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Greetings! For the next two months, the Clean Team Pro Newsletter is putting the spotlight on Good Business Cents (errr... Good Business Sense). This month, we'll be looking at how to price your services -- and how to handle the inevitable hagglers. In June, we'll tackle the bean counting issues, like record keeping and payroll. As always, we'd love to hear from you: What's working for you? What's not? The more you tell us, the better we can serve you -- and the rest of our readers -- with our monthly newsletter. Please send us your emails at jeff@thecleanteam.com.
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 The Dollars & Cents of Running A Housecleaning Business
How to Determine the Fair Market Value of Your Services
Maybe you've got a client waiting list a mile long. Or maybe you're just starting out and still searching for customers. Either way, if your housecleaning company doesn't have the right money systems in place, then your business is destined to fall flat.
The key to your company's financial future is determinging the fair market value for your services. If running these calculations is overtaxing, then read on. This in-depth analysis will simplify some of the thorniest issues in the finance field.
What is a fair price?
The fair market price for your services is one that is both profitable for you and reasonable for your customers. Let's focus on your profitability. As you know, the key to determining your profitability point is being able to accurately estimate your costs.
How do you calculate your costs?
Did you know that labor costs consume half of total revenue for the average housecleaning company? What you pay your workers, including their salary or revenue share, plus payroll costs and worker's compensation insurance, is the largest single investment in your housecleaning business. Which is a pretty good reason (if you needed one) to take good care of your personnel. By being a respectful, fair and friendly employer, you're not only nurturing your workforce, you're protecting the backbone of your company.
But what about your company's other costs? Where do they figure in the balance sheet? Let's take a look at the three major revenue-eaters after labor costs:
- Cleaning supplies: For most professional housecleaning companies, supply costs amount to 3-4% of total revenues.
- Marketing: Even once word-of-mouth has become your major lead generator, you still need to maintain a basic marketing budget of 2.5 - 5+% of revenues*.
- Running an office: If you operate your cleaning business out of your home, then office expenses will represent a fairly small percentage of your total revenue. Once you open a non-residential office, however, that figure will increase as a percent of your revenue.
What does all this mean in real terms? Let's say you've determined that the fair rate of pay for your employees is $9.50/hour. Payroll costs add another 20% to 30% (depending on worker's compensation insurance rates in your state) per employee per hour. Realistically, you will need to charge at least twice your per person labor costs to cover your other expenses and still earn a respectable profit. So, for example, $9.50/hour + 25% for payroll costs and worker's compensation insurance = $11.88. If you double that, your company hourly rate might be $24 per team member.
How Do You Estimate Your Time?
Once you've calculated your hourly rate, you need to determine how long it will take your team to clean a particular house. This step is as critical as determining your costs because if you underestimate, your profits will drop -- precipitously.
When a potential customer asks you to give an estimate, you walk through his or her home and take a written inventory -- the number of rooms, bathrooms, floors, kitchen appliances, pets, etc.
If you've been doing this for a while, then the inventory process is probably second nature. You know that the average 3-bedroom, 2-bath home with two adults and two kids will take your 3-person team just under an hour to clean. So you multiply that hour times three, for each member of your team, and again times $24, for your hourly rate per team member -- and you quote your client $72 for a weekly cleaning.
But wait! Every home has certain unique features that may necessitate your team spending a little more -- or a little less -- time cleaning there.
Increase your estimate if the house has:
· Many young children
· Pets
· Multiple stories
· Small, cluttered rooms
· Clear glass shower doors instead of curtains
Decrease your estimate if the house has:
· Only working adults living at home
· Large, sparsely furnished rooms
· Shower curtains instead of clear glass doors
· Unused rooms/bathrooms (eg. Guestrooms)
Also calculate the age of the home and the size of the kitchen (older homes and bigger kitchens take longer to clean). And consider whether the client wants you to clean weekly (less upkeep, less time consuming) or biweekly (more upkeep, more time consuming).
Setting your fee -- and sticking to it (see How Not to Haggle, below) -- can be one of the greatest challenges of running your housecleaning business. Determining the fair market value of your service requires you first to calculate your costs, with labor at the top of the list, and then to accurately estimate how long each house will take to clean. Mastering these two skills will add up to financial success.
* According to Gary Goranson at www.housecleaningbiz.com, marketing costs in terms of client acquisition have remained quite static over the last decade -- about $100 per new client. "I always tell people to look at a proposed marketing campaign and ask themselves: 'Can I expect to get a new client for every $100 I spend?' Assuming the client stays for a year and generates at least $2,000 in revenues, that should work out to about 5% advertising costs. Of course, with some attrition, the actual percentage will be higher than that. Likewise, $100 to get a client who spends $4,000 annually equates to about 2.5% advertising cost." |
How Not to Haggle
What To Do When Customers Bargain
Does this scene sound familiar? You've been invited to give a price quote. You've done your walk-through and calculated your fee - both for the weekly and for the first-time cleaning (which is typically three times higher than the weekly fee). You share your quote with the client ... and she immediately starts to haggle.
Even if you're just starting out and the promise of a weekly check is especially enticing, you should resist the temptation to lower your quoted fees. Politely explain that this is what it costs to provide quality cleaning.
If the customer insists that you drop the first-time cleaning ("My house doesn't need a deep cleaning!"), consider this: Without that first-time thorough deep cleaning, their house will not be clean to your standards, nor, quite likely, to the client's standards. Explain this to your client. It's helpful to give them a couple examples, such as moving furniture and other chores that you typically do during the first-time clean.
You could offer to split the first-cleaning into two or three sessions to lower the initial "sticker shock". Or you can even offer a money-back guarantee. Just don't sell yourself, your service, your employees -- and your future client -- short by agreeing to something you know is unwise.
The bottom line for haggling? Be respectful, courteous, kind ... and firm. Remind yourself that you are quoting a fair market price. Haggling will only demean the relationship between cleaner and client.
For more tips on how not to haggle -- and the other finer points of customer relations, order your copy of Jeff Campbell's Complete Guide to Success in the Housecleaning Business.
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Letters From Our Readers
In April, the Clean Team Pro Newsletter focused on how to land new clients. After reading our article, professional housecleaner Aaron Kimberlan Newton from North Carolina wrote to us to s hare his most successful campaign strategy.
This past December, I decided that instead of passing out flyers as usual, I would print out my flyers and stuff them in envelopes with one of my business cards. Then, on the outside of the envelope I would handwrite "Happy Holidays". I knew that this type of campaign would take more time, so I enlisted a few of my friends to help with envelope stuffing. I felt certain that people would open the envelope to find out what was inside.
Turns out Aaron was right! He increased his yearly income by $10,000 with an investment of less than $100 for 2,000 flyers.
The personal touch got people to return calls and emails on a phenomenal level. Doing a little extra work really paid off!
Do you have a success story you want to share? Write to me at jeff@thecleanteam.com. I look forward to hearing from you!
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Thanks for reading us this month! Come visit us on the web at www.thecleanteampro.com.
Sincerely,
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Jeff Campbell
The Clean Team Catalog |
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