It's not always easy for building service contractors to hit adequate profit margins on all their cleaning accounts. We have all struggled with this at one point or another. Some accounts are profitable for a long period of time, then decline. Others remain stagnant, while a few might even increase in profitability. 

Why does this happen? What are the underlying causes of eroding margins and how can BSCs correct them?

With the onset of the COVID-19 pandemic, many janitorial companies witnessed significant operational pressures. Labor became scarce, wage demands increased and profits often declined. Many janitorial companies struggled to figure out how to move forward — specifically, how to maintain consistent profit margins in this environment.

As we wrestled with this challenge over the years, three primary culprits have been identified as sources of profit reduction: worker hours, worker wages and customer price. We call this the three-legged stool of job profitability. All three legs must be stable before consistent job profitability is possible. If job profitability has dropped, one of the three legs is likely the source of the problem.

Let’s imagine you have a job that is suffering from low profit margins. You would first examine the labor hours allocated for that job because hours worked is the largest driver of expenses. Are the hours worked at or below the budget? If the hours are too much, develop a plan to fix the excess. However, if the hours are right on target, you move on to the second leg. 

Next, look at wage rates. How much money is each person making per hour? Are your labor rates at or near your budget? Over the last year, wage rates have gone up tremendously, which hurts our profit margins.

Now, for the sake of discussion, let’s assume wage rates are much higher than the original budget. If this is the case, you have two options. First, you can find ways to reduce hours. Or, second, you must increase the contract price, the third leg in our stool. 

By using the stool, you can better understand the source of the profit erosion. Then using the same stool, you can decide the best way to re-establish a healthy margin.

In our current economic climate, it is very likely that wage increases are the culprit for profit decline. For these reasons, building service contractors must attack the problem on two fronts. Place a constant emphasis on efficiency. Small gains of 5 or 10 percent in labor hours can have substantial effects on margin. However, there is no getting around that fact that you must fight for price increases. To keep the stool balanced, you will need additional revenue to offset expenses.