What is a good pricing strategy for cleaning services?
Today we are publishing our guide to commercial cleaning pricing strategy. This simple guide can apply to commercial cleaning services, carpet cleaners and janitorial services. Often when cleaners talk about pricing topics we go right into the weeds of square foot prices, production rates, hourly rates, etc.
In this tutorial we are more focused at the conceptual level, what is our goal, strategy, long term objective. See based on answering those larger questions we can then fit in the right tactics to get us there.
Every cleaning contractor in the country has different amounts of capital, local markets, offers different services and have unique personal goals. There is not one way to solve all of those problems and account for the endless variables. We need to create our own for our specific situation.
After talking to cleaners for 20 years in social media, I am very familiar with how pissed off people can get when a competitor is a lot lower in price and gets the job. Sometimes they really are just newer and naïve, no question.
But a lot of times they have a different business model and that’s what we are going over today. A competitor might want or need that specific account for some reason you can’t see or understand.
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Table of Contents
Pricing Strategy
After deciding on a goal, we then can create a strategy. Some pricing examples:
Cost Plus
– we figure our costs for a job and then add our gross margin
Competition
– we look at what everyone else is charging, still have to make sure our margins are in line.
Basic, Standard, Economy
– just the facts, a stripped-down service with no extras
Penetration
– start off with a lower or average price and then sell additional services
Skimming
– focused on the top 1,5, or 10% of the buyers and charge above average or premium price
Premium
– we offer a premium service at a premium price to anyone
Pricing Technique
Service
– are you going to charge the same margin % on all services or have different margins for different services?
Seasonal or demand
– will your price change by demand cycles? For example, carpet cleaning lower in winter and higher in spring
Frequency/volume
– will your margin change if a client agrees to a service agreement with more volume?
HOW will you price?
Square foot
– sqr ft or unit pricing is best when you have experience with a specific service and type of client. For example, carpet cleaning in restaurants under 5k sqr ft.
By The Hour
– this can happen in weird jobs where a client and you are unsure of the outcome and both are protected.
Time and Materials
– or another way to use this is hours X hourly rate. This is often used when you are unfamiliar with a service or type of client building.
In this case you still give a flat rate to client but internally figure your numbers by hours X hourly rate
Example of Square Foot Pricing
Square foot pricing is the most popular and easiest way, which is great IF first you do the math and create a couple categories. We can go by fast/medium/slow or large/medium/small or and even a combination of both. In the top nav bar above we have a job calculator to help figure out job costs and what gross profit margin you want to be at with the square foot pricing listed
Profit Margin
What is an acceptable gross profit margin? Is your margin the same on a $300 job as a $30k job? Not for me to judge but some questions to decide before figuring out a commercial carpet cleaning bid. When I think about it, I try and look at it over the year too. For example is this a 1x $300 job or 4x year program at $1200. At least with a quarterly program our marketing cost is pretty low because the routine is fixed already, where a 1x job we have to now spend more marketing dollars to find that $900 difference, 10% discount would be fair to me, but that is a personal choice.
Now first we have to define what is your gross profit
the fact is everybody does it differently and don’t want to debate over the best way. The point is for us to define what our gross profit margin is, what our job costs are. Loosely this means whatever costs to physically complete the job, for example labor, detergents, van and equipment. Problem is many cleaners borrow money for van/equipment so for practical purposes it is a fixed monthly cost. In this case you can go with Time/Materials or labor and any chemicals used.
An example might be Large jobs 50% profit / Medium 60%/ Small 70% gross profit. The reason is we need more overhead for 10 small jobs versus 1 large one. Just think about all the driving alone plus bidding, phone calls, etc, it really adds up.
Production Rates
This is something that will only come from real world experience based on your specific way of cleaning carpet, number of steps used and available equipment. Another variable is the type of office it is, a 3000 sqr ft hallway can be done pretty fast, maybe 1200 sqr ft hour with an experienced crew, while 3000 sqr ft cubicle farm might only be 700 sqr ft hour with furniture moving.
Size of the office definitely matters, our set up time is being spread out more over 15000 sqr ft versus say 3000 sqr ft. If the set up time is 1 hour, that is going to add another 25% to a 3k sqr ft job but only 5% to 15k sqr ft job, see the difference? Job difficulty, what if we have to remove 30 gum spots? That is going to add 2 more hours depending how embedded they are and spread out.
15,000 Sqr ft Commercial Carpet Cleaning
Method used steam cleaning, 1x job with a goal of 70% profit margin (using time/materials), wide open areas with a production rate of 1200 sqr ft per hour, 1 hour set up time. Hourly rate of $150 per production hour.
15000 / divided by 1200 = 12.5 hours + 1 hour set up= 13.5 hours
13.5 hours x $150 per hour = $2,025
$2,025 / divided by 15,000 sqr ft = .135 cents per square feet.