How Do You Price A Cleaning Bid?

How do you price a cleaning proposal, and why is it so important?

In this episode, I dive into how our company, Universal Janitorial Services, prices our recurring clients.

People don't buy based on price; they buy based on perceived value. I give the example of the Chevy Spark vs. the Ford F-150. The Spark is the least expensive new car sold in 2021. The Ford-150 series starts at double the price and sold the most. If people buy based on price, they would have purchased the Spark and not the Ford F-150. They bought the Ford based on perceived value, based on whatever that is for them (utility, leg room, safety, etc.).

There are different ways to price: $$$/sqft, $$$/hour, by the job, and by a monthly or annual rate. Pricing on square feet or hourly can be problematic.

Our pricing strategy is to lose 80% of our bids due to price. We don't want to win them all. Why? If we win them all, it means our price is too low. If we only win 2 out of every 10, then it means that those two are very profitable.

There is no RIGHT or WRONG way to price, except that it's wrong to price and lose money on a consistent basis. You always want to make money.

Our price has 4 components: labor, supplies, overhead, & profit.

Labor is simply the calculation of the gross wage (rate paid per hour x hours per day x days per week x weeks per year). Then we add in our labor tax rate. Some people add in insurance rates, uniforms, etc. We don't do that, but it's not a bad thing if you do. We add this into our overhead.

Supplies, for us, are based on the Scope of Work (SOW). We estimate supplies based on that SOW.

Overhead is EVERYTHING that is not labor or supplies. So, for Universal Janitorial Services, this includes insurances, payroll processing, postage and delivery, marketing, legal, accounting, my salary (we are a C-Corp), rent, utilities, telecom, SaaS, office supplies, and more. I create a multiplier. ALL of our clients pay this multiplier. This is based on (= Overhead /(Labor + Supplies)).

Profit is whatever you make of it. Our goal is around 10%. Again, we are a C-Corp and Uncle Sam takes 35% or so of that. If you're a pass-through entity like a LLC or Sole-Prop, then you definitely need that percentage to be higher to cover your pay.

I add up all 4 components to come up with an annual rate, and I divide that by 12 for a monthly recurring rate.

Finally, we create an overall company P&L and create individual P&Ls for each client. That way we can track which clients make us more money than the others.

Resources mentioned:

Copy.ai

Video Walkthrough On Our Pricing (Important to note: I rewatched this video I made last year and caught a mistake in the profit calculation. The enclosed Spreadsheet in the line item below actually has the correct calcs - Mark).
Sample Pricing Spreadsheet from Video above

Apogee Mastermind application. Napoleon Hill defined the mastermind principle as "two or more minds working actively together in perfect harmony toward a common definite object." At Apogee, we meet in small groups each week to act as a peer group or a board of advisors to help both you and your business grow. We pool together resources and help each other through challenges, pitfalls, and wins. We're also planning on a live meetup in the near future, all included in the price of membersh

Transcript

Unknown: 0:01

How do you price a cleaning proposal? And why is this so important? Hey, I'm Mark Lineberry with beyond the mop. And in today's episode, I'm going to talk about exactly what we do to come up with pricing for our commercial clients. Buckle up. This is can be intense. But first, with each episode, I offer a pro tip, a resource, a full cup, something that helps your business grow outside of just the podcast content. And today, I'm going to talk about copy dot A I O, what is that you may ask? Well, are you the type of person who hates to write content? Are you like me, and that you have some great ideas to add to your website, blogs, social media posts, but you just can't get the right words out? Do you wish you could type one two or even three sentences a miraculously have content appear? If so check out copy.ai copy.ai is an incredible tool that allows you to type very little, and through artificial intelligence, it will create whole paragraphs for you that actually make sense. You can then use these in your website, your blog posts, your sales, copy your ads, your social media content, and so so much more. For example, I just typed this sentence, follow me on this, I typed why hiring a commercial cleaning company will improve your business. That's all I typed. copy.ai gave me 12 Different examples I can use in my business. Here's one example. Hi, name, we're glad you're with us. Your business is unique to you. And we want to make sure that you're cleaning it as well. That's why we're giving you a free consultation to see how we can help you achieve your goals and design a customized cleaning plan that works for your business. How cool is that? I typed in one simple sentence. And it gave me all that as an idea. Here's another example from that same sentence that I typed again, that sentence was why hiring a cleaning company will improve your business. It also gave me you'll never be late for that big meeting again. Isn't it great to walk into a clean office, you can actually think about your business and not have to worry about the cleaning. A clean office is good for your health to less stress means you're more productive, right. That's why we're excited to introduce you the best commercial cleaning company in town. cleaning company meaning your name, it leaves these blanks so you can fill in later, right. But it gave me all that just by typing one sentence. So if you're having writer's block, well guess what? It's a thing of the past now. Go check out copy.ai and awesome service. Incredible service. I just discovered them recently. And I started diving a little deeper with that. But I've been having fun just typing sample senses just to see what we come up with. It's an incredible tool. I'm surprised people aren't talking about more. There's other services out there like it but coffee die is the first one that came to mind. Definitely go check them out. Now I know you join on this podcast to hear about pricing. So let's dive in. First off, know that when what I'm going to share to you is my example. It's why I should say not my examples are example from our commercial cleaning company. You know there's there's different ways to price now I'm going to talk about a lot. There's different methods, there's different techniques, I'm going to share with you what we do as a company. It's not the only way. It's not the perfect way. It's not the right way, but as far as I could tell it's the best way for us in terms of our pricing as worked every single time. I haven't over bid. I haven't underbid unless I goof up on the hours. I've always been right on the dot. But to dive in pricing is super important. See if you're too high, you could price yourself out of contention, right? You never want to do that. How many times have you had a customer come to you and say rally your prices like double the next guy? Well, the next guy's probably paying minimum wage Right? Or here's another example. Your price is too low and well frankly you could lose your mop right? How many times have we been on project and we after we bid we get like halfway into and you go up I just blew the through the whole budget I'm broke now. scary feeling horrible feeling right? I've been there done that. And then you always want price it within your prospects vision. And that can lead to more opportunities. In other words, if you're pricing it and the customer expects that price, third guy except that price and then they want to go Ford on other projects with you, and I'm going to talk about that. But first money is not everything know that money is not everything. Money's not everything repeat after me money isn't everything. People don't buy based on price they buy based on perceived value in relation to that price. And I could prove this to you a great example. And I've used this tons of time, and you've heard it already. You're gonna hear it again. In 2021, the least expensive brand new car was the Chevy Spark. Well, how many Chevy sparks have you seen on the road today? How many Chevy sparks do your drivers or your neighbors drive? How many Chevy sparks have you seen on the road? Have you passed up? I haven't seen any today, but it's the cheapest brand new car out there. Why aren't people buying it? Well, let's flip over to the number one sold new vehicle and 2021. Do you know what that is? It's the Ford F 150. series, it sells for double the price as a spark as a base model. Money's not the only reason why Ford F 150s. Out short sold the sparks. In fact, Chevrolet is eliminating this spark because nobody's buying it. Ford F 150 sold more because of the perceived value is far greater than what the Chevy Spark could provide. And these perceived values might include safety. For some people, it might be utility, and might be options and so on versus Chevy Spark, you're in there kind of like a can of sardines or something like that. But when a prospect perceived value raises to the price, they'll buy it always increased your perceived value. And I'm going to share different ideas to do that. The next section I want to talk about there's different ways to price. You've heard it all right, you could price by price per square foot or rate per square foot, you could do a rate per hour, you could do based on the job, you could charge a monthly rate or even annual rate. At Universal, we typically calculate a monthly rate if the service is recurring. If it's one time, then we're discount offer a one time price. We never ever, ever, ever provide a rate per square foot unless the RFP or the client demands that we never ever, ever provide a rate per hour unless the client demands it. And here's why. With a rate per square foot, there's a number of things that could go wrong. Number one, they could lie to you. Right and give you intentionally give you some bad information on the square footage. Or maybe they don't know or maybe they just guess, right and now you're bidding on your own rate times that square footage, and you're providing them an incorrect price because of some mis information. Not too long ago, we bid on a location in DC is about three or four storey building, I can't remember. But they told us the square footage was 12,000 square feet. I knew in my heart when I pulled up to that building that rate or that total square footage was incorrect. I just knew and they had us do to walk through and it's like, well, maybe there's sections they don't want us to do. But they showed us everything. They wanted us to clean everything. Why went online, and I found the architect to that building is a newer building. I found the architect and the architect within their website, they use that building as part of their profile. They said the building was 18,000 square feet. So they were off by a third. So imagine bidding on project because you have some incorrect square foot and now you're losing money because of some misinformation. Here's another reason I hate doing it by square footage. Years and years ago. This is a true story our oldest client had provided us building after building after building one his buildings they provided to us. They gave us a stacking plan. A stacking plan shows exactly the floors and who occupies those suites within the floor is a leased building. Right and they had multiple tenants. And so we were in charge of cleaning those tenants as an office building. Well, they gave us the square footage of every single suite everything added up the math added up. Always check on the stacking plan, make sure they didn't give a misinformation or years and years went by and we build based on that stacking plan. One day we received a letter from them. They said Mark, we regret to inform you that but we gave an incorrect square footage to you. We are requesting from you a $10,000 refund because the square footage we provided a many years ago was incorrect. They wanted a 10,000 Dollar refund for misinformation. So now we're having to come out and negotiate a deal to pay them back that$10,000. Yeah, we could have said legally, hey, you provided this information. This is what you did detrimental reliance. Hey, sorry, sorry, you're out. But they provided us building after building after building year after year after year. And so by doing so, which meant losing a huge chunk of our business, so we didn't do that, we gave them back their $10,000 and moved on. We hate bidding on a rate per square foot. Now there's problems with a rate per hour two, here's the biggest one I can think of, if you were to go into a building and say, Hey, I will charge you $35 an hour to clean your property. What's the first thing that goes through that customer's mind? They go, Oh, this cleaning company is just gonna lollygag take their time, take a law breaks, and now I'm paying for all that. Thanks. But no, thanks. I'll go with a company who really knows her stuff. So never charge a rate per hour unless it's required by that client. Every now and then you'll have one that will ask for that. Now diving into our pricing strategy? Well, our pricing strategy is this. It's our goal to lose more contracts than we win. Let me say that again. It's our goal to lose more contracts than we win. In fact, it's our goal, to lose eight out of 10 contracts and only win two out of 10. We only want to win 20% of the time. You think what, what? What? No, yeah, yes, we want to lose that. And we want to lose eight out of 10 times because they told us our price is too high. Here's why we do that. And follow this logic. If you want to win 100% of them, and you're winning 100% of them. Well, either one, you're incredible salesman, congratulations. But number two, and means your price is probably too low. And because your price is too low, they're buying it just because they go wow, you're offering or proposing more value than price. So therefore I'm gonna buy from me, all right? Well, you don't want to be in that situation. You want to be losing money off contracts, just because you're getting them and say yes, before we took over universal in 2010 2011. Here's what happened, the previous owners pricing strategy was to win 100% of them. And he would bid it even at a loss. And his goal was, hey, we'll bid at all costs, we can always increase the price next year. But here's what happens when you're increasing the price by 3% 5% 10%. All loss, you're still losing money. So is our goal to be bullish on our price to only win a select few, we don't want to win all them. And once we do when our highly profitable to us, and our profit margins are high? Well, that's what we want to do. That's our goal. I'm not saying it has to be your goal. But this is what we want to do as an organization when better contracts. Ever hear of the term. If you'd be more selective, you'll be more effective. We want to be selective on who we do business with. We don't want to do business with everyone out there. Well, what's in a price? Everyone listening to this, if you ever price anything, you know that there's four main components that goes into your pricing, number one, labor, number two, supplies, number three, overhead. And number four profit, we think about there's nothing else out there, right? It's just labor supplies, overhead and profit. And so I'm talking here are a 15 or 30,000 foot level, we just have these four components. Now I'm on break down exactly what universal does step by step on these four components to come up with pricing? The first one's labor, this should be easy for all of you to calculate. Here's what we do with labor. We do a rate per hour times. Or let me back up we do a rate times hours per visit times days per week, times weeks per year. So if we're paying $10 an hour is eight hours of visit that's eight out 80 hours a day. If it's five days a week, then that's $400 a week, right? And then 400 times 52 weeks, that's a gross annual wage of over$20,000 In that example. So multiply that total that gross annual wage by our labor tax rate. What's the labor tax rate for us and it can be different for every company out there. For us we have FICA FUTA suit And really that's it. So let's dive in each component FICA, we all have FICA taxes to pay, right? If you have employees, you must pay a Social Security tax. And you must pay a Medicare tax. Right? So Social Security tax is 6.2% of your gross pay. Medicare's 1.45% of that gross pay. So 6.2 plus 1.45. Is 7.65%. Just for FICA taxes, and then food or Federal Unemployment Tax? Well, that's simple. It's point 6%. On anything not paid to the state. So if you're not paying your state unemployment taxes, well, your food attacks is a lot higher than that. But point 6%. So point 6%, that's, you could do the math. So for every $100, it's six bucks, no, no 60 cents, right? Is that how this Yeah, 60 cents, 100 bucks. So sorry, I need more coffee here. So we just add in FICA plus FUTA. And now state unemployment Sui, that's your own individual rate. Every single company has their own individual assign tax rate, it's different for every company out there. So when you're on these Facebook groups, when you say, hey, multiply your labor by such and such percent, well, it's different for everyone. Okay, in one state, I have half of 1%. Another state I have about 1%. And then up in freakin Maryland, I have 10%. I know you're saying, Wow, 10% is a lot of money. It's different for everyone. And it's based on payment history is based on experience is based on unemployment filings, which we had quite a few up there. It's based on so many different things and just piles on, and your rate can change every single quarter. So a new quarter just started, what couple days ago, here we are April of 2022, we should be getting a new rate, or at least receive notice of it, everything we get, we just send to our payroll company. And they need to adjust that every single quarter. So you need to know what your state unemployment rate is very important to know, super important. So roughly 7.65 plus point six, so that's 8.25, right. And then I add the state unemployment rate to that, let's say it's 6.75%. Let's round it up to 15% Total in this example. So if you have a gross annual wage of let's say, $100,000 a year just to keep my math simple, you're talking $1,500. And or $15,000, I should say in labor taxes, just for that one employee. Now I know with the unemployment rates is capped off at you know, 7000 for some states, 8000. For others federal I think is a, so varies by state, definitely check, check your rules on that it's not an absolute, but whatever's leftover, we just use for profit. On the flip side, if we have employee turnover within that position, then that rate resets. And that cap has to be met once again, before you start getting some credits on that. So something to know. So as a recap, labor, all I do is take the rate that we want to pay the employee times hours per visit times days per week, times weeks per year, times the labor tax rate of whatever that is to come up with labor. Well, the next component that we cover is supplies. Our supplies are based on the scope of work for that client. So I could be in one client and maybe they just want simple vacuuming and are like today I did one today simple vacuuming and dusting that's it. So what do you need their features can do vacuuming dusting what you need. Obviously you need you know, microfiber cloth, maybe you know spray to spritz and vacuum cleaner. Really that is it because it's all carpet. I don't need anything else I don't need for machines, I don't need bags because I'll need to take out the trash because they actually have another service that takes care of as part of the property management. So the scope of work there is very simple to us. Conversely, there are schools that we clean where over the summertime, we're in there stripping and waxing, we need to bring in the carpet machine we need to do everything and it's all included within the price because that was the requirement with the RFP. So the scope of work and the price increase what the scope of work increases in there for so does the price. So it's can be different for every single location. When you do your walkthrough, you need to figure out what supplies will I need to make this happen? I need a mop bucket. Do I need mops? Do I need dust mops? How much am I going to have to need? Am I doing bathrooms? Am I doing hallway salt, you're you're gonna need like two different mops right there, my donut kitchen will add a third, right? So you're gonna have to figure all that out and calculate that before you submit your prize. It's not a fixed percentage, guys, it isn't. Because again, you might be doing specialty for work as part of the proposal. You might not be Nash this can change everything for you. But, uh, basically definitely wouldn't need a heavy machinery so your cost could be low. Conversely, if they want you to buff each week, that's just gonna jack up the price. Some clients also wants to provide consumables, such as toilet paper, paper towels, hand soap, trash liners, and so forth, that jacks up the price worse as well. And we always pass that price back along to the client in one of two different ways. Number one, we bake it into the price. Or two, we'll add in as a separate add on to our contract, hey, if you want to order a case of toilet paper, this is going to be the price for you. So two different ways we do it. So I just covered two of the four ways. Again, labor, simply just calculate gross annual wage and multiply it by your labor tax rate. And then supplies, I figure out what supplies are needed based on the scope of work for that project. We added up and I create an annual price for that. The third thing I do is come up with overhead. Now this Listen to me, guys, this is so critically, critically critically important. Overhead, what is overhead? overhead? Think about think about the pricing here. You have labor supplies, and what's leftover overhead, right? This is the stuff that's not supply related, and it's not labor related. So for us, this includes costs to recoup our costs for rent. Okay, my salary, because I'm a C Corp, I need to cover our office staff, I need to cover software, SAS, I need to cover office supplies, printing, postage, delivery, accounting, labor, marketing costs, cost for this podcast, even website, everything I need to cover all these different costs. And in order to do that, I need to create and figure out, well, what can each client pain contribute to cover and recoup these clock costs. So here's what we did. We take all of our non labor and all of our non supply costs example I just gave, and I created a multiplier. And here's how we did that. I'd look in our p&l. Each and every one you listen to us, if you have a cleaning business, you need to have a profit and loss statement going. Okay, and I'm gonna dive into that here in a second. But a profit and loss statement, you will look in there, what's not labor related, what's not supply related and add up all those costs. Now take that added up all the income that your customers brought in for that same period to cover those extra costs. And you could create a percentage out of that. It's that easy, guys, it's not hard. So basically, I create a multiplier, also known as a percentage out of it. And I apply it as a percentage of labor plus supplies. You could do it based on income, overall income by do it based on labor and supply. So I add up all the labor and supplies for all of our clients, add up all those overhead costs and divide that total for total overhead divided into the sum of labor and supplies for all of our locations. And that gives me a percentage. I know that all of our contracts must be X percent more based on labor and supplies. So again, this includes rent marketing, legal, like I covered accounting, travel, conferences, training, insurances, payroll, processing, interest charges, depreciation, so many more. So I know you're headspin at this point, if if you're not a numbers guy, Hey, I'm sorry. You need to know your numbers, or at least have someone look at this objectively in figured us out because if you don't know your numbers, he can't come up with a price. It's impossible to come up with a price. Without knowing your numbers. You need to know your numbers. And the best way to find your numbers is to look at your p&l. p&l again. It's requirement you have to do it you can easily look at Schedule C if you're if you're, you know single member LLC, or pass through on our maybe a sole prop. If you're a corporation, you're filing 1120 s or 1120. You by law, you have to do a p&l each and every time and you could pull that information very easily off of that from your account, and then compile the number or even ask the accountant to help you out on this. And if you got any questions definitely reach out to me, I'd help you out. On a low level. Again, I'll know your numbers fully. So I can't give accurate numbers or anything like that. And the last component, well, that's profit, what's profit? What's different for everyone? Okay, there's no right or wrong ways to calculate profits, whatever you want to be, quite frankly, for example, I'm a C Corp. And as a C Corp, I have to pay myself a salary through payroll, I'm not allowed to do an owner straw. So for us, I include that in overhead, I'll include that in profit. Okay, so when I pay myself, my business partners, not out of the profits of the company. Okay, Uncle Sam comes along, and they look at the profit total for us as a C Corp. And they tax us a freakin large percentage, like 35 plus percent, based on that total profit. And they call that a corporate tax. So it's our goal to get our profit as low as possible. And the best way by doing NAS turnaround, I give myself a raise, give my business partner raise, buy more supplies, by car, whatever, just to bring down that number so that we don't have to pay any taxes on that. So again, I have to pay myself a salary through payroll that's overhead, it's not pass through entity like an LLC. So it's not like if you're a single member LLC, you could do an owner straw as a pass through is little different. So if, if you're doing 10%, as a C Corp, hey, I think 10% is really high number, quite frankly. But if you're doing 10%, as an LLC, you're going broke, because you can't live off 10% of the income unless you got a super huge, you know, billion dollar business or something like that. So I just told you how to calculate labor supplies, overhead and profit, just those four things. So now I calculate an annual rate by adding up labor supplies overhead and profit, I add that come up with an annual total, I could divide it by 12. To come up with a monthly rate, I can now divide that annual total by the total hours that we're going to do in a given year to come up with an hourly rate, if I wanted to do that. Or I can take the annual rate and divided by square footage to come up with a rate per square foot on an annualized basis. A lot of our commercial clients, they always want to analyze basis, not monthly basis or per visit, because they want to compare the their lease rates to other expenses in that same category under lease rates are always based, annualized. So that's how we come up with pricing. There's nothing there's no secret sauce, there's no secrets here, I shared everything and very quick, hopefully succinct way, I tried to do this little faster on a couple takes, but I just couldn't do it, this is the best I could do. And then after we win a new client, with these prices that we propose will continuously update our profit and loss for our company. And then we'll track a p&l for each and every client. So I'll have a spreadsheet that shows an overall p&l. So I know overall company wide. This is how we're doing also do an individualized p&l within Excel for every single client. Sorry, got the labor are you got the supplies are you got the overhead, right? Because you have to calculate that for everyone already know the profit percentage, and I look in there and so as our pricing changes, right, because pricing doesn't change, but circumstances change within a given client, you know, maybe they maybe the cost of supplies go up but you're locked into contracting, you can pass that on, okay, or maybe you decide to give one your employees a raise, and that impacts the price or maybe your employee quits he hire someone new Allah right now you have more profit. So I do an individual p&l For every single client so that way I can tell you beyond any certainty or any uncertainty that any given client is making us this much money and I could tell you, which of our clients are more profitable versus other clients. And that's how we do it. i There's nothing else there's no other secrets in there. I hope this made sense to you. But here's what I like to do. I recorded a companion video of exactly this. i It's it's hard to talk and describe this through a podcast without showing numbers right your your head is already dizzy and spinning right now is he listening to this? So if you go into the show notes, you'll see within the show notes of this podcast, a companion video and you can get access to that so you can see step by step and also a companion Excel spreadsheet. So that way you can see how we price step by step by step and how that companion video ties up with that example pricing so you can see step by step exactly what we do to come up with a price. Now I hope this made sense, I hope is really useful to you. If I could do anything for you certainly reach out to market my clean pivot calm but for more information about this show and resources mentioned, definitely check out beyond the mob show.com Again, that informations can be in the show notes if he felt the show was worth five stars or even a review or rating. And please do so. I love it man. We're on Apple podcast, Spotify, Google I Heart Radio or wherever you listen to podcasts that and this podcast has actually been brought to you by Apogee mastermind, Apogee masterminds a brand new mastermind I facilitate for service based professionals, not just cleaning but service based so anyone in the service based industry, and my target audience is anyone who's earning about a quarter million dollars or more in annual annual revenue is basically be braintrust aboard advisors. Basically, Board of Directors coming in to help you and your business grow. And so we can't do this alone, right? It'd be foolish to do it all alone. But if you're in a mastermind situation where you have people pouring in tea and helping each other out, then you learn tons from it and you'll grow through it. So if I could be a service there again, you got my email market my clean pivot.com I'd be more than happy to answer questions for you. Websites worth coming. Take a look at the show notes. You might see it in there one day, but it's not in there just yet. If there's anything I can do for you again, I'd love to hear from you. If you felt this was worth it again. Love to have a rating and review and thank you for your time for listening. God there konkret man price right don't lose money. Don't lose your mop. Man go conquer the world and make some money.