Cleaning services is a growing industry and is expected to continue to grow. Services are needed for commercial and residential properties. As you are finalizing your business plan, you are probably wondering what you should expect your profit margin to average.
What is a good profit margin for my cleaning business? According to Entrepreneur, a good profit margin for a cleaning business ranges anywhere from 10% to 28%.
There are a few things that will affect your profit as well as there are a few ways that you can increase your profit margin. However, let’s first get an understanding of the profit margin and how it is calculated.
What is a Profit Margin and how can it be calculated?
Investopedia defines profit margin to gauge the degree to which a company or a business activity makes money, essentially by dividing income by revenues.
Understanding the profit margin is important because it helps you to determine how successful you are operating your business. Sometimes adjustments are needed for your business. That is why it is so imperative that you understand the profit margin.
When I think of profit margin, I compare it to a heart. My body can not get through a daily routine of my heart is not in good health. So, if your cleaning business is not profiting, it will not be successful.
Here is an example of how the profit margin is calculated. Let’s say you have a total revenue income of 800,000 and your total expenses are 600,000, then your net income would equal 200,000. To get your profit margin percentage, you would divide 800,000 into 200,000 which would give you 25%. This would be a good profit margin for your business due to the average profit percentage is 10% to 28%.
Entrepreneur explains that a profit margin ranging from 10% to 28% is a good profit margin for a cleaning business. However, there are a few things for you to consider that can affect your profit.
Read this article to find out how much cleaning business make: https://cleaningbusinessboss.com/how-much-can-i-make-as-a-cleaning-business-owner/
What are some areas that affect the profit of my cleaning business?
Profit is affected by a few areas. You will have very obvious opportunity areas and some that may not be obvious. Sometimes things get looked over when we get wrapped in business.
Obvious things that will affect your profit are cost, payroll, rent, and utilities. The cost of office supplies, cleaning supplies, equipment, and marketing material will always affect your profit. Remember, you control how much your business spends on these areas so it is important to set a budget and remember to stick to it as much as you can.
Payroll is another obvious area that will affect your profit. Whether it is just you or if you have a team of employees, payroll will always be an expense. If you provide health insurance for your employees, this will be factored into this category as well. Another area that will affect payroll is if your business offers a 401K plan that you contribute to as well as payroll taxes.
Rent and utilities will need to be paid each month in order to keep your business running. You will need to have water and electricity as well as the internet and phone lines to keep your business operating smoothly. Without the rent being paid each month, you will not have a business location. However, if you are just starting out as the only employee, you may decide to operate out of your home such as your garage or shed. Keep in mind that you will have to purchase a license and permits as well as insurance in order to run your business.
A few not so obvious areas that affect your profit are equipment repair, replacement of office equipment, and/or the loss of a customer. As a business owner, we don’t always plan for these things because sometimes we forget things like this can happen.
If equipment breaks, it will need to be repaired or even replaced and the same goes for any office equipment that you have. For example, you can’t get a customer an invoice if your printer is not working properly or expect a customer to sit in a broken chair.
Last but not least, we never plan for the loss of a customer. Unfortunately, this happens sometimes for various reasons. Maybe they got a pay cut at work, they are moving away, or they just decided to go with a competitor.
Another thing that can affect your profit is if you are providing any vehicles for your cleaning business. You will have to have insurance for your vehicle or vehicles. If you are in the beginning stages of your business and are currently operating from your home, you can always just get a magnet made for your vehicle, or have the local detail shop add the information for your business to the side of your personal vehicle. I have even seen some businesses just add the information to the back glass of their vehicle as well.
What are some ways that I can increase my Profit Margin?
There are three ways that you can increase your profit margin for your cleaning business. They are to lower costs, sell more cleaning services, and to raise prices.
If you are trying to increase your profit, the first step you should try is to lower your costs. When you are looking to lower costs, look at what money you have coming in versus what money you have going out.
As you are lowering costs, you will want to focus on ways to save money. Some areas that you may decide to look at are your payroll, office expenditures, supplies, and marketing. I would also suggest that you find equipment and tools that will allow your cleaning techs to do more work in less time.
There is an upside and downside to lowering costs. The upside is that making small cuts will allow you to maintain your prices and customer base all while increasing profit. The downside is that if you strip everything down to the bare minimum, it will be more difficult to make adjustments in the future.
The second step to increase your profit margin is to sell more cleaning services. By doing so, you are creating customer retention by up-selling and cross-selling. As you give exceptional customer service, you will gain customer loyalty. Another great benefit of upselling your existing customers is that it can reduce the costs associated with marketing.
What is the upside and downside to selling more cleaning services? The upside is that you will have more customers, which means more money. It also means that you will have happy customers who will not only more likely purchase additional services, but also will send you referrals. The downside to selling more services is that it costs money to get new clients such as advertising or the sales team’s salaries. Another downside is that you will need more staff to handle the additional work.
The third way to increase your profit margin is to raise the prices of your services. I would recommend this to be a last resort. You will have to be able to communicate and demonstrate the value of your price to the customers.
Again, there is an upside and a downside to raising your prices. The upside is that raising prices does not require additional staff or investments. Even a small change can have a dramatic effect. The downside is that if your customers fail to see the value in your price, they could leave you for a lower-priced competitor.
A key factor to remember that can help your profit margin is to charge by the service and not by the hour. It is recommended to not give estimates via phone without seeing the job first. What type of material are you cleaning? Will you need special equipment for a particular job?
How should I operate my cleaning business if I am a one-man show?
If you are currently a one-man operating business, you will want to charge your client’s as if you already have employees. This is helpful because once you start hiring employees, you will not have to increase the prices for your services.
How can I prepare for the obstacles that can occur?
To prepare for these obstacles, you could take a portion of your profit each month and put it aside to be designated for repairs or replacements of cleaning or office equipment. Having this money for a “rainy day” will keep you from having to worry about having to do budget cuts or price cuts.
How does marketing affect my profit margin?
There are a lot of things that you use for marketing that you may not even realize. Some of these things are business cards, brochures, vehicle decals, billboards, and even a sales team. An easy and inexpensive marketing tool you can use to your advantage is social media and business networking.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
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About the author. Entrepreneur and Cleaning Business Fan.
Hi! I am Shawn and I am a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online cleaning business resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a cleaning business owner, I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Cleaning Business Boss: I want to help cleaning business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.
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