How a Cleaning Business is Profitable

Running a cleaning business can be a rewarding venture, but to ensure it's profitable, you need to understand some key financial concepts. In this blog, we'll break down how a cleaning business makes money by explaining Cost of Goods Sold (COGS), Fixed Costs, Gross Profit, and Net Profit. We'll keep it simple and easy to understand.

Understanding Cost of Goods Sold (COGS)

What is COGS? COGS includes all the costs directly tied to providing your cleaning services. This means everything you spend to get the job done.

Examples for a Cleaning Business:

• Cleaning supplies (detergents, mops, cloths)
• Labor costs (wages for cleaners)
• Equipment maintenance (vacuum cleaner repairs)
• Transportation (fuel costs for getting to job sites)

Why it matters: Knowing your COGS helps you price your services correctly. You need to make sure that what you charge your customers covers these costs and leaves you with a profit.

Fixed Costs: The Unchanging Expenses

What are Fixed Costs? Fixed costs are expenses that don’t change, no matter how many clients you serve. These are your regular, ongoing expenses.

Examples for a Cleaning Business:

• Rent for your office or storage space
• Insurance (liability insurance for your business)
• Salaries for administrative staff
• Utilities (electricity, water)

Why it matters: Fixed costs are unavoidable, so you need to make sure your income covers these expenses. Even if business is slow, these bills still need to be paid.

Gross Profit: Your Earnings Before Expenses

What is Gross Profit? Gross profit is what you have left after subtracting COGS from your total revenue (the money you make from your services).

How to calculate it:

Gross Profit = Total Revenue - COGS

Example:

If you earn $50,000 from cleaning services and your COGS is $20,000:

Gross Profit = $50,000 - $20,000 = $30,000

Why it matters: Gross profit shows how efficiently your business is at providing services. It’s a good indicator of your business’s core profitability before other expenses.

Net Profit: The Bottom Line

What is Net Profit? Net profit is the actual profit after all expenses, including fixed costs, have been deducted from your gross profit.

How to calculate it:

Net Profit = Gross Profit - Fixed Costs

Example:

If your gross profit is $30,000 and your fixed costs are $15,000:

Net Profit = $30,000 - $15,000 = $15,000

Why it matters: Net profit is the real measure of your business’s profitability. It tells you how much money you’re making after paying all your bills. A positive net profit means your business is doing well.

Putting It All Together

To see how these concepts work together, let’s break it down step-by-step:

• Calculate Revenue: Start by totaling up all the money you earn from your cleaning services.
• Subtract COGS: Deduct the direct costs associated with providing these services to find your gross profit.
• Deduct Fixed Costs: Subtract your fixed costs from the gross profit to find your net profit.

Example Scenario

Revenue from Cleaning Services: $100,000

COGS (Cleaning supplies, labor, equipment): $40,000

Gross Profit: $60,000 (Revenue - COGS)

Fixed Costs (Rent, utilities, insurance): $30,000

Net Profit: $30,000 (Gross Profit - Fixed Costs)

Why These Numbers Matter

Understanding these financial terms helps you make smart decisions for your cleaning business. By knowing your COGS, you can price your services properly. Understanding your fixed costs helps you keep an eye on your budget. Gross profit tells you if your basic business model is profitable, and net profit shows your overall success.

Keeping track of these numbers ensures your business stays healthy and profitable. You’ll be able to see where you can cut costs, when to raise prices, and how to plan for the future. Happy cleaning and happy earning!