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Residential Pricing for Profit

[box title=””]This article is brought to you by Pamela Washington of Build My Cleaning Business.  Pam has more than 30 years experience in the cleaning business, and knows a little something about how to find your perfect price point in order to mazimize profit. Following her step by step guide you will be well on your way to bidding jobs that actually pay.[/box]

Residential Pricing for Profit Video Transcription

The topic for today’s subject is residential pricing or profits, so there are two parts. The first part is that you need the pricing to be profitable, you also need to actually win the business because you know you can price it so high that people don’t buy it. So we’re going to talk not only about calculating pricing that is appropriate for you, also how to make sure that you actually win those price quotes. Because it doesn’t matter how great your price is, if you don’t win the new client.

I’m going to start by sharing with you that really what this is, is sales. Sales actually begin with great marketing. A lot of times people say to me, “I’m having difficulty closing sales”. What I think they haven’t thought about is that the first ingredient is marketing.

So there are a couple of things that you want to do:

1) Attract the right prospects, and the way that you do that is by:

a) Making sure that you are very clear on who your ideal client is.

b) Make sure you are very specific and clear what your unique selling proposition is.

What’s really effective in today’s marketing is that your selling proposition needs to be unique. For example, when you’re defining your ideal client you want to be able to think about things like age, demographics, location, frequencies, etc.

So when you’re sending out your marketing maybe you want to say something like “busy professionals” or “do you own a short-term rental”, so that your client sees themselves in your marketing. They need to be able to recognize that the thing that’s being offered is a specific fit for them.  In your unique selling proposition, you need to be able to specify why they would want to do business with you.

It can’t just be things like “attention to detail” or “licensed, bonded and insured” because everybody has that. It’s got to be something more like a satisfaction guarantee, or a customer happiness guarantee. We say that our cleaners are uninformed. I use employees, and I stress that they are not contractors, that they are employees who have been vetted and trained and passed a background check.

Whatever the things are, “we only hire people that can read and write English”, whatever the things are that make your service unique, better, different, you need to make sure that you’re talking about that in your marketing so that you attract the right kind of people. That’s really important when it comes to profitable pricing and selling. So that was step number one.

Step number two is pre-screen/build rapport. You want to pre-screen them when they contact you. With your marketing you have search engine optimization, you have Facebook Ads, you have Google AdWords, a variety of things to use to get traffic to go to your website so they will call you for a quote. Maybe you have an online booking form clients can use to chat with you to open up a conversation.

Of course, the first thing that we ask is the location, because we only serve certain areas of town. We want to make sure that they’re within our area. We also start asking them about what type of cleaning they are looking for, which allows me to get some details about how dirty the house might be. If it is a move out clean, is it a deep clean, or is it just a regular clean. I also go into things like the size of the house and the occupancy in particular, because I want to know how many adults children and pets are living there.

I also want to find out what they are currently paying. One of the most important things that I ask is, why are they looking for a new cleaner or did they already have a cleaner that didn’t work out. Are they new to town, because knowing why they don’t currently have a cleaner helps you to begin to build rapport. You can empathize with them about whatever happened with their previous cleaner, however, the other thing is that you can begin to get some details. Find out if it is a one time deep clean, because maybe they had some horrible tenants that had to be evicted. That may be a job that you want to pass on. If you’re not going to pass on it, provide your explanation as to why it’s going to cost as much as it is. Maybe you’re going to start discussing the fact that you’re going to have to price it by the hour. These are actually ways that help you start the conversation about pricing before you actually reveal your price.

The reason why that is so important is item number three.

It is super important that you start to talk about value before you talk about pricing. While you’re talking to them about how many children and pets there are in the house use the time to explain to them “if you have cats it’s not quite so demanding, however, with dogs of course there’s a lot of dog hair so we’re going to have to do the baseboards.”

Find out if it is a move out, if they want you to clean the inside of the oven, the inside of the fridge, or maybe the appliances are going to be removed or replaced so you don’t have to do those things. You want to know all those details before you start talking about the price, so that way you have reasons and can explain why the price is what it is. You want to find out how long since its last been professionally cleaned., plus what the occupancy was, if there were three adults and four children that’s going to make a difference. So while you’re having that conversation with them you can begin to explain why each of these things take more time, and that time equals money.

You’ve kind of already worked on items number one, two and three. Now we’re going to get into talking about the price. I’m going to give you a couple of ways of pricing calculations. I didn’t want to just jump in talking about price, because you need to do some things first before you talk about pricing with prospects.

A couple of different ways is, if you have employees and actually even if you have contractors either way it can be the same. If they are employees I suggest that you start at 150% percent or more of your local minimum wage. For example in Las Vegas where I am, minimum wage is $8.25 and  150% percent of minimum wage is $12.42 and we start people at $12.50 and then they pretty quickly go to $15 an hour within sixty days. That’s calculation number one.

Another way that you can calculate it is if you’re going to pay your people on commission, is that it needs to be at least 40% or more of what you’re charging, and that is if they are employees, because with employees of course you have the expenses of things like supplies, equipment, training, uniforms, etc.

If you use contractors you don’t have a lot of these expenses, so you would pay between 60% and 66% of your charges of what you charged the customer. Now I talked to somebody just yesterday and I asked her what you charged by the hour. She said well we don’t charge by the hour. I thought well everybody charges by the hour, you may not realize that you consciously in your mind. She said she charges a flat rate, so for example a one-bedroom one-bath starts at a hundred dollars. I asked her okay if you get a hundred dollars, how long does that cake you’re cleaners. She said that $100 cleaning would take two people two hours each. So that’s four hours, and if she’s spending four hours to get $100 that means that she’s charging $25 an hour.

I’m gonna tell you right now that you cannot be profitable in your cleaning service business charging $25 an hour. You may be willing to work for $25 an hour, although I don’t recommend it. If you’re the cleaner then what you really have is a job, you don’t have a business. You have a job as a cleaner and here’s the problem, if you’re making $25 an hour and you work full-time which is about 2,000 hours a year, that means that your salary is $50,000.

It sounds pretty good, except what you have to keep in mind is this. If you work 2,000 hours you probably are not billing 2,000 hours, because 2,000 billable hours would be – Let’s work it out like this it’s, 40 hours a week times 50 weeks. That’s assuming that you’re spending hours a week cleaning, and it leaves you no time for marketing or purchasing or office work or even drive time. So for you to have 40 billable hours a week that would mean that you have to be working at least 50 to 60 hours a week to make 50 grand in a job that is very labor intensive.

Here’s the other thing that I want to show you, let’s say that you have workers and you have that 1-bedroom 1-bath, so you’re making $25 an hour, and let’s say you live in Las Vegas so you have to pay people $12.50 you know they have good workers. That’s about half of what you’re bringing in, and your base wages should not be more than about 40% of what you’re earning.

Let’s do it another, let’s say for example that you are charging people $36 an hour, means that $12 is 30%. If you charge people $36 an hour, and you  pay your workers 40% that means that you would pay them $14.40 dollars an hour. Another way of looking at that, is to say that if you need to pay people $12.50 in your labor market to get good workers then you need to be charging a minimum of $36 dollars an hour.

Here’s what else I can tell you, is that the average nationwide for professional cleaning services is $40 an hour. Yes that includes California and New York, and also includes you know Mississippi and every place in between. This is just an average, however, I don’t want to see you charging $25 an hour, $30 an hour, or even $35 an hour. I really want you to start thinking about $36 to $40 an hour as the minimum amount that you can charge in order to be priced profitably.

I have two more things that I want to share with you, and one of them is of specifications. Because pricing for profit is not only about how you calculate the price, it’s also some of the other details about the relationship that you have with your customer. Here are some things that I highly, highly, recommend.

First don’t accept keys, because it’s a hassle, it’s time-consuming, it cuts into your profits. You’ve got to have your people coming somewhere to get keys, so now you have your workers coming to pick up keys then you have to have them come back to drop off keys. You’ve got to be keeping track of keys, making duplicates of keys, and if the person that you originally assigned the keys to isn’t able to do it now you’ve got to get the key to somebody else. It’s a hassle and it drives up your cost, so do not accept keys.

The next thing is take debit and or credit cards only as your method of payment. There are a ton of companies where you can set up a processor. We use stripe, and I’ve heard of lots of other ones where you take your client’s credit card information and put it into an encrypted website platform and then you don’t have the credit card number itself anymore. You can even let them put it in if they feel more confident about that.

We don’t charge them in advance, we do let them know even though I actually don’t do this however a lot of people do put a hold on the card the morning of the service. The main thing is that once the service is done and you charge the card, you get paid and you’re done. There’s no more going to the bank, there’s no more having people bring checks to the office, or bringing cash to the office. It saves you a ton of money to take debit and credit cards, so that increases your profit.

The other thing that you need to do is you need to make sure that you raise your prices every year without fail. Depending on inflation and how far behind you may be now, I recommend anywhere from three to five percent per year. What you do is you just include that in your Terms of Service, so when they first come on board and start working with you they know you will add that as part of the contract. The way you say it is, you say, “To account for the inflationary effect labor and supplies yearly”. That’s how you list that, and doing it that way it’s a done deal. You don’t have to think about it, you don’t have to ask for a price increase because you already disclosed it to them. You just do it every year, so that’s very simple. The other thing that we’ve been doing lately that’s been saving a fair amount of money is, we ask our clients to supply their own vacuum cleaner. The way that we frame that is we say, “from a hygiene standpoint it is much better because some people have cats or dogs and even though you know we empty the bag and wipe the Machine down plus clean out the brush if you have allergies, etc. it just isn’t the best from a hygiene standpoint. If we vacuum the carpet of someone who smokes, now we’re bringing that back into your home. We’ll always carry one as a backup just in case, however, we like to use the clients.” We put that in our Terms of Service again. You just ask that they supply the vacuum cleaner, which will save you a ton of money.

The final one and we just started doing this, is some people will and some people won’t, however ask them to supply the cleaning cloths. That saves us a ton of money and time on laundry. When you say that sometimes you may have clients that are going to give you some torn up t-shirts that are not the quality and the type of cleaning cloths that you want. What we’ve even done with a couple of them is we’ve said we’re going to ask you for a $20 deposit for the cleaning cloths. We’ll bring them after our first or second visit and leave them there to use, then we’ll leave them and during that period between cleanings the client can get them washed up so they will be ready for us. We frame that as a hygiene issue, you know that these rags were not used in anyone else’s home so you don’t have to worry about what somebody else may have had in their house. These are your own individual cleaning cloths that we’ve supplied and that we only use in your home so that is actually sort of a selling point.

The final thing that I want to talk about with regard to pricing for profit, is what I call Customer Service Loyalty. When you are a beginner in your cleaning service business the most important thing for you is acquisition of new clients. When you’re first building your business, but when you are a non beginner the thing that is most important for you is retention of clients. I want you to think very carefully about what is the life time value of each client, which is typically three to four thousand dollars very easily. So you see how important it becomes that you retain the customers that you already have.

Everyone is frequently so focused on getting new customers, and getting new customers is great. However, keeping the ones that you have is important because you don’t pay the acquisition costs again for that customer. You only pay that once, then you retain them for some period of time.

Take a few moments to calculate what the lifetime value of your client would be. You do that by taking your average cleaning let’s say is $120 to $150, and you clean them 20 times a year. Now let’s just say it’s $130 times twenty times a year, and let’s say we keep a client an average of three years so that client is actually worth $7,800.

It’s important to know that there are two things that you want to always keep in mind. First, show appreciation in small ways with little gifts throughout the year. Second thing you want to do, is you want to ask for referrals. All satisfied clients, even if they’re a one time client, are a potential source of referrals. A referral is much more likely to turn into an actual client, than somebody that just found you on Google. You want to consistently ask for referrals. You want to think about developing a system around that, which I can show you on another day. You want to even reward people who give you referrals, by offering them a dining gift card, money off of their next cleaning, or some sort of incentive. I think it’s really important to acknowledge and reward referrals.

All of these things together go into pricing for profits in your residential cleaning business. As you saw out of the six things that we talked about, the pricing calculator is only one of them. I want you to think about pricing to make your business profitable as an entire process, as an entire system, and not just let people call you asking how much do you charge then you give them a price. Remember that we did one, two, and three other things before we ever even started talking about price. So don’t lead with price, you want to talk about and focus on value before you discuss price.

I’m Pam Washington from Build My Cleaning Business providing information, tools & resources that help build your cleaning business.