Barton says Aardvark recently gave up sweeping six ?super centers? because they weren?t willing to accept a necessary price increase. ?We took a major hit on our revenue side until we built back up, but in the meanwhile our profit margin went up. We were generating greater profit from fewer sales,? he says. ?We guessed that would happen, so we took a leap of faith and it worked out. Of course, you never want to give up revenue, but that?s our philosophy and we stick with it.?
Though hesitant to mention it, Vitale says that one reason to compete on price is if your company is expanding into a new territory and you feel you need to price low to ?buy? market share to survive. ?But to be successful at that you not only have to have a plan, you also have to be someone who really runs the company by the numbers,? Vitale says. ?You have to know what it costs you to put your sweepers out on the street, what your costs and revenues are going to be for that first year or two, and what the plan is to bring prices up to where they need to be for you to be successful in that new market. If you can do all those things then it might be worthwhile to try to buy the market share by cutting price, that might be a reason to do it, but that?s the only reason, and I?m not saying it?s a good approach.?
Know your costs
These sweepers agree that the single most-important step contract sweepers need to take is to learn their cost per hour. ?Even if you have to pay an accountant a one-time fee to help you determine your real cost per hour so you can calculate what it really costs you to sweep a parking lot, that will be the best investment you?ve ever made,? Ben-Yashar says.
?In a business that?s so low margin it?s very important to know where every cent is going because if you?re operating right on that red line it?s very easy to go under,? Ben-Yashar says. ?Once you know your costs you can make an educated decision on your pricing and you can make a better decision on whether to pick up that low-margin sweeping account.?
Ben-Yashar gives most contract sweepers the benefit of the doubt when it comes to pricing. ?I think low bidding for the most part is a result of a lack of knowledge of the cost of doing business,? he says. ?A small sweeping company that operates out of their house with one or two trucks usually doesn?t know what it costs to operate. They might have new equipment so they don?t have maintenance costs, and they might have a great financing deal with maybe a month or two skipped during the year, so their costs are lower than mine, for example. But because they don?t really know all the things that should be included in their costs, and because they won?t know what their costs are, they?ll price their work incorrectly and too cheaply. At the end of the day they?ll have a couple of accounts that make them money and maybe a couple of accounts that they lose money on, but they don?t know it. They figure they?re doing okay because even by sweeping the losing accounts they are adding revenue and at the end of the week or month or year they are profitable. But they are profitable because they are robbing Peter (their profitable accounts) to pay Paul (their unprofitable accounts).
?I know about that because I?ve been there,? Ben-Yashar says. ?I was bidding low but I was low because I didn?t know what my costs are.?
Vitale says C&L has analyzed its numbers, knows its cost-per-hour, and combined all that information with the profit percentage they want to make to determine their cost per hour. So when pricing a job all Vitale needs to do is figure out how long the job will take, add in any travel time to arrive at the price.
?You really, really have to know how to run your company by the numbers,? Vitale says.
Jacketta says her company has swept some jobs for less than cost - but not intentionally. ?And I can?t think of a reason I would do that,? she says. She says any time that?s happened it?s because she underestimated the time the job would take.
?The biggest problem for me is figuring out how much time it?s going to take to get the job done, and that?s just something every contractor has to learn,? she says. ?I know what it will cost per hour or per minute to be there. I just have to make sure I?m right on my time.?
Barton says he?s also a firm believer that you have to know your costs and what profit margin you?re shooting for. ?If you drop below that you?re never going to reach it, so that?s why I don?t believe in selling based on price,? Barton says. ?I?m an old Pepsi guy, and Pepsi always believed that if you live by the price, you?ll die by the price, and I believe that.?