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Volume 16
August 5, 2009
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Greetings!
Welcome to the Clean Team Pro Newsletter! One of the stickiest issues for any small service business owner is determining their fees. Charge too little and you see no profits; charge too much and you might see no clients. Finding just the right price point ensures that you have enough work to go around with a wide enough profit margin to make it worth your while. The key to figuring out that magic number lies in three factors, which are detailed in this month's spotlight article, The 3 Keys to Setting the Right Price. Also, please be sure to visit our Reader Mailbag to hear from one owner about her favorite cleaning cloths. Do you have a comment or question for me or our readers? Please drop me an email at jeff@thecleanteam.com, so I can feature it in an upcoming Clean Team Pro newsletter. Enjoy the rest of your summer! | |
The Price is Right
3 Simple Steps to Setting Your Fees
 One of the biggest challenges of running your own cleaning company is setting the right price for your services. If you charge too much, you turn off customers -- without whom your company flatlines.
Undercharging is equally perilous, because without sufficient income, your profit margin after expenses dwindles to nothing -- or worse, to negative. If you are feeling daunted by the task of determining a fair and profitable fee for your services, here are three straightforward steps to that magical number:
1. Calculate your costs
The first step in determining the right price to charge for your services is making a detailed list of all your costs. Do you pay a team of cleaners? Do you rent office space? How much do you spend on marketing? What about hosting fees for a website or printing costs on flyers and business cards?
Write it all down, including your cell phone charges, gas and car maintenance, and of course cleaning supplies. Sure, many of these expenses can be used as a write-off, but you still have to pay for them out of pocket, which means they will cut into your profits.
Tracking these costs is not only important to determining your fees, it's also essential for preparing your annual tax return. There are plenty of software programs you can buy (another cost!) that will help you track your expenses. But the more frugal alternative of creating an Excel chart, or even just using a notebook and pen, will work just as well.
Tip: For tax purposes, be sure to keep receipts for all allowable expenses. File them in chronological order and jot a note to yourself what the item was used for, if you think you might not remember.
2. Determine your ideal profit margin
Perhaps "ideal" isn't the right word, since wouldn't we all ideally like to earn six figures right off the bat? Maybe "realistic" is a better term. Realistic doesn't mean you need to low-ball your profit expectations, but you do need to keep them within the realm of possible.
An important factor in determining your ideal/realistic profit margin is your personal life situation. Are you married or single? How many mouths do you feed every month? What is the cost of living like in your area? If you are the sole breadwinner for a family of five, your "life expenses" will be much higher than if you are a single person living in a rent-free basement apartment.
Why does one's personal situation matter? Surely everyone -- married or single, dual income or sole breadwinner -- wants and deserves to earn a healthy profit margin. Indeed. But, the sole breadwinner is more critically dependent on his or her profit margin, which means that his or her risk tolerance is lower -- and so too is his or her flexibility in pricing decisions.
3. Investigate the market factors
The final key factor in determining your cleaning service fees is determining the range of cost that the market will bear. You will need to do some research to determine this figure. Start by gathering data from other cleaners, or from friends and relatives who use a cleaning service. If you live in a large city, consider looking into a number of different suburbs. An acceptable rate in one neighborhood may be sky high -- or rock bottom -- in another.
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Now that you have gathered all your data -- your expenses, your ideal profit margin, and the market standards -- you are ready to run some calculations. Add together your expenses and ideal profit. Now divide that figure by the minimum number of houses you can clean in a month. Voila -- that is your minimum fee. How does that number jibe with the research you collected in Step 3? Are you above or below what the market will bear?
If you want to tweak your results, try asking yourself these questions:
Can my expenses be lowered without negatively impact my level service?
Can I increase the number of houses cleaned each week without significantly increasing my expenses?
Can I lower the percent of the job that I pay my workers or can I lower my hourly rate slightly?
Can I work more days per week or weeks per year?
Would I be willing (or fiscally able) to accept a lower profit margin today, with a plan to gradually increase my rates and/or expand the number of houses I clean within the next 12-24 months?
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Reader Mailbag
Last month, we profiled Cleaning Cloths in our Using  Clean Team Products section. Here's what one of our readers had to say about her favorite cleaning cloths:
We have hundreds of flour sack towels that we
have been using since day one of this company. They cost $1.10 each and come in a pack of 5
purchased at any local department store in your area. They are 100% cotton
and yes, we fold them for our employees as Jeff recommends. They hold up well
in the laundry department. Only the newest ones have some extra lint, but
after a couple of times through the dryer they do a great
job.
-- N-Home Cleaning owned by Mary Snook, Port Byron, IL
Do you have a comment to share with me or our readers? Please send me an email at jeff@thecleanteam.com. I'd love to hear 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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