Janitorial Profit Margin versus Janitorial Cost Markup. Which to choose?
Not understanding the difference between Janitorial Profit Margin and Janitorial Cost Markup is one of the most common pricing mistakes in the cleaning industry. I’ve seen way too many new business owners decide to price their janitorial bids solely on Markup – “I’d like to make $500 on this job” – rather consider the Margin of Profitability for the work…
Both terms – Margin and Markup – help you calculate profit, but prioritizing the wrong one could hurt your bottom line.
Let me break it down.
Margin: (a.k.a. Profit Margin) is the percentage of the final selling price that is profit. In the highly competitive janitorial services industry, Profit Margins can trend low for very large jobs — say, 12 to 15% — but that range is unprofitable for small to medium clients.
Markup: (a.k.a. Cost Markup) is either the (a) Dollar amount above cost, or the (b) Percentage of the cost that you add on to get to a bid price.
So which approach should you use? As a general guideline, it is probably better to focus on your Profit Margin rather than a Cost Markup in a service business. A higher Profit Margin percentage matters more than a higher Cost Markup percentage. For example, a 25% Cost Markup only yields a 20% Profit Margin, which means that your markup isn’t as profitable as it may seem at first glance.
With margins, a 50% Margin means that half the selling price is profit. So, a 50% Margin means there is a 100% Markup — as you have added 100% of the cost price to make the selling price. (With margins, a 100% Margin is only possible if the cost price is zero.) In short, a focus on Profit Margin is more effective when it comes to pricing your janitorial bid.
Of course, situations and customers vary, and the choice to prioritize Margin or Markup is yours. Fortunately, CleanlyRun Janitorial Bidware displays Markup and Margin right next to each other, so you always know what is your Profit Margin’s equivalent Cost Markup — and vice versa. In addition, we’ll suggest a minimum Profit Margin/Cost Markup for each bid that you can adjust as you see fit.
On a related note, I’ve touched on how the Profit Margins of smaller businesses can be higher than bigger ones, even with a lower Fair Market Price.