Cleaning contract pricing - General Cleaning Issues

General Cleaning Issues - Floorcare, car valeting, buying and selling businesses, pricing, staffing, market research, etc.

Cleaning contract pricing

Posted by hernonvaleting (hernonvaleting), 9 February 2004

Helpful advice most appreciated.

Currently I run a moblie valeting business. most of our work is for dealerships.
One quite prestigous dealership several sites has asked me to make a proposal to take on their site cleaning requirements. This would include the showrooms, workshops, the offices, the windows and the forecourt. I have thoughts on how to take on, run and maintain the work. However any help on how to price it would be very useful and even a sample contract. Its a new area for me and I think probably more profitable than valeting

John :

Posted by martin_606 (martin_606), 9 February 2004

been looking at a contract myself and the first thing to calculate it seems are WAGES!

This contract i am looking at takes 3 people 3 hours per day which is 9 man hours (£63 per day) £22295 per year + insurance + h&s + materials + admin + profit + unforseen circumstances = £60,000 approx per year?

cannot tender until next jan though...

Hope that helps a little.

Regards

Martin Cool

Posted by cleaning (Tony C), 9 February 2004

No way, Martin

Posted by martin_606 (martin_606), 9 February 2004

Why no way?

That is what they are already being charged

I happen to work there in my full time job, now doing their carpets only and will tender for the contract later this year.

As i know them have asked to see the contract and for them to tell me what is being done for the money being charged....

So, yes way it seems.

Regards

Martin Cool

P.S. the contract has just been cut from £70,000 to 60,000 (budget cuts)

Posted by cleaning (Tony C), 9 February 2004

Good luck then

Posted by Mike_Boxall (Mike_Boxall), 9 February 2004

Hi

We sell quite a lot of the contract cleaning market reports from MSI and according to the copy I have to hand the segmentation of a 'typical' cleaning contract is as follows:

Labour 74%
Profit margin 7%
Machines & equipment 6%
Materials 4%
NI Costs 4%
Training 2%
other 3% (includes transport, uniforms, etc)

The research is based on a wide range of contracts and I would suspect that smaller contracts have higher margins, however, I would'nt have thought there are many about with the sort of profit margins Martin is referring to but I'm sure they do exist - you just need to be lucky enough to find them.

If it's a prestigous dealership who realises the importance of clean premises I'm sure you'll get a better margin than the figures above but I would question whether it's wise to go straight in at nearly 3 times the labour cost.

Regards

Mike

Posted by cleaning (Tony C), 9 February 2004

Eloquently put Mike.

Posted by martin_606 (martin_606), 9 February 2004

dear Tony & Mike

I never mentioned profit margins in my post, you both seem to be assuming that £60,000-£22995 + equipment is the profit, i didn't say any such thing. It may be that from that figure 7-10% only may be profit.

I only stated what the contract was worth.

Checked out your website tony, looks good.

Regards

Martin Cool

P.S. This particular place has a turnover of about £50,000- 90,000 per day, profits vary due to different factors.

P.P.S do you think it is possible to turnover six figures in the first year of business (cleaning?)

Posted by cleaning (Tony C), 10 February 2004

Martin,

Six figure turnover is achievable in 1st year with hard work and a bit of luck (strange how the luckiest people seem to be the one's that work hardest).

Tony

Posted by martin_606 (martin_606), 10 February 2004

I agree

The harder you work for yourself the more opportunities there seem to be.

Martin Cool

Posted by DP (DP), 10 February 2004

Hi mike

In my serch of various franchaise companies, I met with a very large and well known national contract cleaners, who absolutly insisted (with accounts to prove) that thier Net profit margin was between 20/25% they also stated that they couldnt opporate as a franchise if it wasnt.

So the qustion here is: are all franchise CC companies more expensive or is the report slightly adrift, or are people fibbing or is there simply that much margin to play with.

Lets see!

They offered me a 3 high street store contract at a yearly worth of £69k (£23k each) for 3 years.

These were 3 men x 2hours 7d/p/w + 1x2 hour morning 1 day a week each.

Equip was 1x S/dryer per store and one quarterly escalator clean per store.

So whoes got a calculator then? Grin

Posted by Fox (Fox), 10 February 2004

Hi DP

If I were to price a job on the hours and days that you have stated I would price at a minimum of £26k per contract.

Possibly even more as what we are talking about is a seven day a week contract - they are a pain!

The contract Martin talks about would be priced at about £40k. However there is the work out there that can generate the profit Martin talks about - the problem with these is that it gives other Companies good negotiation terms to win the contract.

As for franchising in the CC game I really can't see a decent profit being made by the franchisee after paying the franchisor their % unless they upped their net profit considerably. Where does that leave them, especially when more Companies are buying in services on pricing rather than on a best value basis.

To what extent does it end up costing to get a franchise? What are you buying? A name? Advice? What is that worth - an independent consultant could be hired for advice. There’s nothing better than looking at a business that YOU have built up, nurtured and set the reputation for.

So personally go it alone. (Think I might have gone off on a bit of one, on this subject Grin

)

Fox

Posted by Musicman (Musicman), 11 February 2004

Hi DP (again) depending upon the wage rates and type of scrubber drier used a gross return of 20-25% may actually be achieved.

A 'fag packet' costing would estimate the direct labour at £250, equipment, materials, holiday pay, uniforms, management etc to be about a further £100. This gives you £350, a margin of 21% would give a weekly charge of £443, or £23036 annually - certainly in the ball-park. Where would the escalator cleaner come from? Would you hire one in or would the franchisor include it as part of their service?

My opinion is that the figures Mike quotes are the ones provided by the major players who concentrate on large contracts with small margins. Being a cynic I also believe that an amount of 'number massaging' is applied before the figures are submitted.

From my experience of having worked for medium and large contractors a gross return of 20-25% is much nearer the mark, I believe that the figures that BICSc publish would confirm that.
Musicman

Posted by DP (DP), 11 February 2004

Hi
The escalator machine would have been my responsibility and there would have been a contract purchase cost of 3% plus the 8% management fee's on gross turnover, which roughly equates to 30-40% net

Not much left after that lot!

Posted by pristineclean (pristineclean), 11 February 2004

on 02/09/04 at 18:40:28, martin_606 wrote:

dear Tony & Mike

P.P.S do you think it is possible to turnover six figures in the first year of business (cleaning?)

I'm in month 7 of my business, and am now in the six figure bracket. I got a lot of advice from this site, still do, and have tried to help out where I can by way of reciprocation. One of the MAJOR mistakes I made, and there have been a few, was taking on builders cleaning work and registering with the Inland Revenue as CIS4 rather than CIS6.

More experienced heads will be shaking, but for those who dont know about this, it means that every invoice which has been paid to me from building companies has been in the form of 82% payment, with a voucher for the remaining 18% redeemable against PAYE and NI for employees. Since I operate the £89 rule as far as possible, this means that I now have about £12 000 worth of vouchers against PAYE/NI liability of about £600, and I won't get that money until after the wage year ends have been calculated.

Take home message, which I know now, is to go to the tax office and dig your heels in for a temporary CIS6 card which will prevent this occurring.

PS. There was talk of a get together in March for Cleanitup posters, is that still happening?

Posted by Ian_G. (Ian_Gourlay), 11 February 2004

In the figures Mike has qouted where would the Management and Sales costs be included.

In the 74% or the 4%

The reason I ask is that they are tasks usually carried out bt the Owner Manager,

Posted by SteveTruman (SteveTruman), 11 February 2004

on 02/11/04 at 19:24:02, pristineclean wrote:

Hi Pristine
The 18% which is taken off comes off your companies tax bill at the end of the yr. So for arguments sake if you owe 10k tax and you have 20k vouchers you will receive 10k rebate, i know it is a long time to wait until the end of your tax yr. and the extra couple of months the tax man takes to pay you your rebate, i look at it as a savings scheme. It is money you have never seen and when the rebate comes through it is very nice..

Regards

Steve

Posted by Musicman (Musicman), 12 February 2004

Ian, the management and sales costs are not included, the breakdown is for the cost of the contract. Therefore any overheads including management and sales, premises, insurance, accountancy, payroll etc would come out of the 7% profit.

This throws further doubt on the figures Mike gives as, when taking these peripheral costs into account, we would be lucky to break even!

It would be interesting to get the accounts of the big 4 to establish what profits they do return.

Musicman

Posted by cleaning (Tony C), 12 February 2004

I'm sure there are those here that will disagree, but I think the whole issue of contract pricing is being over complicated here.

I'll tell you what works for me. I'm talking about daily office cleaning here, where the only equipment on site is vacuum cleaners and the usual ancillary equipment.

Calculate labour costs including holiday pay, add 100%, and you have your tender price.

If your keen to win the contract, trim the price.
If you think it will be a hassle contract add to price.

If the client requires a cost analyses then you have to juggle figures to match tender price.

Simple.

Tony

Posted by Musicman (Musicman), 12 February 2004

OK Tony, I'm one of those that disagrees, I think you're being too simplistic.

Doubling the labour costs may work on single cleaner contracts if that is what you want to bog yourself down with but for the larger ones it wont work.

Trim the price/add to the price - it's a bit vague isn't it?

Most of the time the client doesn't want to disclose what they are paying - they want the best service for the cheapest price and informing you what they pay may prejudice your offer.

Posted by cleaning (Tony C), 12 February 2004

Musicman,

We hardly do any one cleaner jobs, I have one site where we have 26 cleaners, another we have 5 cleaners each working eight hours per day, seven days per week and many more.

I did'nt say anything about asking the potential client about how much they are paying.

Tony

Posted by Mike_Boxall (Mike_Boxall), 13 February 2004

on 02/12/04 at 00:12:47, Musicman wrote:

This throws further doubt on the figures Mike gives as, when taking these peripheral costs into account, we would be lucky to break even!

It would be interesting to get the accounts of the big 4 to establish what profits they do return.

Musicman

Hi

Sorry, I've missed the last couple of days activity which seems to have raised an interesting issue about the profitability of contract cleaning in general.

The figures I quoted were from the report I had to hand which, it has to be said, is not the latest version. However, I'm sure that the most recent version is not much different but I'm getting a copy to confirm that. I've also asked for better definitions of what is and isn't included.

With regard to being 'lucky to break even' I think most large contract cleaners are lucky to break even - isn't that why they are all diversifying?

I'll get the latest figures and let you know how profitable the top 4 'appear' to be but sometimes the figures can be genuinely misleading. As an example, the figures I have on Rentokil Initial (who at the time had a 6% share of the market) show an overall 17% net proft. But what you have to bear in mind is that 'hygiene services' only represented 31% of their overall turnover with the rest being personnel services, pest control, security, transport etc.

Looking at the others (OCS, ISS, MITIE, etc,) it appears that the more proportional contract cleaning they do the less profitable they are. At best these financial figures are almost 2 years old but you can be sure that contract cleaning is getting more competitive all the time.

I'll let you know when I have more info from MSI

Regards

Mike

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