How to Raise Prices in Your Residential Cleaning Business
You started your residential cleaning business to make a profit and earn a living. But for most, the tendency in the early years is to undervalue the service by offering low prices just to get the business. If your prices are too low, it's time to raise prices in your residential cleaning business.
In the beginning you saved money on overhead by doing everything - marketing, cleaning, buying supplies, and bookkeeping. As your company grew, you added employees, increased your marketing budget and perhaps leased an office. All of this added to your company overhead.
Maintaining a steady and fair profit is crucial. Cleaning business owners must find the balance between profit margins, providing quality services, and cultivating healthy relationships with customers. These tasks can be extremely difficult to balance in today's market of stiff competition and continual escalating costs of doing business.
Reasons to Raise Prices
Wages and benefits are climbing, equipment and supply costs are increasing, customers budgets are tightening, and competition is always waiting in the background to undercut prices.
Perhaps you're afraid of losing customers by initiating a price increase. Deciding how to raise prices doesn't have to be complex or scary. Unprofitable Cleaning Clients Means Unprofitable Business!
Customer profitability is the difference between your company's revenues earned and costs associated with providing residential cleaning services. Tracking each customer's profitability is an important step in understanding which customers are below, meets, or exceed your company's profit requirements.
When you started out, you may have under priced your services in order to get new customers or perhaps you lacked experience in pricing cleaning services. Whatever the reasons, you've discovered you under priced your services. Now what do you do? You can begin by reducing costs, increasing prices, or both.
The cleaning industry can be a profitable business, but if you're not watching the bottom line, those profits can begin to evaporate as the cost of doing business increases. Payroll expenses, employee benefits, equipment and supply costs, just to name a few, will increase, and in doing so, decrease profits.
Your goal is to track each of your customer's profits year to year and make the necessary adjustments to their billing to keep your profit margins reasonable and within your company's parameters.
Understand That Raising Prices Is Necessary In Any Business
Just take a look at your household expenses and the everyday items you buy routinely - gas, milk, utilities, entertainment, clothing and personal care items - prices do increase and sometimes take a big jump!
Your residential cleaning company can only exist if it makes a profit. As the cost of living and the cost of doing business increases, so must the prices you charge to deliver quality services to your clients. No business wants to increase prices but just like death and taxes, it's inevitable!
Understanding which of your clients are currently profitable and which ones are not is the first step in understanding the necessity of raising prices. The next step is to create a plan to communicate the price increase to your clients and prepare yourself for conversations with disappointed clients who may resist the increase.
When quoting new clients based on a phone call and/or form filled out on your website and without performing the home walk-through, you should have a provision in your quote with the option to raise the price after seeing the home and performing the first few cleanings.
What to Consider Before Sending Your Price Increase Notification
It's important to thoroughly evaluate all your company operations before implementing a price increase. Are there areas within your company where you can cut costs and overhead? Perhaps by negotiating lower rates on insurance, merchant account fees and other expenses, your bottom line will be healthier and you can avoid a price increase in certain situations.
Would additional productivity training increase your production rates? Would more efficient equipment improve productivity? What about the cleaning chemicals and tools you're using? Are they slowing your employees down? Anything you can do to improve productivity goes straight to the bottom line.
If your customer has not seen or heard from you in the past 6 months, or your only contact is from a handful of complaints, how do you think they will react to a price increase? A price increase is the last thing you want to do.
Don't be greedy when it comes to profitable pricing. Make sure the reason(s) for the increase are justified. And don't be troubled to raise the price on a customer who is a constant complainer, especially if their complaints are not justified. You may need to raise your price to cover the extra time spent in their home.
If you have a good relationship with the customer and they are satisfied with the services you provide, most people will understand the reason(s) for the price increase and stick with your company.
Always notify your customers of a price increase. Do not send out an invoice with their new price without an initial notification. This will lead to upset and probably lost customers.
Take baby steps when raising prices - don't do a blanket price increase or you risk losing several clients at once. By blanket price increase, we mean don't send out price increase letters to every client you have that will be receiving a price increase. The last thing you want is a bunch of your clients calling and informing you that they will no longer be requiring the services of your company. Yes, you may receive replies from unhappy clients and you may risk the chance of losing some. You need to stand fast and understand that if they are not a profitable client, then you need to move on. No company wants to lose clients but this is business and it is what must be done.
How Do I Raise Prices?
Here are the steps to follow to initiate your price increase:
- Start by reviewing the profit margins of each customer. Figure out which customers are least profitable and start with them.
- Send your Price Increase Letter by regular mail – not text message or email. Use company letterhead stationery. Let them know that you are raising your prices, why you are raising your prices, and the benefits to them to continue using your cleaning company.
- Mail your letter(s) early (probably 4 - 6 weeks prior to the increase date) so your customers have plenty of time to respond. The letter should include the date when the increase will take place and the amount of the increase.
- Follow up a couple weeks before the price increase is to take effect – to verify they received the letter and that they're not surprised when it happens. You may want to do this by phone.
- Don't increase prices for your profitable accounts. Look at each account individually and decide on the appropriate increase.
- Once you know what clients will be receiving price increase letters, be sure to spread the mailings out. Send out a few each month, starting with the least profitable first.
Pricing your services so you can make a profit is not a bad thing!
Your cleaning company's survival depends on charging your customers appropriately and making a decent and fair profit. Good customers will understand a price increase and be happy to continue using your services. Don't be surprised if a customer that leaves because of a price increase soon comes back! Many customers that choose the lower priced service eventually discovers that the new company simply doesn't do as good a job.
If you do have customers that cannot afford the price increase, re-work the numbers and/or negotiate new cleaning frequencies. They will put their trust in you and your professionalism to create a price and service program that will work for both parties.
Conclusion
Increase your staying power by maximizing profits. You want to be known as the best cleaning company on the block, not the cheapest. You want the reputation of providing quality service at a fair price.
Your company goal is to maintain profitable customers. You need to have a strong customer base, provide quality services, and continuous nurturing of the business relationship. If your customer has not seen or heard from you in the past 6 months, how do you think they will react to a price increase? Don't be greedy when it comes to profits and raising prices. Make sure the reason(s) for the increase are justified.
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In order for your cleaning business to succeed and continue to grow, it's imperative that you measure the profitability of ALL your cleaning clients. This measure of profitability is what will determine what steps you need to take (or not take) concerning clients that are below profitability margins. This Ebook will show you what you need to do to successfully initiate price increases for unprofitable clients. |
