The Problem with Underpricing Your Residential Cleaning Services

Many residential cleaning business owners are underpricing their cleaning services and it's not just the people getting started in the cleaning industry. Regardless if you are a new start-up or a seasoned veteran, underpricing your residential cleaning services can be a big problem. Stop flushing money down the toilet and start pricing for profit!

Are you underpricing your home cleaning services?

Why are Home Cleaning Businesses Underpricing?

• Some underprice because “that's just the way we've always done it.”  
• Some may actually lower their price thinking that's what they need to do in order to stay competitive.
• Some underprice out of fear of losing clients or the fear of not being able to gain new clients.
• And some underprice because, let's face it, they're just not good at estimating their costs and the prices they should be charging for their cleaning services.

Why does pricing home cleaning services feel like target practice? The simple reason is many cleaning businesses provide a price quote and then hope to hit the bulls-eye with that price. The problem is the price quoted is probably based on a number of factors that do not have anything to do with whether or not the job will be profitable.

For example, some people use their gut feeling as to how long it will take to clean; some use an hourly price that is too low, hoping to make a profit and also compete with low-ball cleaners. Or perhaps they have been misinformed about what their cleaning company prices should be. They may believe that pricing at $25 per hour is a must because NO cleaning business can make a profit charging more than that. But the reality is, the successful cleaning companies charge anywhere from $35 - $50/hr. depending on location.

How Much Should You Charge for Your Home Cleaning Business Services?

Outside factors such as the price of fuel, cost of raw materials, insurance, office expenses, and so on, are going to drive your costs upwards and your margins downward. Perhaps your equipment is becoming outdated and needs to be replaced, you need a new company vehicle, or have to invest in updated software.

All these factors will contribute to your shrinking margins, and if you don't figure that into your pricing system, you could underprice your services. Some costs of doing business several years ago may not even be relevant today. So your changing costs need to be updated within your pricing method or you will be underpricing your cleaning services. Regardless of the reason, underpricing your residential cleaning services isn't doing you any favors.

A very common thought process we see with residential cleaners is that if they pay their cleaning technicians $15 per hour for example, they can charge $25 per hour to clean homes and make good money. Typically, that $10 an hour more per hour will not cover payroll, payroll taxes, business expenses and profit.

If they did the math on what they really need to charge to pay labor, payroll expenses, insurance, overhead and equipment/supplies and still make a profit, they may need to charge upwards of $35/hour.

Take into consideration ALL costs and variables that influence your company's profit margin (square footage, difficulty of cleaning, number of rooms, etc.), and apply them to the price you charge for cleaning services. This will make a huge impact on your company's future growth and survival.

Is Your Price Profitable?

Now that you've come up with a price to charge the prospect, how do you know it will be profitable? Typically, what happens after a cleaning business owner comes up with their price, the process stops. Most people either don't bother or don't know how to figure out if their price will be profitable.

If we took two cleaning companies and had them clean a home for the same price, one of those companies is going to be more profitable than the other. Why? Business expenses are different for every company.

Understanding Expenses

It's important to remember that every cleaning company's expenses are different – there is no magic formula and no “going rate” for all companies. So if you've been in the online discussion forums and heard your payroll should be 50% and you estimate your payroll expense based on this “industry standard”, chances are you're going to be wrong.

Loaded Payroll

Loaded payroll includes wages paid to employees and other expenses related to payroll such as employment taxes, worker's compensation, and liability insurance.

Overhead

Overhead is another piece of the equation that you must consider when estimating your costs. Overhead refers to the ongoing costs of operating your business (utilities, phone, internet, administrative costs, rent, marketing, etc.). These are the expenses required to operate your business but are not part of the direct costs of providing the service.

How to Price House Cleaning without Underpricing

Here is a quick example of how to price for home cleaning services.

Here is what you know:

• You've priced the home at $150.50 per service.
• You estimate it will take 3.5 man-hours to clean.
• You estimate there will be an additional ½ hour for travel time, which must be paid to the employees.
• You will have a team of two persons cleaning the home and they are each paid $15 per hour.
• Your loaded payroll percent is 22% of wages (this is not a static number, it will be different for each company)
• Your overhead expense is 27% of sales (this is not a static number, it will be different for each company)

3.5 man hours + .5 travel time hours = 4 hours total

4 man hours x $15 per hour = $60.00 (employee wages x hours)

This is the wages paid to your employees. $60 x .22 = $13.20

This is your employment expenses. $60 + $13.20 = $73.20 (full payroll burden)

This is your overhead expense. $150.50 x .27 = $40.64

This is your overhead costs $150.50 (cleaning price) - $73.20 (loaded payroll) - $40.64 (overhead) = $36.66 (profit dollars)

$36.66 ÷ $150.50 = 24% profit

Does this profit percentage fit within your company goal for profit? If so, you've found the right formula for pricing homes. If not, you have more work to do. If you want your profit percentage to be at least 30%, then you'll need to increase your price.

Once you've determined your loaded payroll percentage and overhead percentage, start doing a random sampling of the homes you currently clean to see if they are profitable.

Warning – this may be an eye-opening exercise.

Hopefully, your homes are all profitable. If not, take a closer look at what you can do to increase productivity in the unprofitable homes. This will help to improve profit. If needed, start thinking about a price increase. If the home is in need of a large increase to get it in line, think about breaking it up over time so you don't shock your client with a huge increase.

Once you have a clear picture of exactly how to price your cleaning services, you then need to examine your current client base and determine the best action to take to improve your current profit position.

How to Implement a Price Increase

OK. So you realize you've been underpricing your services and you have decided the best action is to initiate a price increase. But you may not know how to approach your clients to inform them you need to raise your prices. Keep in mind; we're not suggesting you immediately raise your price, say from $25/hr. to $35/hr. You will surely see resistance if you do and you will probably lose clients with that type of approach.

Helpful tips for getting your prices in line:

• Raise prices in increments. If you have a large gap in what you should be charging, start by raising the price a little at a time over the next few months or span it over the entire year. Only do this if you are not losing money on the client. No need to ruffle feathers if you are making money. However, you never want to keep a client that is costing you money to clean.
• Raise prices for just a few clients at a time. Never do a blanket price increase to all your clients at once. You don't want to take the chance of losing several clients at one time. If you're going to lose any clients over this, it will be much easier to lose one or two, and then work to replace them quickly.
• Add a policy to your client agreement that the price is subject to change after the first few cleanings or after the first year.

If you are underpricing due to underestimating the time it will take to clean, find a system that works for you. Sometimes people look around a room but don't look closely enough at the soil load in the home. They may look around and see that the house is neat and orderly with limited clutter and think, “Hey, this is a clean home.” What they didn't notice is the dust hanging from the ceiling fans, how dirty the vents are, how filthy the baseboards are, or the dust on the 6-panel doors.

Neat and clutter-free doesn't mean dirt-free. It doesn't matter how you do it, the important thing is to come up with a system that works for you so you can accurately estimate the time it will take to clean, period. Once you know that, the pricing part is easy.

If you've been underpricing your cleaning services, start re-thinking the wisdom of that decision. None of us are in business to work long hours and struggle to pay bills. You have a right to a profitable business and one that enables you to enjoy a comfortable living.

Determining Cleaning Business Price and Profit

Now that you have a better understanding of how to price for profit and not underprice your services, you can automate the process. Use the Residential Profitability Calculator to help you gather the information needed to price each prospect's home. The calculator will not only give you a price, you will see just how profitable that price will be for your company.

The beauty of the calculator is that you can play with the numbers until you get the results you're looking for. If you firmly believe that your time estimate is correct, yet the end results aren't showing a large enough profit, then try changing your price. If your goal is to make a 20% profit on every cleaning, then change the price until you get the result your company needs to reach that goal.

Implement these tips on how to price residential cleaning services and you will be well on your way to building a profitable cleaning business. 

MyHouseCleaningBiz.com Members: Want to have a profitable cleaning business? Then you need to know if each one of your client accounts generates profit. The Residential Cleaning Calculator makes it quick and easy to do just that! First, estimate your price by entering a time estimate or productivity rate, along with an hourly rate to charge or square foot price. Next, you'll need to figure out your expenses. Just fill in the blanks and you'll see an immediate result - dollar amount of profitability and percentage of profitability by service and for the year. Using MyHouseCleaningBiz.com  Residential Cleaning Calculator does just that!

Attention non-members. We have the resources to make your cleaning company profitable. Follow the link for more information on Pricing and Estimating resources available to members. Start making your business profitable today! This page gives details of everything you get with membership