art of pricing jobs profitably; profitably being the key word here.
It’s not something you can or should find out in a Facebook group, by asking friends in the industry, or by guessing, because to do so may cheat you and your company out of profit dollars, undervalue your work, and set you up for future failure.
Once you know how to price accurately using your own numbers, expenses, market research, and knowledge of your employees’ productivity rates, you’ll never have to ask anyone again. So, my overall message is to learn how to price accurately for your market and your company’s profit growth. On a rare occasion, you may have to seek professional help when pricing something out of the norm.
So how do we set pricing for the work we do to assure a profit on every job? We start with some basics. No matter if you have been in business for one year or 20 years, knowing the basics of your numbers means the difference between a profitable price and a loser. If you aren’t going to make money at it, then don’t do it, unless of course you are operating a charity.
First do the math
As much as many of us dislike the word “math,” it’s a necessary evil that is required by all owners from the least to the most experienced. Daymond John famously spouts that “lack of financial intelligence will put you out of business faster than anything else,” and I heartily agree. So, buckle down and learn what your numbers mean. To calculate a price for cleaning, first determine which services you are offering, such as:
- One-time cleaning
- Initial cleaning
- Weekly, biweekly, monthly cleaning
- Move in/move out cleaning
- Other specialties, such as window cleaning, carpet cleaning, post construction cleaning.
What is your pricing model?
How will you arrive at your price? The first step is to decide what to charge per hour. To determine this price, check the competition in your market for comparison, but don’t use that as your only guide. Look at your expenses, the cost of labor, rent, advertising fees, insurance, and all the other overhead costs which must be figured into your price per hour.
- Example: A company in a state in which $15 per hour is the minimum wage, will have a much lower profit margin than a state that has a $10 minimum wage, unless the price per hour charged the customer is adjusted up.
- Example: A company who pays rent of $4,000 a month will need to charge a higher hourly rate to customers than a company that pays $800 a month. These overhead expenses must be calculated and considered as you are setting prices.
The next step is to determine how to arrive at the price you will charge. In all pricing models, time and money are directly tied together. Everything is based on how long it takes and how much you charge for that time.
- Charge by the hour
- Charge a flat rate
- Charge by square footage.
Hourly pricing allows you to get paid for every hour you are providing service. This method is often typically used for initial and one time cleans, because there are many variables and unknowns in these types of cleanings. The estimating must be accurate and often a range of time is given to provide wiggle room for unexpected issues.
Flat rate pricing means your estimating accuracy skills must be exact, otherwise you will lose money. You set a fee based on your estimated time, and cleaning techs must stay within that budget of time.
Square foot pricing is typically not recommended for residential cleaning as there are too many variables and little consideration of time needed to clean. The opportunities to underbid are great.
Productivity rates matter
Why is knowing your cleaning productivity rate a big deal? Unless you have knowledge of how fast or slow your cleaning techs move, it will do you no good to use industry standard formulas or anyone else’s advice for how to charge. Here is the truth about productivity rates:
- National industry averages show routine biweekly cleaning to average 650-750 square feet an hour.
- Initial cleaning productivity is slower at about 500 square feet an hour.
When estimating the amount of time that it will take to clean a home, the first number you need to know is how fast or slow your techs clean. If they clean at a rate of 300 square feet an hour, you will need much more time (thus more money). If they clean at 1,000 square feet an hour, you can get through the areas faster and add more homes to their schedule, but you may have quality issues.
- Determine the types of services offered
- Decide on your pricing model
- Decide on your hourly rate and minimum service fee (to be applied to all models)
- Know your productivity rate.
Only you can set the pricing for your business. Asking others on social media can be a road to disaster because they don’t have the same costs as you. Test and adjust pricing as necessary from time to time. Sell your service on your worth, not on being the lowest deal in town.
About the Author.
Sharon L. Cowan, CBSE, is President and CEO of the Cleaning Business Consulting Group, a coaching firm and consulting company dedicated to helping janitorial business owners. Sharon is also the author of “Post Construction Cleanup 101.” She can be reached at email@example.com; phone, 772-563-7320.