It is not always easy to hit adequate profit margins on all of your cleaning accounts. And we
have all struggled with this at one point or another. Some accounts are profitable for a long
period of time then we see a decline. Others remain stagnant and a few might even increase in
profitability. Why does this happen? What are the underlying causes of eroding margins and
how can you correct them?
As we have wrestled with this question over the years, we have identified three primary culprits
of profit reduction: worker hours, worker wages, and customer price. We call this the 3-legged
stool of job profitability. All three legs must be stable before consistent job profitability is
possible. If job profitability has dropped, one of the three legs is likely the source of the
problem.
Let’s image you have a job that is suffering from low profit margins. You would first examine
the labor hours being work on the job. Hours works is the largest driver of expenses. Are the
hours worked at or below the budget? If the hours are too much, you know how to fix it.
However, if the hours are right on target, you move next to wage rates. How much money is
each person making per hour. Are your labor rates at or near you budget? Over the last year,
wage rates have gone up tremendously and we have found this to be hurting our profit
margins.
Now, for the sake of discussion, let’s assume wage rates are much higher than the original
budget. If this is the case, you have two options. First, you can either find ways to reduce hours.
Or second, you must increase the contract price, the third leg in our stool.
By using the stool, you can better understand the source of the profit erosion. Then using the
same stool, you can decide what is the best way to reestablish a healthy margin.
