Profitable Growth Strategies for Commercial Cleaning Companies
Pricing can be a very emotional topic for many commercial cleaning businesses. People often tie their self-worth to their prices, but pricing is just one piece of the puzzle when it comes to running a successful business. In this article, we’ll explore how you can increase your net profit margin even though you’re keeping your prices the same.
First, let’s define some terms.
Fixed costs are expenses that you have to pay regardless of how many jobs you do. These can include things like rent, phone bills, office staff salaries, marketing expenses, and more.
Job costs (COGS) are expenses that are directly related to a specific job, such as labor, equipment, and chemicals.
How To Increase Net Profit Margin
For the purposes of this article, let’s assume a fixed cost of $5,000 per month and a job cost of 60% gross profit.
This means that if your average job price is $657, your profit would be $394.20 per job ($657 x 60%). But how can we increase our net profit margin without raising our prices?
The answer lies in squeezing more revenue out of our fixed costs. As we take on more jobs, our fixed costs stay the same, but our revenue increases. This means that our profit margin increases as well. Let’s take a look at some examples:
10 jobs per month: Revenue = $6,570, Profit = $3,942 (profit margin = 60%)
100 jobs per month: Revenue = $65,700, Profit = $39,420 (profit margin = 60%)
200 jobs per month: Revenue = $131,400, Profit = $83,520 (profit margin = 63.5%)
As we can see, our profit margin increases even though our prices stay the same. This is because we’re squeezing more revenue out of our fixed costs.
Larger companies that are growing rapidly may have prices that are average or even slightly below average, but they’re able to remain profitable by maximizing revenue from their fixed costs.
Maximizing revenue from fixed costs
Of course, there are practical limitations to this strategy. As we take on more and more jobs, we may need to increase our fixed costs by hiring additional staff or expanding our office space.
But even with these added expenses, the key is to continue squeezing as much revenue as possible out of our fixed costs.
One way to do this is to focus on efficiency. Look for ways to streamline your processes and reduce waste. This might include using more efficient cleaning methods, optimizing your scheduling, or investing in better equipment. By doing so, you can increase your output without increasing your fixed costs, which will in turn increase your net profit margin.
Another way to maximize revenue from your fixed costs is to focus on upselling and cross-selling.
For example, you might offer additional services to your existing clients, such as carpet cleaning or window washing. By doing so, you can increase your revenue per job without increasing your job costs or fixed costs.
In conclusion, pricing is just one piece of the puzzle when it comes to running a successful cleaning business. By maximizing revenue from your fixed costs, you can increase your net profit margin even though your prices remain the same. This requires a focus on efficiency, upselling, and cross-selling, but the payoff can be significant. Remember, it’s not just about your pricing – it’s also about getting the most out of your fixed costs to run away from them.