1. Based on our annual mailings to competitors, we found that over 100 of the total 200 to 250 house cleaning companies serving the greater Denver Metro Area gave up last year, and were replaced by about the same number of new companies. Entrepreneurs are attracted to the industry due to its low investment and high-growth prospects.

The seemingly infinite stream of new entrants manage to capture a handful of customers each before going out of business. Conversely a few of the companies that manage to survive the first several years go on to be successful, profitable, valuable enterprises. But while the investment required to start a house cleaning company may be low, the investment and management skills needed to scale a house cleaning company are substantial. Many of last year’s failures were independent house cleaners who, given their personal successes cleaning houses, decided to expand into full-blown house cleaning enterprises. The problem for such individuals is that the skill sets associated with capably cleaning houses versus managing a house cleaning enterprise may be mutually exclusive.

Most Individual Housekeepers face unmanageable obstacles in cloning their own exceptional performances. They are not prepared for the challenges associated with: training employees; controlling quality; measuring and rewarding performance; tailoring a multitude of assignments to meet individual customer demands; and automating a schedule. Predictably, they fail in droves.

Since there are no barriers to entry in our industry, there results intense competition for those customers which are most easily won on price. Conversely, customers concerned about quality and dependability, generally view any new entrants with significant skepticism, until they have managed to prove themselves. The result is market segmentation, with intense fragmentation and poor growth prospects at the price-sensitive, or bottom end, of the market; and a comfortable profit margin and good growth prospects at the quality-sensitive, or top-end, of the market. Those survivors catering to the bottom segment of the market either move up or become statistics themselves. Attracting customers is easy, but attracting profitable customers is more difficult. Since most new entrants chose the industry precisely because they had little to invest, few manage to cover first year losses. They depart without even realizing the causes of their demise:

  • Poor pricing
  • Lack of funds and investment
  • Inconsistent quality

Only the Maid Service Franchises and a select few independents have at their disposal the management tools required to clear the industry’s barriers to scale and attract a meaningful volume of profitable customers.

Market Segments and Service Providers

Despite the incredible failure rates, it is not the entire residential cleaning market that is embroiled in chaos and losses. In fact, there are three distinct market segments:

  1. the Savvy Quality-Conscious segment is orderly and profitable;
  2. the Bargain Hunter segment is chaotic and cutthroat; and
  3. the Naïve Newcomer segment is just barely worthwhile.

The House Cleaning industry includes three primary types of service providers:

  1. the Maid Service Franchises generally offer a medium, but inconsistent quality of service for a medium to high price;
  2. Individual Housekeepers, the most successful of which flexibly provide precisely that quality of service for which they are paid; and
  3. Transients who offer service quality ranging from OK to bad, always at unsustainably low prices.

Source: Denver Concierge records-“Who was your previous service provider?”

Savvy, Quality-Conscious Consumers are an Orderly Lot

Savvy, quality-Conscious consumers understand the value of paying for that quality of service which they seek. For such consumers, the economy has no relevance to decisions regarding maid services. They’ll lose 90% of their net worth in the stock market, sell their furniture, pawn their jewelry and sleep on floor boards, before even considering cleaning their own homes. They find a house cleaner based on referrals from friends and neighbors. Many Quality-Conscious Consumers prefer private individual housekeepers when a dependable one can be found, but finding a good housekeeper is not trivial. It might take some time and involve a painful process of test driving three lousy housekeepers to find a good one. And even among friends, secrets about domestic help may be closely guarded. Sometimes Quality Conscious Consumers prefer a company over an individual, particularly if they are conflict avoiding, have difficulty insulating themselves from the private lives of their domestic help, or if they dislike giving up their house for an entire day to have it cleaned.

Once the perfect Individual or company is found, Quality-Conscious consumers pay well. For such Individual and Consumer, an equilibrium is achieved . . . for a time. Those consumers who have only just lost their long-serving housekeeper resort to using a maid service franchise while they locate and carefully select the next perfect housekeeper. In this segment of the market an underlying unmet demand for quality service pervades. Those consumers who have temporarily settled for substitutes bide their time until a friend or neighbor puts them on to a better quality service provider.

Individuals offer tailored, quality service, but no scale. The franchise substitutes offer scale without consistency or quality. The Transients, with their low prices, inability to scale and inconsistent service, are shunned almost entirely by Savvy, Quality-Conscious consumers. Many Transients enter and exit the market over their average twelve month life-cycle without ever having serviced even one Savvy, Quality Conscious customer–having never attracted the first, they are never referred to the next.

Rascally Bargain Hunters and Naive Transients Strike a Pact of Sorts

I’ve always thought it odd that all those dinosaurs kept wandering into those tar pits. Ok, you can’t blame the first one, or two or even twenty. But doesn’t it seem like word would have gotten around by the time the thousand and first wandered in? And why do the Transients keep cutting off their own limbs and feeding them to the Bargain Hunters?

When you think of market wreckers, it is hard to know which deserves the most blame, the Bargain Hunters or the Transients. In the maid service industry, each plays the role of villain, without understanding (Transients), or acknowledging (Bargain Hunters) two of the industry’s fundamentals:

  1. it is impossible to sustain the offering of anything but bad service for bad prices; and
  2. regardless of how price sensitive any consumer may be, bad service always goes over badly.

The Bargain Hunters wail about bad service, but it is the Transients who are the true prey. As long as Transients survive, each in turn contributes to the Bargain Hunters’ sport: “They pretend to clean my home, I pretend to pay them.”

The Bargain Hunters like using individual housekeepers. The Individual housekeepers needn’t bother with insurance, worker’s compensation, payroll taxes, and social security. So other things being equal, they can profitably offer prices 30% lower than those of the M Franchises, and a few of the Transients. But the Bargain Hunters encounter the same difficulties in finding individual housekeepers that everyone else faces, and once a Bargain Hunter finds an Individual, the relationship proves short-lived. Lacking any means of leveraging their time, Individual Housekeepers are continuously seeking the highest paying customer, and on this count, Bargain Hunters do not qualify. From time to time the Bargain Hunters resort to using relatively high-priced Maid Service Franchises, but only when they are between other victims.

Service providers beware, for it’s in this segment of the market, that true chaos reigns.

Conditioning of the Naïve Newcomers is a Painful Process

Have you ever noticed that the major M maid service franchises always have ads saying things like: “Take a break, let “M” clean your house for you.” “You have more important things to do, go spend quality time with the kids.” The M’s are on a big-time crusade to convert consumers accustomed to cleaning their own houses to new maid service users. After all, the M’s ongoing success depends on their penetration of new markets (bless them). But if you are positioning yourself as a high quality service provider, then your perfect quality service will be lost on the Naive Newcomers. And should the economy turn, customers’ reversions to cleaning their own homes will operate on a LIFO system, with the newest converts exiting first, at least until their plights improve.

Lacking any point of reference other than their own cleaning, Newcomers cannot distinguish between good service and bad. They wail when their service providers arrive ten minutes late, but won’t bat an eye about keeping them an extra hour themselves. They’ll accuse them of stealing the children’s stuffed animals, blame them for hiding them when they are later found stacked in the closet, and the next visit blame them for not pulling them out from under the bed at all. They don’t yet understand the fundamental compromises and subtle inconveniences inherent in delegating house cleaning to hired professionals. House cleaners are not mind readers, and by degrees, none will meet the Newcomers’ expectations. Best let the M’s soften these customers up for a few months, then step in later and save the day.

Exasperating the problem is that the Naïve Newcomers don’t know how to go about finding a house cleaner. They may refer to the phone book or resort to some other similar means. They are scared to use a name they do not recognize, and are too naïve to actively seek referrals. So, unless they stumble upon a reference from someone, they often first test the concept of using a professional house cleaner by trying a franchise maid service.

They become distressed by details, and given their choices of service providers, it is indeed a multitude of details that they initially encounter. They fire their first M company for leaving the pictures crooked, the second for breaking a dish, the third for locking the cat in the bedroom, the fourth for shoddy cleaning. They give up on the franchise Maid Services, gather their courage and hire a string of Transients with worse results. Their painful quest to find the perfect house cleaning solution finally ends when they sufficiently tire of the process and achieve an equilibrium between their own expectations and the quality level of whatever service provider they finally happened upon. During the process they are, we are thankful to say, added to the larger market of house cleaning consumers. A new Bargain Hunter, or a Quality Conscious Consumer has been created.

As a Cleaning Professional, Which Role for You then?

Playing the bottom feeder is never fun, but in the house cleaning market it is a particularly hideous role. Life is better at the top-end of the market. The Franchise Maid Services have demonstrated an ability to scale, but to varying degrees have combined their ability to scale with inconsistency. And partly because of all those similar-sounding M names, they have, justly or not, been lumped together and labeled by the savvy consumers as “M” for Mediocre. Denver Concierge has shown that taking business from them at the high end of the market is possible . . . and it is profitable.

If you become a specialty retailer shop keeper or a bagel store minder, there are tangible limits to the size you can hope to achieve. For those independent maid services which can clear the barriers to scale, not even demographics generally represent a meaningful constraint on how large they might ultimately become. Denver Concierge has grown to over 600 customers and over 50 house cleaners in less than five years. And today we are growing at a faster rate than during any period in our history. We expect to be twice our current size within 18 months, and we won’t stop there. As far as the three types of service providers, we are an anomaly–one of a very short list of independent companies who, with a little luck and some better systems, managed our way past the barriers to scale.

So, if you are starting a house cleaning company, offer exceptional service and set your prices high. Build a reputation for quality. Growth will begin slowly at first, but will snowball as you win referrals from referred customers who were referred by a customer who was referred by a different customer who phoned you because of your very nicely done website and kept you because your well-trained, carefully-hired, properly motivated employees consistently and dependably offered exceptional and personalized service. While it’s not so difficult, really, it’s not drop-dead easy either. Considering the alternatives, we wouldn’t have done it any other way.

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