Set the Most Competitive Prices for Your Cleaning Business Follow these tips for determining a price that makes you a profit without gouging your customers.

This excerpt is part of Entrepreneur.com's Second-Quarter Startup Kit which explores the fundamentals of starting up in a wide range of industries.

In Start Your Own Cleaning Service, the staff at Entrepreneur Press and writer Jacquelyn Lynn explain how you can launch a profitable cleaning service, whether you want to offer maid services, janitorial services, carpet and upholstery cleaning, and more. In this edited excerpt, the authors describe how you'll go about setting prices for both residential and janitorial cleaning services.

Pricing can be tedious and time-consuming, but don't rush through the process. If your quote's too low, you'll either rob yourself of some profit or be forced to lower the quality of your work to meet the price. If you estimate too high, you may lose the contract altogether, especially if you're in a competitive bidding situation. Remember, in many cleaning situations, you may be competing against the customer themselves; if your quote is high, they may think they can just do it themselves.

Charge for the value of your service, not the time you spend. It's also a good idea to charge what you would charge if you had employees, even at the beginning when you're doing the work yourself. Some people make the mistake of undercharging when they start out just to get customers and then, when they grow and need to hire help, they aren't making enough money to pay that help. Also, if you're too cheap, customers will think you aren't experienced or don't do quality work.

During the early days, go back and look at the actual costs of every job when it's completed to see how close your estimate was. Learning how to accurately estimate labor and properly calculate overhead will let you set a competitive pricing schedule and make the profit you require.

To arrive at a strong pricing structure for your operation, consider these three factors:

1. Labor and materials (or supplies). Until you establish records to use as a guide, you'll have to estimate the costs of labor and materials. Labor costs include wages and benefits you pay your employees. If you're even partly involved in executing a job, the cost of your labor, proportionate to your input, must be included in the total labor charge. Labor cost is usually expressed as an hourly rate.

2. Overhead. Overhead consists of all the non-labor, indirect expenses required to operate your business. Your overhead rate is usually calculated as a percentage of your labor and materials. If you have past operating expenses to guide you, figuring an overhead rate isn't difficult. Total your expenses for one year, excluding labor and materials. Divide this number by your total cost of labor and materials to determine your overhead rate. When you're starting out, you won't have past expenses to guide you, so use figures that are accepted industry averages. You can raise or lower the numbers later to suit the realities of your operation.

3. Profit. Figure your net profit into your estimate by applying a markup percentage to the combined costs of labor, materials and overhead. The markup percentage will be larger than the actual percentage of gross revenue you'll end up with for your net profit. For example, if you plan to net 38 percent before taxes out of your gross revenue, you'll need to apply a markup of about 61.3 percent to your labor and materials plus overhead to achieve that target.

Setting Residential Cleaning Service Prices

When you're quoting a residential job, you need to know how many square feet the home is, what tasks the customer wants done, how many bedrooms there are and how many beds each has, the number of bathrooms, the number of people who reside in the home, the number of children and the number and type of pets.

Most residential cleaning services don't have particularly high overhead costs. Figure that overhead runs from 10 percent to 40 percent of your labor and materials, depending on the size of your operation, whether you're homebased or commercial-based, and the number of employees you maintain on your payroll.

Setting Janitorial Service Prices

Don't provide an estimate until after you've seen the condition of your prospective customer's facility and have discussed which services you'll provide. Never "guesstimate" over the phone; you could lose the opportunity to make a serious bid if your figure is too high, or the customer may question your integrity if your phone quote is significantly lower than the final bid you make after you find out what the job really entails.

To prepare an estimate, identify the variables that will affect the time it takes to perform the required cleaning work:

• Size, in square feet, of the area to be cleaned
• Layout of the facility
• Number of employees
• Construction materials (carpeting, tile, glass, etc.)
• Location and position of furniture, equipment, appliances, etc.
• Number of offices, restrooms, and fixtures to clean
• Areas requiring special attention
• Whether windows and window coverings are to be included
• Availability and location of electrical outlets
• Frequency of duties
• Hours during which cleaning can take place

When you've figured out the number of hours required for your personnel to do their jobs according to the customer's specifications, calculate labor costs. If you're bidding on a job that calls for a monthly fee, figure the number of hours each worker will work in a month. If the job needs to be done five times a week, figure 21 workdays in a month. If it's to be done three times a week, figure 13 workdays in a month. Then multiply the wage rate for each worker by the number of hours you schedule for the job.

Overhead for a janitorial service is somewhat higher than for a residential service, typically ranging from 20 to 50 percent of labor costs. Supplies typically run about 5 percent of labor. Most janitorial service operators expect to earn a net profit of 10 percent to 28 percent of gross sales. Use industry averages to help you calculate your estimates until you have a history and can use actual expenses.