Post by Kevin on Jun 4, 2006 8:44:09 GMT -5
Had a conversation with a member this week that was a little unsure of what to charge.
OK folks, stay with me on this post, going to be in layman's terms and might be a little long, but I believe precise.
There are two options most widely used in the cleaning service industry.
1- Hourly Rate- (You charge per hour for each job you perform)
2- Fixed Job Rate ( Is a set price that you charge per job) - Using the fixed rate , you still must compute the hourly rate.
Determine your hourly rate. First you can`t just say I want to make $20.00 an hour, thats a nice number and great pay , but ask yourself how did you come up with that number.
If your working , just you this is how you determine your hourly rate.
Your labor cost + overhead + your profit
1- Your labor - When deciding your labor cost, you are the owner of your company, the manager, and a worker. You are the most important person of the company, but you are labor, even some of the most senior union janitors or cleaners do not make $20.00 an hour (but Kevin ,,,,,, I'm worth more than that......lol ) I say no your not... hush, you will understand in a minute.
In this equation your worth 12.50 an hour max. So then you have to determine how many hours a year you work. NOW... this is where it gets tricky . You are labor, yet your the manager and owner. As the owner your entitled to PROFIT oooooh.... I love that word... say it one time with me in slow motion P-R-O-F-I-T!!!! Yeah, rolls of the tongue nicely.
OK, your labor charge is $12.50 an hour , remember we still have to add overhead and the PROFIT in.
To determine your overhead you have to compute your yearly expenses. Some examples may be
Telephone expenses
Office equipment and furniture
Office supplies paper etc.
Postage
Business insurance
Supplies
Medical Insurance
Professional association memberships
legal and accounting fees, and
advertising and marketing costs -- for example, the cost of a Yellow pages ad
Income Taxes
Self Employment taxes
OK this example lets say your overhead is $10,000 Yr.
First two parts of the equation. $12.50 an hour / $10, 000 Yr Overhead.
Labor- 40 hrs a week x50 weeks (hopefully you take a vacation) gives you billable hours of 2000 hours a year.
Overhead- Your overhead is $10,000 Yr, $10,000 divided by 2000 working hours is $5.00 an hour
OK , hey were up to $17.50 now. (Is it getting better yet?)
Now time to add in that profit. This is an important question? How much profit do you want?
Well determining your profit is determining what you want in life. Your profit is what you receive for doing all the extra duties it takes to continue your business. Advertising, marketing, bookwork....etc. When your a larger company maybe this is all your doing, drawing a salary just for that.
OK back to the profit, once again determining profit is hard, and based on you. But we want to include in your profit extra things to keep your business viable and strong.
Lets first add in
New yearly equipment funds- $900.00 (A new floor machine for next year)
Extra advertising- $1500 (get a bigger ad in the yellow pages next year, or extra advertising you did not have the year before.)
Vehicle costs $1050.00 (get a tune up on your vehicle, new tires, brakes, oil changes)
This is a good one - Wine and Dine Clients! How about a really nice dinner monthly $2400, (Whens the last time you had a $200.00 dinner for 2 people)
OK you can add in more next year business expense if you want. These are now my recommendations
$2000.00 emergency cash yearly set aside.
$5000.00 Retirement Fund
Total = $12,850 divided by 2000 working hours is = $6.43
OK so far our labor is $12.50 Hr. Overhead is $5.00 an Hr. Profit is $6.43 hour = $23.93 hr.
Now thats not so bad is it, the hard thing is keeping it all separated, thats up to you. You only get paid $12.50 an hour, write yourself a check each week for $500.00, put the rest into your business account and retirement. Maybe only take your personal profit out at the end of the year.
An important part of this whole equation is, what are your monthly costs- overhead, and what profit you want. In a tougher market you might not be able to get a 15% profit margin, to win bids lower your profit margin. NEVER, NEVER, Ill say it again NEVER reduce your hourly rate or overhead.
OK Before I go into the next section....
FIXED RATE
Simple, you still have to determine your hourly rate above, to determine your fixed rate. With experience you understand how long it takes to complete any job. You then use your hourly rate. How many hours it takes to complete job+ your hourly rate= Fixed Rate.
Here we go, stay tuned folks, going to get complicated
In the cleaning janitorial field. Commercial & residential. The OVERHEAD has the ability to change per contract or job. For example: You might do an easy commercial business it costs you $7.00 in supplies to clean it and lets say its 1500 sq. ft. Your business equation works this out to 2 hours at $23.93 or $47.86 per visit. So then your get a really messy office 1500 sq. ft. (What Happens) well, this is where experience comes in. You do not want to cut into your overhead or profit. So you have to add more.... right??? The answer is YES. Add more hours to complete the job on the messy office , or an extra fee.
OK... Making Progress
Now... Multiple service providers, you have a little bit of everything going on.... Simple what is your hourly rate / overhead / profit per job that you perform. An example: Residential cleaning 1500 sq. ft and then stripping and waxing 1500 sq. ft ... of course floor work costs more. Maybe you have to charge $50.00 an hour. (This is where a veteran will say square foot price comes into play) How did that veteran determine the square foot price By knowing what their hourly rate is, and the time to complete the job.
or 1500 sq. ft x .25 = $375 / divided by 5 hours = Hourly rate of $75.00 an hour.
Employees
OK you came this far heres the employee equation. Add in what ever your country, state, city requires. Examples: Workman's comp, Social Security, Employment Taxes.. into your overhead
NOW..... Using the hourly rate conversion above $23.93 ...$12.50 of that is labor, so if you start an employee out at $7.00 an hour what happens? Well you have a n additional $5.50 at 2000 hours or $11,000 that covers the Workman's comp, and taxes, (hopefully in your region) The average cost US per employee is roughly $14,475 with benefits, In Michigan no benefits last year it was $9800.00 ...so we will use that number $9800.00 / divided by 2000 hrs= $4.90 per hour extra overhead.
Still moving forward. $7.00 employee $4.90 overhead =$11.90
Your hourly rate is $12.50- minus $11.90 = .60 cents x 2000 hrs= $1200 a year you make just from having the employee work the job. ( Your job is then keeping the employee busy) because you still get your PROFIT, and overhead.
So If you read this hopefully you understand. I can continue to go on, with several different variables. A good example would be now that you have an employee doing a set amount of accounts, you get another account that you personally clean. The biggest thing to remember is that the variables, jobs, conditions are always changing for each different job. You should personally look at every job that you take using your hourly calculation, and adding to it.
Example: Once again your complete hourly rate is $23.93 per working hour. You get an account which requires you to use a special product, lets say Proline Floor Finish and you use Arrow Brand. The difference is $7.00 a gallon they require floor waxing 5 times a year at 6 gallons. 6x$7 is $42.00 x 5 cleans a year which is an extra $210 yearly / divided by the amount of labor that you will be servicing the account maybe its 100 hours a year
$210/ divided by 100= $2.10 an hour added onto your hourly wage.
Hopefully by reading this thread you have a better understanding about bidding. Once again....on and on it can go, variables can always change.
Now for the veteran. or maybe newbie your ready to answer also
Heres my question to you, if you have an account which pays your labor, and the profit that you want for the year. Including your overhead, can you go for major growth and increase your business by taking accounts at only labor and overhead? Also why would you do this no profit deal?
OK folks, stay with me on this post, going to be in layman's terms and might be a little long, but I believe precise.
There are two options most widely used in the cleaning service industry.
1- Hourly Rate- (You charge per hour for each job you perform)
2- Fixed Job Rate ( Is a set price that you charge per job) - Using the fixed rate , you still must compute the hourly rate.
Determine your hourly rate. First you can`t just say I want to make $20.00 an hour, thats a nice number and great pay , but ask yourself how did you come up with that number.
If your working , just you this is how you determine your hourly rate.
Your labor cost + overhead + your profit
1- Your labor - When deciding your labor cost, you are the owner of your company, the manager, and a worker. You are the most important person of the company, but you are labor, even some of the most senior union janitors or cleaners do not make $20.00 an hour (but Kevin ,,,,,, I'm worth more than that......lol ) I say no your not... hush, you will understand in a minute.
In this equation your worth 12.50 an hour max. So then you have to determine how many hours a year you work. NOW... this is where it gets tricky . You are labor, yet your the manager and owner. As the owner your entitled to PROFIT oooooh.... I love that word... say it one time with me in slow motion P-R-O-F-I-T!!!! Yeah, rolls of the tongue nicely.
OK, your labor charge is $12.50 an hour , remember we still have to add overhead and the PROFIT in.
To determine your overhead you have to compute your yearly expenses. Some examples may be
Telephone expenses
Office equipment and furniture
Office supplies paper etc.
Postage
Business insurance
Supplies
Medical Insurance
Professional association memberships
legal and accounting fees, and
advertising and marketing costs -- for example, the cost of a Yellow pages ad
Income Taxes
Self Employment taxes
OK this example lets say your overhead is $10,000 Yr.
First two parts of the equation. $12.50 an hour / $10, 000 Yr Overhead.
Labor- 40 hrs a week x50 weeks (hopefully you take a vacation) gives you billable hours of 2000 hours a year.
Overhead- Your overhead is $10,000 Yr, $10,000 divided by 2000 working hours is $5.00 an hour
OK , hey were up to $17.50 now. (Is it getting better yet?)
Now time to add in that profit. This is an important question? How much profit do you want?
Well determining your profit is determining what you want in life. Your profit is what you receive for doing all the extra duties it takes to continue your business. Advertising, marketing, bookwork....etc. When your a larger company maybe this is all your doing, drawing a salary just for that.
OK back to the profit, once again determining profit is hard, and based on you. But we want to include in your profit extra things to keep your business viable and strong.
Lets first add in
New yearly equipment funds- $900.00 (A new floor machine for next year)
Extra advertising- $1500 (get a bigger ad in the yellow pages next year, or extra advertising you did not have the year before.)
Vehicle costs $1050.00 (get a tune up on your vehicle, new tires, brakes, oil changes)
This is a good one - Wine and Dine Clients! How about a really nice dinner monthly $2400, (Whens the last time you had a $200.00 dinner for 2 people)
OK you can add in more next year business expense if you want. These are now my recommendations
$2000.00 emergency cash yearly set aside.
$5000.00 Retirement Fund
Total = $12,850 divided by 2000 working hours is = $6.43
OK so far our labor is $12.50 Hr. Overhead is $5.00 an Hr. Profit is $6.43 hour = $23.93 hr.
Now thats not so bad is it, the hard thing is keeping it all separated, thats up to you. You only get paid $12.50 an hour, write yourself a check each week for $500.00, put the rest into your business account and retirement. Maybe only take your personal profit out at the end of the year.
An important part of this whole equation is, what are your monthly costs- overhead, and what profit you want. In a tougher market you might not be able to get a 15% profit margin, to win bids lower your profit margin. NEVER, NEVER, Ill say it again NEVER reduce your hourly rate or overhead.
OK Before I go into the next section....
FIXED RATE
Simple, you still have to determine your hourly rate above, to determine your fixed rate. With experience you understand how long it takes to complete any job. You then use your hourly rate. How many hours it takes to complete job+ your hourly rate= Fixed Rate.
Here we go, stay tuned folks, going to get complicated
In the cleaning janitorial field. Commercial & residential. The OVERHEAD has the ability to change per contract or job. For example: You might do an easy commercial business it costs you $7.00 in supplies to clean it and lets say its 1500 sq. ft. Your business equation works this out to 2 hours at $23.93 or $47.86 per visit. So then your get a really messy office 1500 sq. ft. (What Happens) well, this is where experience comes in. You do not want to cut into your overhead or profit. So you have to add more.... right??? The answer is YES. Add more hours to complete the job on the messy office , or an extra fee.
OK... Making Progress
Now... Multiple service providers, you have a little bit of everything going on.... Simple what is your hourly rate / overhead / profit per job that you perform. An example: Residential cleaning 1500 sq. ft and then stripping and waxing 1500 sq. ft ... of course floor work costs more. Maybe you have to charge $50.00 an hour. (This is where a veteran will say square foot price comes into play) How did that veteran determine the square foot price By knowing what their hourly rate is, and the time to complete the job.
or 1500 sq. ft x .25 = $375 / divided by 5 hours = Hourly rate of $75.00 an hour.
Employees
OK you came this far heres the employee equation. Add in what ever your country, state, city requires. Examples: Workman's comp, Social Security, Employment Taxes.. into your overhead
NOW..... Using the hourly rate conversion above $23.93 ...$12.50 of that is labor, so if you start an employee out at $7.00 an hour what happens? Well you have a n additional $5.50 at 2000 hours or $11,000 that covers the Workman's comp, and taxes, (hopefully in your region) The average cost US per employee is roughly $14,475 with benefits, In Michigan no benefits last year it was $9800.00 ...so we will use that number $9800.00 / divided by 2000 hrs= $4.90 per hour extra overhead.
Still moving forward. $7.00 employee $4.90 overhead =$11.90
Your hourly rate is $12.50- minus $11.90 = .60 cents x 2000 hrs= $1200 a year you make just from having the employee work the job. ( Your job is then keeping the employee busy) because you still get your PROFIT, and overhead.
So If you read this hopefully you understand. I can continue to go on, with several different variables. A good example would be now that you have an employee doing a set amount of accounts, you get another account that you personally clean. The biggest thing to remember is that the variables, jobs, conditions are always changing for each different job. You should personally look at every job that you take using your hourly calculation, and adding to it.
Example: Once again your complete hourly rate is $23.93 per working hour. You get an account which requires you to use a special product, lets say Proline Floor Finish and you use Arrow Brand. The difference is $7.00 a gallon they require floor waxing 5 times a year at 6 gallons. 6x$7 is $42.00 x 5 cleans a year which is an extra $210 yearly / divided by the amount of labor that you will be servicing the account maybe its 100 hours a year
$210/ divided by 100= $2.10 an hour added onto your hourly wage.
Hopefully by reading this thread you have a better understanding about bidding. Once again....on and on it can go, variables can always change.
Now for the veteran. or maybe newbie your ready to answer also
Heres my question to you, if you have an account which pays your labor, and the profit that you want for the year. Including your overhead, can you go for major growth and increase your business by taking accounts at only labor and overhead? Also why would you do this no profit deal?
