How Do You Price a Cleaning Bid?

How do you price a cleaning bid? That's probably the most asked question. If I were to publicly ask other cleaning business owners in Facebook, "How do you price a 24,000 sqft office building cleaning 5 times per week?" I'd get probably 20 different answers. Then if you were to follow-up with how they came up with their answer, some would say they used a rate per square foot method. Some would use a rate per hour method. Some would use their own formula. Some would use a bidding calculator. And some would purely guess, often on their own experience and others with numbers pulled out of thin air. Who is right? Who is wrong?

Let's eliminate the wrong....the wrong answer is the price that you present that LOSES you money. Ever underbid a contract like I have? It's not fun. Underbidding can happen regardless of the method used. It usually boils down to not knowing how much time it'd take to clean. Cleaning business owners will come up with a price, but often underestimate labor needed and they're left cramming labor into a smaller percentage of the price and end up sacrificing gross profits because nobody would take the job at a lower price. Whatever method you choose, be sure to check out the last blog post, Calculating Cleaning Times (Needed for Pricing).

Before I cover the different ways, below is how we price:

Labor + Supplies + Overhead + Profit = Annual Price

That's it. That's how we price. Let's break each down:

Labor - For us, labor includes gross wages + labor taxes + any PTO.

Specifically....Rate paid per hour to an employee TIMES Hours per day worked TIMES Days per week Worked TIMES Weeks per year. If PTO is based on weeks (e.g. 2 weeks PTO per year), then we will add X weeks to 52 weeks out of the year = 5X weeks (e.g. 54 in lieu of 52 for 2 weeks PTO). If you use Subcontractors, see this new blog post on pricing when using subs or employees. In short, we charge the same whether we have subs or employees. 

Supplies - For us, supplies includes all supplies and equipment for the year.

Supplies are based on the Scope of Work (SOW). These typically include a vacuum, mop bucket, wet mops, floor signs, dust mops, cleaning supplies, gloves, microfiber, and anything else needed to clean that job. If the client wants weekly floor buffing, then your supply costs will be up. If the client wants a disinfecting program, then you're buying and using disinfectant. If the client is carpet only, then you don't need a dust mop, wet mop, mop bucket, or floor signs. Every location is different. Every prospect's need differs. It's your job as the building service contractor (BSC) to steer them in the right direction in terms of need, frequency, and so on. Overall, on average, supplies should be 2-5% of the contract.

As a side note for supplies, we buy brand new supplies and equipment for each facility. Our pricing doesn't fully reflect those purchases. We create a lifespan for each large item (e.g. a vacuum, floor machine, mop bucket, etc.) that we keep on site and dedicated to that location only. If we're using a $400 Proteam backpack vac 5X/day, we know, from experience, that it'll last 2 years at a minimum before appearing scratched and dinged up, or even non-functional at all (though we have some Proteams that are 20 years old and the motor is fine). We like to keep our supplies looking new(ish). So at $400 for the purchase, and if it lasts 2 years, we know that the annual cost is $200. If we're in there for 1X/week, then we know it'll last at least 4 years without issue at $100/yr. So when we add up our total supplies, we assign that annual cost vs. the total cost for items mentioned above.

Overhead - For us, overhead are items that are not related to labor or supplies.

Overhead is included within your gross profit. These include accounting, marketing, legal, payroll processing, your pay as an owner, business insurances, uniforms, travel, coaching, consulting, conferences, interest costs, depreciation, office supplies, office staff, office rent and/or home office deduction, and so much more. For a more thorough list, check out Business Tax Deduction Ideas for More Savings. 

How do we get each of our clients to pay these items? Easy peasy. It's in our formula. We add up all of these items that are not labor, supplies, or profit, and we divide it into overall income. That gives us a percentage. From that percentage, we know that X% of all of our contracts goes to these overhead items. Therefore, if every client pays, 100% of our overhead expenses are covered. 

Profit - Profit is what you make of it. 

Profit is defined differently by everyone. When I mention profit here, I mean it's net profit. What do you want in the bank after 100% of everything, your pay included, is covered? Our last company was a C-Corp. That meant we had to be on payroll and anything we didn't spend at the end of the year faced a ridiculous corporate tax rate. So our goal was to increase our expenses through raises, added supplies, more pay for owners, etc., to reduce our profit to as close to $0 as possible to avoid the tax. But it's different for a LLC. An LLC is a pass through entity. Sure you can spend more to save more but you don't have to worry about that corporate tax. Little different. You're not needing exact GAAP definitions here. You do you and figure out what is best for your business. I do recommend leaving a profit. Cash in the bank helps keep those rainy days from turning into floods. 

Like with Overhead, I express profit as a percentage of the contract.

An Example:

Let's say a school reaches out to you. They want cleaning for their 30,000 sqft school. Let's say it has 16 classrooms, a half dozen offices, a full gym, a cafeteria, a library 6 bathrooms with 6 fixtures each, a nurse's bathroom with 2 fixtures, and open common areas and hallways. They want you to clean every Monday-Friday in the evenings. The SOW is standard. Nothing extra or special, aside from nightly mopping. You don't have to worry about consumables (toilet paper, paper towels, liners, etc.).

Well, from the previous blog post, you can clean 3000-5000 sqft per hour per person in an office setting. However, your SOW includes mopping and each classroom could easily have 20 desks that need to be wiped. So let's fall back on a 2500-3500 sqft national average  using 3000 sqft as the basis. At 30,000 sqft, that's 10 hours per visit. And let's say the local wage average for PT evening work for an employee (you'd want 2 people to avoid overtime) is $18.00/hour. Let's also say there's no PTO because you'd hire part-time employees. 

$18.00/hour x 10 hours per day x 5 days per week x 52 weeks per year equals $46,800/year.

Let's assume your labor tax rate is 12% (6.2% for Social Security, 1.45% for Medicare, 0.6% for FUTA, and the rest for your state unemployment). 12% of $46,800 is $5,616. Add the two together and you get $52,416/yr.

Let's say you need a vacuum, a mop bucket, wet mops, dust mops, wet floor signs, general cleaners, microfiber, and misc. supplies. Let's say your annual budget is $1500. Side note: for every 40 hours we worked per week, we spent about $1200/yr on average, SOW considerations aside. $1500 is a little inflated, but that's OK.

Add Labor and Supplies together. That's $53,916.

The last part is gross profit. Let's say your overhead percentage of the contract comes to 23% and your desired profit is 10% of the contract. So 33% gross profit and 67% Cost of Goods Sold (COGS). 

For 1/3, all you do is take COGS and multiply it by 1.5. That's $26,958/year. Add COGS and Gross Profit together and you get $80,874/year for the entire contract. Monthly that's $6,739.50. There are 2600 hours per year. That equates to $31.11/hour on average.

Broken down:

Labor - $52,416/yr - 64.8%

Supplies - $1500/yr - 1.9%

Overhead and Profit - $26,958/yr - 33.3%

These percentages aren't a solid rule and don't tell a full picture. If the location were only 1 hour per week (and obviously smaller), you don't want to be charging $31.11 to clean for an hour. You'd want to charge a lot more. Your employees will not roll out of bed for $18/visit. Some of your employees would only consider cleaning if you can guarantee at least $50. We cleaned one location that was located within a mile of an employee and she demanded $75/visit at a minimum. That location she cleaned was only 30 minutes at barely even 1000 sqft. We charged the client $125/hr on average for a basic cleaning to cover that demanded wage. 

Picture a curve in a graph...

The vertical Y-Axis represents contract price in relation to cleaning frequency. The horizontal X-Axis represents size of the property. The higher the sqft, the lower the rate you'd charge in this model. The lower the sqft and frequency to clean it, the higher your rate. Why? There are some fixed costs, like supplies, that must be factored in regardless of cleaning frequency. So in my example above, the price to that example client at $125 was higher because we're cleaning less frequent and the space is smaller. Conversely, the more we clean with a larger space, those costs are more evenly distributed, thereby lowering the average cost. 

I post all the time that our range for cleaning in 2022 was $22/hour to $125/hour if we broke everything down into an hourly rate. Of that range, our most profitable client came in at $23.71/hour. It was a private school and we had an equivalent of 7 full-time people working with some billable overtime. Our gross profit at $23.71/hr was over $10,000 per month. Our least profitable in terms of dollars in? The $125 client. Higher on the curve is not better. In fact, I heard that ABM, a billion dollar company with a large cleaning division, charges only about $23/hr for cleaning on average. Nationwide, the national rate per hour, averaged, is about $29/hour. Within our range, our average was $28 and some change. 

For more information on our method, through a podcast and with a video walkthrough in our show notes WITH a pricing sheet, check out the podcast episode by the same name as this post: How do You Price a Cleaning Bid?

Other methods in pricing....

Rate/Sqft - Some people create a standardized price to keep it simple. If you look in these Facebook groups, you see so many variations of this including a rate/visit, a rate/month, and even a rate/year. If you're trying to come up with a rate, and you're using others' for inspiration, be sure to clarify if that's a rate per visit, month, or year. It makes a big different.

Drawbacks: How do you know that rate is profitable for YOU? Heck, most of the time the offeror of that rate doesn't even know if it's profitable for them. Also, a standard rate doesn't always account for special SOW considerations, like annual stripping and waxing or maybe a required disinfecting program. Also, how do you know if the location's square foot is correct. There's a lot of bad calculations. In one example with a client, they gave me a sqft rate that was off by 50%. In another, their RFP required a rate/sqft and years later came back to us saying the sqft they provided was too high, and demanded a $10K refund. Don't always trust the numbers that are given to you.

Rate/Hour - This is a safer method. If you work 5 hours, you get paid for 5 hours. It eliminates the need of knowing an exact sqft. It eliminates the need for calculating cleaning times usually. And if you do your calculations correctly, you should be able to come up with a perfect rate that makes you money. 

Drawbacks: Most of your clients will not want a rate/sqft. It might work for small offices where they're used to using a residential cleaner who bids that way, but your bigger clients will typically not want you to invoice this way. They'll want a flat monthly rate. And if you work backwards to create an hourly rate from a monthly rate, then you'll have to spend time figuring out cleaning times, like what we talked about in the previous blog post. 

Bidding Calculators - There are bidding calculators out there. Aside from creating your own, you can use many of them that our out there in the marketplace. Some are grossly off. Some are close. But none of them know your business finances. None of them are truly accurate.

2-2.25X Minumum Wage - I heard this one from a fellow BSC out of California. His pricing formula is simple. Multiply 2-2.25 times your local minimum, wage. So if your local minimum wage is $16/hour, then you should be charging $32-36/hour. The downside is that you do have to come up with cleaning times to come up with your rate, but you have to do that in every method anyway, rate/hr aside. I've ran this model off my own pricing and it's pretty close, and a lot more succinct and simple too.

Hope all of this helps someone. Little long on this post but there are so many nuances and numbers to deal with here.