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319 W. 2nd St., Owensboro, KY 42303

Phone: 270-903-4330

When A Cleaning Account Is "Too Small"

November 13, 2018

 

The natural inclination of most business owners and sales people is to get new business at all costs. If it can grow the top line (and hopefully the bottom line), then it should be pursued. This tendency is common in the commercial cleaning industry as well. Companies often chase work outside monthly cleaning contracts, pulling their operations in many different directions. However, accounts too small can be equally damaging to your operation. But how small is too small?

 

Can you achieve a net profit?

The first question to answer is whether or not you can be profitable with a group of small accounts. And here I’m not referring to job profitability but profit after management and overhead expenses. Let’s assume a full-time manager can oversee 30 small accounts. Assuming a $35k/yr salary plus vehicle, gas, benefits, etc., your direct “overhead” costs run about $4,200/month (not including company overhead). Assuming your profit margin is 40% on small accounts, this means your average job size on 30 accounts needs to be nearly $400/month just to break even. So with this simple example, you can see that some jobs truly are too small. If you are going to hire full time management, it is VERY difficult to be profitable with accounts less than $500/month. If you want to grow a company greater than $1M in revenue, your average account size must be north of $1,000/month.

 

The hidden costs of small accounts

In addition to low profit dollars, small accounts have a few other disadvantages. First, they usually entail minimal amounts of labor hours only a few times a week. These jobs can be difficult to staff unless paired with other accounts. Second, small accounts usually care a great deal about the money they spend on cleaning services. They are watching their expenses closely; therefore, you may catch more grief from a small customer than with a large one. Finally, managing small accounts takes away time and energy that could be spent servicing larger, more profitable accounts. This is known as opportunity cost. When you say “yes” to one customer, you likely are saying “no” to another.

 

So while small accounts may be necessary on the path to growth, you likely won’t build a successful cleaning company with this model. Pay attention to the true costs of managing your customer to find out which client mix is right for you.

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