How to increase profits without getting bigger: Derek Christian coaches Mary Rundquist of Reliable Maids
At the ISSA/INTERCLEAN trade show in Las Vegas this past September, business coaches Liz Trotter, Tom Stewart, and I sat down with cleaning business owners from all over the country for in-depth talks about problems they faced. These free one-on-one coaching sessions were recorded on video. In the months to come, they will be presented here by Cleaning Business Today as case studies. Today's case study focuses on how to increase profitability per job.
Why does it feel like the bigger your cleaning business gets, the less money you make? In this live coaching session recorded at the ISSA/ARCSI convention, Derek Christian sits down with Mary Rundquist. Mary bought an established residential cleaning business in Fort Collins, Colorado, three years before this session, and she wants to earn more on every job without taking on the stress of rapid growth.
Derek explains the "Valley of Despair," the stretch where adding office staff and overhead temporarily makes owners earn less than they did working alone. He also breaks down the target financial mix he recommends for a healthy cleaning company. That includes cost of goods sold at or under 50%, roughly 10% for overhead, 10% for sales and marketing, and about 20% profit for the owner.
From there, the conversation turns to two big levers for per-job profit, which are raising prices and changing how cleaners are paid. Derek walks through the real trade-offs of hourly versus commission pay. He covers why a price increase drops straight to profit under hourly pay but only partly under commission, where commission rates become dangerous, how to stay compliant on drive time and minimum wage, and the culture problems commission can create if you don't manage them.
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Highlights summary
Mary Rundquist runs a residential cleaning company doing around $300,000 a year. She's noticed that the more the business grows, the less profit each job seems to produce. Derek Christian tells her that's normal. Solo cleaners have almost no overhead, so nearly everything they charge goes in their pocket. Somewhere around $200,000, owners usually hire office help and rent space for the first time, and profit drops. Derek calls the stretch from about $250,000 to $500,000 the "Valley of Despair," and he says it's a math problem more than a management one. Most owners have to grow through it.
He then lays out the benchmarks he coaches toward. Cost of goods sold should be 50% or less, and he counts labor, vehicles, workers' comp, and liability insurance in that number. Overhead should sit around 10%, sales and marketing around 10%, and owner profit around 20%. Mary is already close to that 20%, which makes her an unusual case. She doesn't want to grow. She wants more profit from the customers she has.
For that goal, Derek says the simplest move is a price increase. With roughly 100 customers, even losing 10% would mean replacing only about ten, which is manageable. How cleaners are paid changes how much of that increase actually reaches profit, though. Under hourly pay, a 10% rate increase with no change to wages drops straight to the bottom line. Under commission, cleaners automatically get a raise too, so only about half reaches profit.
On commission itself, Derek has seen rates as low as 35%. He would never go to 50%, because once payroll taxes, supplies, and insurance are added, cost of goods sold climbs to 60–65% and margin shrinks to 5–10%. He caps it at 40%. Commission has real benefits, since it encourages speed and locks in cost of goods sold. It also brings problems that owners need to plan for. Cleaners may cut corners, so quality control is essential. Raises feel small when expressed as fractions of a percentage point. Confusing pay can make cleaners suspect they're being cheated, and teammates may resist helping on each other's jobs. His key compliance warning is to never tell commission cleaners that you "don't pay drive time." Drive time is included in the commission, and owners need to regularly confirm that total pay clears minimum wage.
Note: originally recorded in November 2017; all references to minimum wage and pay-related requirements reflect the federal and state regulations in effect at that time.
