What’s the most critical factor the company owners consider while running a cleaning or any other business? Of course, a healthy profit margin determines the successful financial growth of a cleaning company.
However, you must wonder what a good profit margin for a cleaning business that should measure the growth criteria is. Lucky for you, the following guide presents the ideal profit margin and the factors responsible for it in a commercial cleaning business.
Generally speaking, the cleaning business earns a profit margin between 10 to 28 per cent. Keep reading to find more details on achieving this net profit margin.
What You'll
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Below you’ll find an Ideal Profit Margin for a Cleaning Business.
What is a Good Profit Margin For a Cleaning Business?
Profit margin is defined as the ratio between the net income to the total revenue. Furthermore, the revenue is the total amount of money a house cleaning business earns during the year. Lastly, subtracting the expenses from the net revenue becomes the net income.
The profit margin helps the cleaning business owners to understand the total percentage of the dollar earned as profit.
For an in-depth understanding of the profit margin, let’s take a simple example of cleaning a single home. In such cases, employees spend around four hours cleaning the home and charge AU $100 for the cleaning services.
In this case, the AU $100 earned by the cleaner is the total revenue. But, hold on, let’s talk about the company's expenses while cleaning a home. For example, let’s say that transportation and cleaning supplies cost around AU $10 while the company has to pay AU $10 per hour to the employee.
In this case, the total incurred expenses are around AU $50. Sometimes, you hire a driver and get the vehicle insured as well. As a business owner, you need to have a financial record of all the expenses associated with a single house cleaning service.
Next, you can calculate the net income by subtracting the expenses from the net revenue, which becomes AU $100 - AU $50 = AU $50. Finally, the profit margin is net income divided by revenue which now is 50 per cent.
Factors Affecting High-Profit Margins
The critical factors in the above profit margin equation are expenses and the total revenue. The profit margin is lower when the house cleaning business has more costs and lesser revenue. Conversely, you can increase the profit margin by lowering the expenses.
The 50 per cent calculated above seems quite decent; however, it’s just an example for basic understanding as we haven’t included the insurance cost and initial capital expenses or investment.
First, if you want to add the monthly insurance cost, you must divide it by the total number of cleaning sessions or houses and add it to the total expenses. Similarly, while starting a house cleaning business, the owner has to make one-time investments to buy the following items:
All these costs are considered per month to calculate the net profit margin.
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Setting Cleaning Prices to Improve Profit Margin
It’s one of the most challenging tasks which cleaning companies can’t rush at any cost. Setting a price too low because of the existing competition will lead to a lower profit margin or, worst case, loss. But conversely, setting a price too high makes it impossible for the target audience to afford the cleaning services.
The best way to set the cleaning price is based on the perceived value of the service rather than the total time spent. Undercharging at the beginning of the business and later increasing the price severely affects the customer experience.
First, you can estimate the total cost incurred to do a job which gives you an estimation of the expenses.
Next, you can do market research to find out the cleaning charges set by the competition. Once you have all this information, you can set a reasonable cleaning price with an acceptable profit margin.
Varying Prices According to Cleaning Services
Similarly, these cleaning charges vary for different cleaning services. Hence, the companies must assess the customer’s cleaning requirements before proposing a quotation.
For instance, a residential cleaning business needs to evaluate the following while setting the price:
If your company is offering janitorial services, you can use the following information to set the price:
Once you have the above information, the next step is calculating the incurred cost, such as labour, equipment, and other cleaning supplies. Also, the overhead cost of the janitorial services varies between 20 to 50 per cent of the labour cost.
As mentioned earlier, cleaning services usually have a profit margin of 10 to 28 per cent of the total sales. Hence, you can view the desired cleaning services, labour cost, overhead, and industry profit margin estimates to set the right price.
Profit Margins and Types of Cleaning Businesses
Before proceeding, let’s understand the profit margins associated with the different types of cleaning companies.
The expenses related to the above two types of cleaning include:
Commercial cleaning businesses serve corporate companies, and for this purpose, they need to hire more employees and invest in high-quality cleaning supplies.
That’s why commercial cleaning services have a relatively higher rate per cleaning job than residential cleaning. Nonetheless, due to the required resources, the profit margins are mostly comparable for residential and commercial cleaning services.
Residential Cleaning Services Initialization
The cleaning industry is diverse and flexible, offering several types of cleaning services besides regular residential and commercial cleaning:
Hence, the opportunities are endless for cleaning companies to increase their market share, serve new clients and increase their net revenue.
However, if you are starting a cleaning company, it’s best to begin with, one or two cleaning services to minimise expenses. Then, once you have regular customers, you can expand the business by offering more services.
Many cleaning businesses offering janitorial services have better chances to grow their businesses as they have a cleaning portfolio and a client base.
Nonetheless, a cleaning service is profitable and easy to expand thanks to the lower overhead cost. Moreover, especially after the global pandemic, companies hire professional cleaning staff to offer employees a healthy and safe environment. Similarly, dual-income families also hire residential cleaning businesses to maintain their homes.
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Tip to Increase Profit Margin
A house cleaning business’s ultimate goal is to improve its profit margin. So the first thing is to lower the operating cost by buying the cleaning supplies in bulk. For instance, you can stock the supplies with extended expiry by stocking for a year in advance.
Lowering the cost is generally tricky as you can’t lower the employees’ wages or cut down on office supplies necessary to operate the business.
Another way to improve the profit margin is to increase the cleaning charges. In such a case, they may serve fewer customers; however, offering better home cleaning services lead to client retention and loyalty.
On the other hand, you can have the home cleaning charges at par with the competitor and increase the market share by serving more clients.
It doesn’t matter what technique the company uses; never compromise on the offered cleaning services.
Final Thoughts
The key takeaway of the above guide is to present an estimation of the profit margin in the cleaning industry. This way, the owners understand the expected profit and manage the operations accordingly.
The good news is that the cleaning industry has relatively high demand among prospective clients and offers a better profit margin. Similarly, it requires low startup costs; however, higher operation costs, which you can compensate in the net revenue.
