By Chris Lude, Co-Owner of Denver Concierge.
Sent: Thursday, May 27, 2004 11:58 AM
To: Chris Lude
I am in the process of starting a new cleaning business and as I was looking over the websites I came to yours. I would like to know if there is any information or help you can give me to start a cleaning practice like yours here. For instance when you first started was it just two of you and then the company grew or did you go into it at a large scale. We have ideas of making it larger eventually but thought starting off slow would be the best thing since we have not done this before. Any info you can give on figuring out price quotes would also be helpful. Thank you for your time.
28 May 2004
Thank you for your interest. I’m sure there’s more, but here is a start.
You may log onto www.denverconcierge.com and use the online pricer there for an idea of how we price. I believe it is presently geared for either $27 or $30 per hour for regular cleans and less for initial cleans, so you will have to adjust it accordingly to whatever price you decide to charge. Presently, it works fairly well for houses between 1500 to 3500 SF, but less well for houses outside that range. Keep in mind that we wash floors by hand, and that is not trivial as it relates to pricing.
I recommend that you consider three possible outcomes, not just two, when you price each assignment:
- Best case = good price + customer says, “yes;”
- OK case = good price + customer liked pitch, but not price and says, “no;” and
- Worst case = bad price + customer says, “yes.”
In the third case, you will lose money forever, not just for this client, but also every neighbor of, and referral from, this client. The day you attempt to increase all of their prices, they will leave you. Don’t gift your clients–they are never grateful.
In the second case, if a prospect doesn’t like your price, it is to your advantage when they go to your competitor. Keep your own shirt; let your competitor gift this prospect with his shirt.
In the first case, you have priced the assignment fairly and won. Now don’t try to exploit the customer by starting out doing a great job, and then later thinking they won’t notice and skimping on quality, as a means of compounding your profits. They always notice, and they will always replace you. High growth can only occur if you have a low customer churn rate. Think of each customer as being a profit annuity, plus a referral bank—go there and do a perfect job for them . . . forever.
As your sales pitch improves your hit ratio for case “1” will improve, but don’t expect to bat a thousand on this. If you find that you are, then you are likely fooling yourself into believing case “3’s” are really case “1’s,” and before you know it, you’ll be on the slippery slope.
Don’t be afraid to charge someone an “unreasonable person premium” . . . for the world is so full of a number of types. On the other hand, reasonable, persnickety customers are the ones that will keep you on your toes and improve your service–think of them as free quality narks.
Don’t underestimate your full labor costs. You are going to pay a load of money on worker’s compensation, liability insurance, bonding, unemployment insurance, payroll taxes and DRIVE TIME. Labor costs are most important, but you should also add other marginal direct costs, including supplies. Also factor in overhead, equipment, and finally a profit margin. Most importantly though: know your marginal costs or every price you quote will be a bad price.
Pricing is too important to delegate, at least until you have systems in place to track profits daily by job. If you send some unknowing or uncaring soul out to do estimates for you, they may give away the store before you even realize it is gone. Don’t think of the in-home quote as simply going around and giving a price. It is a full-blown sales pitch stating 50 reasons why your service is perfect for the prospect, which then culminates in a price quote. When you finish the sales pitch, it should be evident that the Prospect wants your service. Now, it’s only a matter of price. And if you’ve done a perfect sales pitch to a particularly price sensitive customer accustomed in the past only to bad service at low prices, then she will begin crying when you give her the quote (no joke). Obviously, she wants your service, but she’s not yet ready to pay for it. Ignore any pleadings and don’t apologize for the price. Let her instead hire three others with lower quotes. If she wanted your service so badly as to have cried, then she will remember you best. And when she is finally tired of buying bad service, it’s you that she will call. In the process she will have come to appreciate the value of paying a sustainable price for good service, and your competitors will have paid dearly for her training.
Regarding starting out slowly, you have to decide what type of enterprise it is that you intend to build. If you want to clean houses yourself, that’s not an enterprise, it’s a job. If you intend to start out slowly because you wish to carefully lay the foundation for what is to become a massive enterprise, then it may not be a horrible idea to go slowly for the first six months–surely there is a lot involved. From our experience, had we gone slowly when we started, we could have lost less money and at a slower rate as we were climbing the learning curve. We “invested” a load of money our first year, but then, we had no road map and we really did reinvent the wheel.
If you intend to market your service on the basis of your employees cleaning your customer’s home, don’t then go and clean it yourself. When prospects tell me of other companies whose owners sometimes clean, it is always in the context of expressing a suspicion that the enterprise is facing financial or other difficulties, and it never leaves a positive impression. Furthermore, if the situation is so dire that you are resorting to being a fill-in, then it is way to dire for you to be spending your time filling in.
I am concerned that your city may be too small to support an organization as large as Denver Concierge, and that your growth potential might be significantly lower than ours. Go to Boston, and we may be able to help you take a meaningful piece of that market. Of course that is coming from two persons who studied the demographics and economics of metro areas, then moved to Denver based solely on its attractiveness for starting our company. Some entrepreneurs might be less committed.
Employee compensation is trickier for a start-up. You have to understand the current state of your local labor market and know your competitors’ wages. We maintain a database of our competitors, including how, and how much they pay and how large they are (quiz every applicant coming through your door). We have an incredibly complicated pay system that works very well, but we started out taking it in the chops with a simple multi-tiered per hour pay rate. Once you get to six employees or so, I recommend that you apply quality and efficiency incentives. We measure performance six ways, strictly rank all house cleaners from best to worst on four scales every two weeks, and pay accordingly. We take our training and evaluations very seriously, and we cull and promote methodically based on performance. The result is that, hands-down, we have the best house cleaners in our market. Have you seen our team leader profiles at www.denverconcierge.com?
Drag your feet on hiring professional services. Most states offer loads of info free to start-ups. Certainly you will need them at some point, but we exploit every alternative before consulting them. Still, their bills make us cry.
Please revisit www.denverconcierge.com on or about 12 June to see our new and improved site.
I hope this has been helpful.