As with every type of business or industry there is a right price for every product or service.  The right price is what the client or customer is willing to pay for what he or she perceives to be of proportionate value to the expenditure. The price must benefit both the client and the contractor or supplier. 

The fee or price for building services, for example, must cover the contractor’s costs, such as labor, materials, supplies, and general overhead, plus earn a reasonable profit.  The customer, on the other hand, must be satisfied that the service is within budget or at least at a price he can live with.

The marketing mix of any business includes the four Ps: Product (or Service), Price, Place, and Promotion.  In this article we will touch briefly on the first two Ps: Product (or Service) and Price. For a cleaning contractor, the “Product” is the cleaning service--high quality cleaning; the Price is the fee the customer is willing to pay for what he or she perceives to be of equal value to the product or service.  If the customer perceives the quality and value to be high, there will be no argument over price.  The price will be just right for the value.

Since each market is unique, the contractor needs to know his own market well.  He needs to know what other contractors in his area charge—without getting caught up in bidding wars—in order to be competitive.

It is more beneficial for both parties to focus on quality service at a fair price than it is to simply concentrate on low price.  Without knowing the right price for a particular region, a contractor will never gain a competitive advantage.  Guesswork bidding has led more than a few contractors into financial difficulty. 

In my consulting practice, one of the first issues I usually address is the monthly service fees my clients charge their customers.  When I first meet a new client, they often explain how they are struggling to make ends meet.  After an analysis of their operations and accounting, the negative cash flow and non-existent profit can be traced back to low bidding and unprofitable customer accounts.  The remedy for this dilemma is for the operator to go to his or her customers with a clear and tactful explanation of the need for a modest increase in monthly service fee in order to maintain high quality service, if the service has been of high quality up to this point.

Low bidding generally affects the number of hours a contractor will devote to maintaining a customer’s facility.  Short-cutting the work affects quality.  In turn, poor quality increases customer dissatisfaction.  Customer  dissatisfaction increases the number of complaints, and a steady barrage of complaints motivates a customer to look elsewhere for a different contractor.

Low bidding, or simply taking a stab at a price, just to get the contract may help a new operator get started in business, but may cost him or her dearly in the long run, if it becomes a practice.  On the other hand, bidding too high will not land business either.  A contractor needs to learn what fees most customers in his or her market area will accept, and what they perceive as value.

Until you learn those prices, you may want to try using national averages recommended in books or trade journals and then adjusting to your region as you gain knowledge of your market.  A word of caution, however: cost per square foot rates vary according to types of buildings and industries.  Production rates vary according to types of buildings, density of work areas, the number of people working in the building, and foot traffic.  Production rates are also affected by the conditions in the building, such as air ducts and indoor air pollution.  A building’s external environment, such as dust, mud, and air pollution, also affect production rates.

Additional factors that have a direct bearing on production rates are the types of floor surfaces, frequency of carpet cleaning and resilient floor maintenance, location of janitor closets, ingress and egress time, the amount of non-productive time, location of drop boxes, number of people working in the building, and the number of fixtures in the restrooms.  All of these need to be considered to bid accurately. 

With so many variables, it will take a new contractor time to learn how to bid in his market area so that he can obtain his share of new business.  All bids should start with normal conditions and then be adjusted according to the number and types of variables.  After you clean a variety of buildings over a period of several years, and as you become familiar with the various bidding methods, you will be amazed at your ability to accurately workload a contract.  Pricing your services right on target will help you to gain confidence, and your clients will sense that conviction.

As discussed in our January 18, 2000 newsletter, there are three primary bidding methods: (1) Cost Per Square Foot, (2) the Estimated Time Method— using hourly production rates, and (3) the Previous Experience Method—comparing similar buildings you now clean or have cleaned in the past with the one you are bidding.  With these three methods you will arrive at a fourth method, which is an average of the first three methods.  You arrive at the average price by simply adding the fees of the first three prices and dividing by three.  This price will likely be the most accurate as it takes into account all elements of bidding.

Some clients will engage a contractor in a fifth method of pricing known as a Purchased-Labor Agreement.  A Purchased-Labor Agreement is a fixed hourly rate plus material costs, unless the materials are provided by the client.  To arrive at this figure, you may use the first four bidding methods to determine your workload and hourly rate. 

The two most important aspects of bidding are: (1) the hourly rate you will charge for your services, and (2) the total number of hours you will bill during an average month.  (See the 1-18-00 CPI Free Weekly Online Newsletter for details on calculating the number of days and weeks in an average month.) 

It is important to know the correct frequencies per month.  Depending upon the number of employees you have, using wrong frequencies can cost you thousands or tens of thousands of dollars each year, and hundreds of thousands of dollars over a ten year period.  (See the 1-18-00 CPI Free Weekly Online Newsletter regarding calculating frequencies)

When you hand a bid proposal to a prospective customer, you should be satisfied with the price.  If it has been carefully calculated, you can present it to the client with confidence.  If it contains guesswork bidding, your prospective customer will sense your lack of confidence and your uncertainty.  Learning to bid accurately will come with practice and an understanding of bidding formulas.  Personally cleaning different types of buildings will help your bidding.  A sense of dimension, proportion, and timing will also assist a great deal in workloading, which is an integral part of bidding.

By learning to accurately bid on smaller accounts you will gain confidence and ability to bid on larger accounts.   Some day you may have the opportunity to bid on a million dollar per year account, and with skill you may even come out the winner.

A final measure of accurate bidding occurs when your prospective customer tells you that among the five, ten, or fifteen bids presented, your bid reflects the greatest amount of thought, accuracy, clarity, and professionalism, and that the cleaning under your company’s care should produce a measurable improvement in quality. 
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Article written by: 
Forrest L. Farmer, President
Clean-Pro Industries, Inc.

For books on bidding go to www.clean-pro-industries.com and then click on Books for Janitorial Services.

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Copyright 2000 Clean-Pro Industries Inc.