Bidding and Estimating: Profit
Profit is not what it used to be.
In the good old days, every account turned a healthy profit of at least 25 percent to 40 percent.
Today, if you can earn 10 percent per account, you are doing good.
And, if it wasn''t for the extra work that comes along, in many cases, performing basic janitorial services alone may not be worth doing.
In order to earn an acceptable profit in today''s market, you have to work smarter, harder and watch every dollar spent.
It''s easy to get upside down if you don''t know what your budget and your costs are.
On a small account, it''s not as critical; on a large account, being off by a few cents per foot can break you.
The following are a few definitions you might come across in your bidding and estimating process:
• Labor costs
These are based on the current minimum wage law requirements.
Legally, you cannot pay less per hour than state and federal laws require.
Many companies find by paying a living wage or hourly wage higher than the minimum required, a higher caliber of workers can be recruited and retained.
• Labor burden
For every dollar paid in wages, you will have to pay additional costs to government agencies or insurance companies for such things as workers'' compensation insurance, unemployment taxes, disability and Social Security benefits, Medicare, personal health insurance and other employee benefits.
• Overhead expenses
Expenses incurred by the business, but not solely tied to any one cleaning account.
These are costs incurred to keep the doors to your business open.
Included are sales and advertising, rent, phones, office equipment/supplies, vehicles, accounting and legal support, insurance and hiring/training costs.
• Net profit
The famous "bottom line" on the accounting income statement.
This is what is left to add to the value of the business over time after all expenses have been paid.
A net loss is not desirable, except for tax calculation purposes.
A spreadsheet approach begins with the labor costs plus the labor burden.
It is normally desired to keep total burdened labor charges below 55 percent, but that is not always possible.
Supplies would be in the two percent to four percent range for chemical costs and two percent to five percent for cleaning equipment.
Consumables, including paper products, could run an additional three percent to seven percent if required by the customer.
Overhead costs range from 10 percent to 30 percent depending if a small contractor is working from home or a larger operation requires office staff plus a warehouse and fleet.
To stay in business and pay the owner and mangers a decent salary, profit must be added to cover this important part of the equation.
When operating budgets were not so tight, contractors were able to take their labor costs and then double or triple that cost to arrive at a billing rate.
For example, accounts that were cleaned fewer than five times a week would usually be willing to pay for a triple markup charge.
Medium accounts cleaned daily could incur a double markup.
Large accounts normally qualified for a double markup less a 20 percent discount.
In today''s economy, the margins are slimmer.
The smaller the account, the higher the profit; the larger the account, the less the profit.
Specialty work earns a higher profit because a greater skill level is normally required, equipment and supplies usually cost more and there is greater risk in doing the work.
Workloading an account is a good place to start.
How many hours per night will it take to clean the building?
Once you determine the hours required, this can be multiplied times an hourly billing rate to achieve a monthly billable amount.
Don''t overlook the importance of tracking the numbers; you should know the production rate, hourly billing rate, net profit per hour and month for each account.
Bill Griffin is president of the International Custodial Advisors Network (ICAN) and owner of Cleaning Consultant Services Inc. ICAN is a non-profit association comprised of industry professionals providing free consultation services through the Cleaning Management Institute (CMI). Comments and questions about bidding and estimating are encouraged: (206) 849-0179; WGriffin@CleaningConsultants.com.