Unlocking Profits: How to Price Your Janitorial Services Right

When it comes to running a successful commercial cleaning company, one of the most critical aspects is accurately developing pricing for janitorial programs. This process ensures your business remains profitable while providing competitive rates to your clients. At the heart of this is estimating work hours correctly, a fundamental step that influences every other aspect of your pricing strategy. Accurate estimation of work hours allows you to project labor costs precisely, avoid underbidding, and maintain a sustainable operation. For more in-depth guidance on estimating work hours, refer to my detailed article here https://elitebsc.com/?s=estimating

In constructing a proposed price, there are four primary elements to consider: the cost of direct labor, payroll burden, overhead, and your mark-up.

Cost of Direct Labor
The first and most significant component of your pricing model is the cost of direct labor. This involves knowing the labor market intimately to determine appropriate wages for your cleaners. The cost of direct labor is calculated by multiplying the estimated work hours by the hourly wages. For example, if a job requires 100 work hours and your cleaners are paid $15 per hour, the direct labor cost would be $1,500. Staying informed about local wage trends and industry standards will help you set competitive yet fair wages, ensuring you attract and retain quality employees.

Payroll Burden
Payroll burden encompasses additional costs associated with employing staff, beyond their base wages. This includes payroll taxes, workers’ compensation insurance, and general liability insurance. These expenses can significantly impact your overall labor costs, so it’s crucial to factor them in accurately. Typically, the payroll burden can add 15%-30% to your direct labor costs. For instance, if your direct labor cost is $1,500, a 20% payroll burden would add an additional $300, bringing the total labor cost to $1,800.

Overhead
Overhead costs are the indirect expenses associated with running your business, such as office rent, utilities, and administrative salaries. When developing pricing for a new janitorial contract, it’s essential to consider only the incremental overhead – the additional overhead costs directly tied to servicing the new customer. Many companies mistakenly apply their full overhead percentage, which can lead to inflated prices. Instead, focus on the specific additional costs you’ll incur, ensuring your bid remains competitive without sacrificing profitability.

Mark-Up
The final primary element in your pricing model is the mark-up. This is the amount added to your direct costs to calculate the final price to the customer. Understanding the difference between mark-up and margin is crucial. Mark-up is the extra amount added to your total costs, generally ranging from 20%-50% depending on the size and complexity of the program. For example, if your total cost (including direct labor, payroll burden, and overhead) is $2,000, a 30% mark-up would add $600, making the final price to the customer $2,600. Margin, on the other hand, is the mark-up amount divided by the total price, expressed as a percentage.

Additional Cost Elements
Beyond the primary elements, several other costs should be considered:

• Cleaning Supplies: Costs for cleaning chemicals, cleaning cloths, mop handles and buckets, etc.
• Miscellaneous Expenses: Costs for uniforms, background checks, drug screenings, etc.
• Depreciation and Maintenance: Any wear and tear or servicing needed for cleaning equipment.