Are you planted or buried?
What a great past couple of weeks. The cleaning industry is always buzzing with movement and that’s what this post will dive into, the cleaning industry. A passion of mine.
A couple Mondays back it started with a simple message through LinkedIn (benefit of networking) and spawned into a communication between six companies. Starting with a conversation about selling an established company, 20 people roughly and around $20,000 in reoccurring monthly revenue. The company has a good client base and is in a turn-key position for anyone looking to buy a company.
Then the outward reach starts with people I know who are looking, and have a history of purchasing other companies or looking to expand. All the conversations led to other longer conversations about business metrics, cleaning standards, employee turnover, and the overall health of the cleaning industry. Our talks led to hours of interesting perspectives on how to raise the quality of our industry.
Whether you are into high-margin one-time work or are into low margin reoccurring contract work, the job comes down to the Law of Diminishing Returns. In short, this law states the idea where if the amount of time you spend (cost for materials, labor, etc.) and the amount you charge need to be as far apart as they can. The closer you get to the same number the worse it becomes for your company. This needs to be understood. As amount A (cost) gets closer to the price of the job might it is not a good fit. Conversations about profit margins and price standards were discussed in all the meetings.
I bring this up in the vein of understanding how one company can lowball a bid and get the awarded job but still maintain a profit. There were two main types of funding models I heard about during this week: grouped job profits and individual job profits. Grouped Profits is the flexible option, it allows for a job that is higher in profit margin to pay for the entrance fee to get another client that may lose money at first. The Individual Job Profit model is stricter and only focuses on each job individually to make a certain profit. These two mindsets have flaws and advantages.
Grouped Profit model allows for the lowball bid to work as long as 3 conditions exist.
(1) you have a diversified portfolio to weather recessions,
(2) Balanced workloads of low margin high investment clients compared too high margin low investment clients,
(3) a plan to help frontline leaders understand that they will have a zero-profit client and those that have the opposite situation understand that they are contributing to a higher cause.
The problematic points of this are the high trust need amongst leaders and the high level of communication needed. Also, standards will be tested to try to make the situation work long-term.
The Individual Job Profit model is simpler in concept. You bid the job to make a profit, whether a predetermined set margin for every job or a planned profit margin by location and management investment. There are 4 criteria to push this model:
(1) You must understand the profit margin range for the locations, from rural to urban,
(2) a set program to allow the team to work at the desired margin,
(3) an accounting system set up for individual account management,
(4) higher level of efficiency and spotting performance improvement areas.
There are a few drawbacks to this model also. You need to understand you may not win every bid, especially if you are pricing the work to your higher standards. This relates to the Law of Diminishing Returns. What does the client want to what you want to deliver. Be careful here. This warning comes from experience. If the client is a stickler to the Scope of Work (SOW) or the Request for Proposal (RFP) then price it to your standard, enforce your standard, and prepare to battle it out why you are more expensive. If the client is more relational based, you have the same choice as the previous statement only you will need to defend against a personality.
At this stage of our conversations, it came down to which clients are which type? But before that you must ask yourself, will our company honor the SOW to the letter, or will you try to do as much as you can and rely on the relationship to cover the rest. This is an important part to discuss over lunch or with your leadership team, and even your crew leaders too. Mostly the teams understand the game of doing a great job or a good enough job, but they might not understand the trade off in the profit margin.
At this stage I would like to interject an exercise from a great read, Imaginable by Jane McGonigal, “Take a Ten-Year Trip”, (excellent read, and really a playbook on how to see the future) is a game in which you imagine the future of you. Where do you see the company in 10-years? What are the details? Within the book she outlines the steps needed to see where the future (potentially your company future) could be ten years from now. This is important as this will be the purest image of your company will be. Purest intentions, purest values, purest self to portray to clients. If you are stuck in a situation where your margins are shrinking, and you feel in a dark place remember this:
As the activist Christine Caine has written, “sometimes when you’re in a dark place you think you’ve been buried when you’ve actually been planted” - Imaginable.
The caution then is your company supplying a commodity that is compared to other cleaning companies the same way. An example of this is in the marketing brochures “we value are employees”, or “we have the best equipment”, or “we have the best client relations”. These are common phrases of the most common cleaning companies. Being a commodity is a fast way down the diminishing returns road. Deciding where you want to be in the future, what values, and other desires to not be considered a commodity. Take a second and think about your company, your client interactions, your contract compliance, or your team’s product they are putting out. If this is not in line with your 10-year plan change course quickly and often until you get it the way you want.
