Can Cleaning Accounts Be Too Small?
I frequently speak with janitorial business owners wanting help growing their companies. Usually, they have reached a plateau and are having trouble climbing to the next level. What I often discover is not necessarily a problem with operations or the sales process, but rather the wrong growth mindset.
The natural inclination of most business owners and salespeople 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. Building service contractors often chase work outside monthly cleaning contracts, pulling their operations in many different directions. However, accounts too small can be equally damaging to the operation. But how small is too small?
The first question to answer is whether one can be profitable with a group of small accounts. 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 $35,000 per year salary plus vehicle, gas, benefits, etc., the direct “overhead” costs run about $4,200 per month (not including company overhead). Assuming profit margin is 40 percent on small accounts, this means the average job size on 30 accounts needs to be nearly $400 per month just to break even. So with this simple example, one can see that some jobs truly are too small.
If BSCs are going to hire full-time management, it is very difficult to be profitable with accounts less than $500 per month. In order to grow a company greater than $1 million in revenue, the average account size must be higher than $1,000 per month.
In addition to low profit dollars, small accounts have a few other disadvantages. First, they usually entail minimal 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, contractors 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 BSCs say “yes” to one customer, they likely are saying “no” to another.
Although small accounts may be necessary on the path to growth, BSCs likely won’t get over the growth hurdle with this model. Pay attention to the true costs of managing customers to find out which client mix is right. If the goal is to scale up, larger accounts will likely be necessary to make that happen. BSCs don’t need to eliminate their existing small customers, but change the growth mindset to increase the average account size over time.
Jordan Tong is a BSC consultant and founder of Elite Business Coaching, in addition to being a third-generation owner of Frantz Building Services based in Owensboro, Kentucky. For more information on his coaching services, visit www.elitebusinesscoaching.net.
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