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Navigating Billable Rates

How labor costs and billing options can impact your profit margin

When I was in Portland, OR, last month to attend the CleanMed Show, a conference on environmental sustainability for the health care sector, there was a solar energy conference taking place at the same convention center.

Because I have an interest in solar energy, I wandered over to the other conference. To my surprise, there was a presentation on bidding and estimating by Leslie Shiner, co-author of the book A Simple Guide to Turning a Profit as a Contractor, so I decided to attend the presentation.

Even though the presentation was for solar energy construction contractors, much of the information applied to cleaning contractors. Here’s an overview of my notes from the presentation, which hopefully will provide some takeaways you can apply to your contract cleaning business.

Labor Utilization

There are expenses that should factor into labor costs other than an employee’s base pay or hourly rates. All associated labor costs, such as providing miscellaneous tools, work vehicles, or even health care, will have an impact on your bottom line and how much you are able to charge a client. If you ignore an associated labor cost, you might end up selling yourself short, and unable to make the type of profit that you were anticipating.

Billing Options

One-time service calls are expensive to perform. Billable rates for this type of service should be higher than rates charged for standard services in order to cover your actual costs. One approach is to sell customers on a service agreement package. This way you can keep your staff busy and provide ongoing maintenance that helps prevent emergency and unscheduled service calls, which are more costly to provide.

Shiner shared other billing options, which include flat-fee rates and minimum charges, which also can apply to contract cleaning, particularly specialty applications. For example, there is no such thing as a six-hour task or job; a five- or six-hour assignment is going to eat up an entire eight-hour day, regardless of what you bill the customer.

Shiner also highlighted an important question that all managers and/or supervisors should consistently ask themselves: Are your highest-paid employees completing the most difficult, challenging, or skilled tasks, so that you are able bill your customers the highest rate? If not, why not?

For example, instead of having a technician or two stock the service truck, clean the work space, or run for supplies or parts, you can assign one cheaper and less-skilled technician to pull parts and stock the trucks prior to start time for the higher-skilled technician.

Five Areas of Significance

Shiner highlighted five areas of significance for managing profit. These areas include estimating and sales, project management, analysis, and strategic management for profit.

She also went on to explain the best way to create a proposal as a repeatable process:

  • Use software.
  • Measure productivity.
  • Distinguish between a budget and proposal. (A proposal is for the client and a budget is the basis of job-cost management.)
  • Understand your overhead.
  • Know the difference between markup and margin.

It is particularly important to understand that overhead and direct labor costs are not negotiable; they must be fully covered in your bid/price or you will lose money. Profit, however, can be negotiable.

And, once you have your pricing and profit margins fully analyzed and configured, there are a few marketing basics from Shiner that contractors should use to keep their sales pipeline full:

  • Ask for referrals and ask again. The No. 1 source of new business is referrals.
  • Have an online presence.
  • Utilize social media.

I hope you find the above information useful. If you want more information about how to estimate services accurately and keep a business profitable, you can contact Shiner via email at l_shiner@shinergroup.com.

Keep it clean out there.

Posted On August 6, 2015
William R. Griffin

William R. Griffin

President of Cleaning Consultant Services, Inc.

William Griffin is the president of Cleaning Consultant Services, Inc. He is an industry consultant, author, and trainer with more than 35 years of experience. Contact him at wgriffin@cleaningconsultants.com or visit www.cleaningconsultants.com.

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