How to Control Sweeping Costs

How much does your sweeping company need to generate per route to be profitable?

Katsam’s Jim Larko and Sam Nicholas would say if you don’t know the answer to that question your company is already in trouble.

“There are a lot of ways people estimate what their cost of doing business is, and we take it to the extreme, but however you do it you need to know your cost of doing business,” says Larko, president of the St. Louis company and vice president of the North American Power Sweeping Association.

Outside of paving contractors, the industry segment hit hardest by the current economy is probably contract sweepers, especially those that specialize in parking lot sweeping. Over the last few years more and more sweeping contractors have seen their business decline, mainly in frequency of sweeps per property and sweeping service fees.

Katsam LLC in St. Louis, MO, is no exception, and over the last few years the contractor has made a variety of efforts to control costs. “We looked at everything and we tracked everything,” says Nicholas, operations manager.

One example is tires. He says when they first started tracking, each tire would be given a number when it was purchased, then that number enabled them to track that tire throughout its life. The miles of use and cost per mile for the tire was applied to each property swept and factored into each sweeper’s route (along with trash bag costs, all vehicle maintenance and service, insurance, operator costs including benefits and overtime, and administrative overhead). All these costs (and more) are charged back to each property, which gives Katsam a pretty good handle on what it costs to sweep a particular property. Perhaps even most important, it also gives them a basis from which to bid.

“It probably was overkill and we’ve probably over thought it but we know what our costs are on a daily basis for each route,” Larko says. “We know what our base number is for a route to be profitable.”

In 2009 Katsam was sweeping more than 350 properties at frequencies ranging from once a quarter to seven days a week, and over the last few years that number has fluctuated between 330 and 350. Today Katsam’s 30 employees generate 65% of sales from parking lot and garage sweeping, 25% from power washing, and 10% from day porter work. In January 2010, coming off of a good 2009, Katsam moved into a new building renting with an option to buy. “That year capped 13 years of growth in parking lot sweeping but the last two years have been negative,” Larko says.

Larko and Nicholas credit their long-time efforts at managing costs with helping them survive since then, because the market has changed and Katsam’s approach had to change along with it.

“I’ve always been a problem solver. I solve problems for my customers when they’ve presented me with a challenge -- that’s how I got into power washing and sweeping in the first place,” Larko says.

“But in the last couple of years there’s been a big change because now the market isn’t interested in us solving their problems -- they just want everything done more cheaply, and that conflicts with our approach. We can do it cheaper but we can’t provide the level of service we want to provide -- and that they want us to provide -- for that amount of money. Our challenge has been communicating that to our customers.”

But that’s an external challenge. Internally Katsam has been fighting – and winning -- the costs battle by examining hiring and training practices, payroll, routing, and even equipment, which the contractor has put on hold.

Making Routes More Profitable

One cost-saving option available to all contract sweepers is an examination of all their sweeping routes. Katsam has established a base revenue they need to generate from each route and they are vigilant to make sure routes reach at least that target level. Properties can be shifted from one route to another as accounts are added or removed, and driver times are monitored to make sure routes meet the minimum level. Through the same process routes are monitored so they can be as profitable as possible.

Organizing sweeping routes is a constant challenge, a challenge made more difficult by changing tenants on properties and local noise ordinances (Katsam sweeps in 114 municipalities “and all of them have different noise ordinances”).

One hypothetical example: Assume a contractor sweeps a strip mall property with tenants that close by 9:00 p.m.; there’s no bar on the property so Katsam can sweep it at 11:00 p.m. “Then a bar opens on the property and suddenly you can’t sweep it until two or three in the morning because the parking lot is busy. Now you have to decide where to move that property on your routes to get it done, and you have to figure out not only which route to move it to but does it replace a property on the other route or are you adding a sweep to that route? What does that do to the other operator’s time? And where does that other driver have to come from to sweep that property at 2:00 or 3:00 in the morning? How does it affect the rest of the route? And how is the route the bar property is taken from affected with one less sweep?”

Among the greatest savings Katsam has found have come through improving route density. “We try to group more properties closer together,” Nicholas says. “Less travel time means more time on the property.” Larko says improving route density can be tricky to manage and can encourage some sweeping contractors to bid a property for less than their “normal fee” if the property is within a route’s geographic area.

“But we don’t really cut prices bidding a job even if that job fills a gap in our route or even if it’s near by a route,” Larko says. “Say you bid that job at a lower rate to make sure you get it and because it fits well in that route. But what happens if you lose one of the anchor accounts on that route, say a big shopping center? Then you have a contract to sweep a property at a lower rate and smaller profit margin than you would typically do -- and maybe you are sweeping that property for less than you need and want. So all of a sudden you’ve got an unprofitable contract to sweep a job.

“So we try to keep bid work consistent,” he says. “We’ll go a little out of our way for some of our bigger customers, maybe to do a new property because they need it. But we try to maintain route density and if we add something out of our way that’s just something we do to help our customers.”

The Value of Training

Katsam discovered another area of cost savings when it looked into its hiring and training processes. A study the company had done estimated it cost $8000 to train an employee to get to a minimum level of proficiency. Results assumed a driver isn’t fully productive until at least 30 working days on the job: he’s slower to each parking lot as he learns the routes, he’s slower sweeping each lot as he learns what’s involved, he wears out tires more quickly (increasing tire costs), and there’s additional wear and tear on equipment until he learns to handle it better.

Once Katsam came to that realization they established a formal training program that requires a new operator to work a minimum of 40 hours of training before he’s cut loose on his own. “It’s a documented training program where they work through specific items each night, some of which are repeated from night to night. It’s not just one time,” Nicholas says. “It’s repetitive.”

He says the new driver spends at least his first night working outside the sweeper, not behind the wheel. “The new hire doesn’t know his way around and he doesn’t know the properties, so it makes sense to have someone else do the driving.” The experienced driver follows a checklist of what a driver needs to do on each lot and the hire learns from that.

Once a new driver is on his own, Katsam’s night supervisor checks on drivers and checks the parking lots they’ve swept. “You check on them while they’re learning and new to the job otherwise they develop bad habits,” Nicholas says.

Katsam’s turnover rate has plummeted since the training program was implemented. “We’re more selective to get the right candidate, and we either train them or make the decision early that they are not going to work out,” he says. “It does cost us a little more up front in overtime while we’re trying to find the right person, but once we find the right person it’s a longer-term cost savings.”

And once Katsam identifies a good prospect they start him (or her) at $9 an hour with potential raises up to 50 cents and hour at 30, 60 and 180 days. Benefits include a four-day workweek, health insurance (at six months), an employee assistance program, seven paid holidays, 401(k) plan with a company match, and two weeks paid vacation after one year.

“Plus they get to work in a safe truck,” Larko says. “I don’t allow a driver to take a truck that’s not safe out on the road and our maintenance department has standards that will not allow an unsafe truck on the road.”

Tracking – and Reducing – OT

Larko says another area that caused concern was operator overtime. Most contract sweepers accept overtime as a natural part of the business, but there’s a difference Larko says between justified and unjustified OT.

“We had reached the point where overtime was out of control and we hadn’t added anything new,” Larko says. “It was just a level people were getting comfortable with, both our drivers and us.” But as the economy got tougher and clients were cutting back, Katsam looked to see how they could trim overtime pay.

“If we have special jobs, fine. If people are out sick and another driver has to work longer to cover him, okay. But if we had 30 hours of OT that we can’t account for then we have to fix that.”

Katsam’s first step was to find a way to monitor exactly what was happening each night. The traditional time clock employees punched didn’t provide the specifics they needed, so they turned to a GPS system called Eagle Eye. Among the capabilities of the system are:

• If the driver is in the truck and the truck isn’t moving it considers them on break and they get no credit for that time or toward overtime.

• It documents and can display on a computer screen driver routes, sweeping patterns, and speeds on the route while sweeping.

Nicholas and Larko wanted the GPS to tie directly into their payroll system, and once the two were integrated they could generate payroll directly from the GPS information. That is when some real savings came to light.

To verify the new GPS information Katsam for six weeks tracked what they were doing on time cards and also on the computer using Eagle Eye. Among what they learned was that employees were coming in to the office, punching in, and then standing around having a cigarette, going to the bathroom, talking with other drivers, changing into their uniform, and doing the pre-trip check of the truck. Similar types of things were happening at the end of the day.

“It was taking them 45 minutes to get out onto the route and the same thing coming back in,” Nicholas says. “That’s a lot of time wasted that ends up as overtime by the end of the day.”

As a result Katsam now allows 15 minutes per trip in the yard and 20 minutes at the end of the shift to clean the truck and do paperwork. “It shouldn’t take longer than that and we’ve saved time on pre- and post-trip checks on the truck,” Nicholas says. “It forces them to get out and do their work.”

“We were paying some guys 13-14 hours a day four days a week and we took it down to 10-10 ½ hours a day with anything over 40 hours per week being overtime,” he says. “We have taken at least 20 hours of OT out of payroll each week, which is 40 hours every pay period,” Nicholas says. “At $15 per hour we’ve saved at least $600 of payroll a pay period, not including taxes. If we save $600 - $900 per pay period times 26 pay periods it adds up to a lot of money.”

He says it also helps Katsam evaluate its manpower. “If we’re averaging 20 hours of OT every pay period that’s half a man on the payroll,” he says. “If that keeps up then we have to consider is it worth our while to bring in another person?”

As a result of all its cost controls Katsam has been able to weather the last couple of years without making significant cuts in employees or benefits. In fact Larko says the only real cuts the company made were done through attrition.