Why and How to Raise Prices for Your Cleaning Customers
You started your cleaning business to make a profit and earn a living. Most cleaning businesses start out with the owner doing everything - marketing, cleaning, buying supplies, and even the bookwork. As your company grew, you added inventory, added employees, and added new customers, all of this added to your company expenses.
Maintaining a steady profit is crucial. Cleaning business owners must find the balance between profit margins, providing quality services, and cultivating healthy relationships with customers to remain prevalent in the cleaning industry.
These tasks can be extremely difficult to balance in today's market of stiff competition and continual escalating costs of doing business. Wages and benefits are climbing, equipment and supply costs are increasing, customers budgets are tightening, and competition is always waiting in the background to undercut prices.
You have felt that it is time to raise prices on the services you charge your customers but have held back. Perhaps you were afraid to losing customers if you initiate a price increase.
Deciding why and how to raise prices for your cleaning customers doesn't have to be a complex issue
Why Raise Prices? Unprofitable Customers Means Unprofitable Business
Customer profitability is the profit that your cleaning company makes from providing services to your customers. It's the difference between your company's revenues earned and costs associated with providing cleaning services. Tracking each of your customer's profitability is an important step in understanding which customers are below, meets, or exceed your company's profit requirements.
When you started out, you may have underpriced your services in order to get new customers or perhaps you lacked experience in pricing cleaning services. Whatever the reasons, you've discovered you underpriced your services. Now what do you do? You can begin by reducing costs, increasing prices, or both.
The cleaning service industry can be a profitable business, but if you're not watching the bottom line, those profits can begin to evaporate as the cost of doing business increases. Payroll expenses, employee benefits, gas, equipment and supply costs, just to name a few, will increase, and in doing so, decrease profits.
Your goal is to track each of your customer's profits year to year and make the necessary adjustments to their billing to keep your profit margins reasonable and within your company's parameters.
Understand That Raising Prices Is Necessary In Any Business
Just take a look at things you buy on a routine basis - gas, milk, cleaning supplies, electricity - prices do increase and sometimes take a big jump!
But, before raising prices to your cleaning customers, go back and take a look at your original contract or agreement. Does it state the original price will be good for a certain length of time? If it does, you will not be able to raise your price until that time frame has expired. If not, how long have you been cleaning for that customer?
Even if you originally underpriced your services you may not want to increase your price if you have only been cleaning for the customer a short time. Most cleaning companies wait at least a year before increasing prices. If you don't have anything written in your cleaning contract/agreement about price increases, you should start doing so. Many companies guarantee their price for a year and state that they take cost of living increases each year (for example, 4%). Or they may state something like, "we reserve the right to increase prices after one year."
Before figuring out a new price, go back through your original proposal to make sure that you covered everything and are making a profit. If your supply costs have gone up dramatically or if you have added expenses (workers comp or more insurance because of hiring employees), make sure the price increase will cover the extra expenses.
What to Consider Before Sending Your Price Increase Notification
It's important to thoroughly evaluate all your company operations before implementing a price increase. Are there areas within your company where you can cut costs and overhead? Perhaps by negotiating lower rates on insurance, merchant account fees and other expenses, your bottom line will be healthier and you can avoid a price increase in certain situations.
Would additional productivity training increase your production rates? Would more efficient equipment improve productivity? What about the cleaning chemicals and tools you're using? Are they slowing your employees down? Anything you can do to improve productivity goes straight to the bottom line.
Examine each customer separately. What is your current relationship with this person? If you have not been in personal contact with them or you have received a handful of complaints recently, a price increase is the last thing you want to do.
If your customer has not seen or heard from you in the past 6 months, or your only contact is from a handful of complaints, how do you think they will react to a price increase? A price increase is the last thing you want to do.
Don't be greedy when it comes to profits and raising prices. Make sure the reason(s) for the increase are justified.
Don't be troubled, however, to raise the price on a customer who is a constant complainer, especially if their complaints are not justified. You may need to raise your price to cover the extra time spent in their facility.
If you have a good relationship with the customer and they are satisfied with the services you provide, most people will understand the reason(s) for the price increase and stick with your company.
Always notify your customers of a price increase. Do not send out an invoice with their new price without an initial notification. This will lead to upset and probably lost customers.
How Do I Raise Prices?
Here are the steps to follow to initiate your price increase:
- Start by reviewing the profit margins of each customer. Figure out which customers are least profitable and start with them.
- Send your Price Increase Notification by regular mail – not text message or email. Use company letterhead stationery. Let them know that you are raising your prices, why you are raising your prices, and the benefits to them to continue using your cleaning company.
- Mail your notification early (probably 4 - 6 weeks prior to the increase date) so your customers have plenty of time to respond. The notice should include the date when the increase will take place and the amount of the increase. Keep in mind that large corporations and government agencies may need more time if they have to run the price increase through a committee or get approval by a board.
- Follow up a couple weeks before the price increase is to take effect – to verify they received the letter and that they're not surprised when it happens. You may want to do this by phone.
- Don't increase prices for your profitable accounts. Look at each account individually and decide on the appropriate increase.
Pricing your services so you can make a profit is not a bad thing!
Your cleaning company's survival depends on charging your customers appropriately and making a decent profit. Good customers will understand a price increase and be happy to continue using your services. Don't be surprised if a customer that leaves because of a price increase soon comes back! Many customers that choose the lower priced bidder eventually discover that the company cannot fulfill the contractual needs. This means their facility is not as clean as when your company provided their cleaning services.
If you do have customers that cannot afford the price increase, re-work the numbers and/or negotiate new cleaning frequencies. They will put their trust in you and your professionalism to create a price and service program that will work for both parties.
Conclusion
Increase your staying power by maximizing profits. You want to be known as the best cleaning company on the block, not the cheapest. You want the reputation of providing quality service at a fair price.
Your company goal is to maintain profitable customers. You need to have a strong customer base, provide quality services, and continuous nurturing of the business relationship.
If your customer has not seen or heard from you in the past 6 months, how do you think they will react to a price increase?
Don't be greedy when it comes to profits and raising prices. Make sure the reason(s) for the increase are justified.
You may also be interested in the following forms:
Price Increase Letter Version 1
Price Increase Letter Version 2
Visit our Store for Certification Training Programs
