When you decrease your costs, you increase your bottom line! The definition of “bottom line” in business is, “The last line of a financial statement, used for showing net profit or loss.” O.K., sounds simple enough to understand what the bottom line is, but how do you increase it? The top two, hopefully, obvious ways are cutting costs and increasing revenues.
The purpose of this blog is to focus on only the cost cutting aspects of increasing your bottom line. I know cutting costs and saving money doesn’t sound as exciting as increasing revenues and hitting sales goals, but let me help you with that by giving you something to think about that should excite you about cutting costs and saving!
If you currently average 25% net profit on your janitorial accounts, let’s say for example that you make $500 net profit on a $2000 per month account. If you cut costs by $500 throughout your company, it adds $500 to your bottom line, just the same as getting a new $2000 per month account. With that in mind, every $1 you save is equal to $4 in revenue and every additional $1 in costs you incur requires $4 of revenue to produce. (Read that last sentence a couple of times to let it sink in!) In other words, that sparkling, bottled water delivered to the water cooler in your office each week might only cost you $65 a month, but you have to do $260 in sales to pay for it. I’m not saying don’t have water in your office, just something to chew on.
Of course, you absolutely need to be continually looking for ways to increase sales revenues, but running your operations smart and efficiently is the #1 way to decrease your costs and increase your bottom line within your existing customer base! There are many more, but let me just touch on some of my Top Free, time tested, Cost Cutting Tips that have served me well in 25 years in this great janitorial industry!
- Decrease Facilities : Sure, everyone wants a nice office including me, but make sure it’s a need to have and not just a nice want to have. Your customers rarely, if ever will come to your office and employees only come to your office to fill out applications and get paychecks. Employees can have checks delivered to job sites and can even fill out applications at the job site. Keep in mind a $3000 a month office requires $10-$12,000 in monthly sales to pay for it. When you can’t park your work vans in front of the house anymore and your monthly revenue permits, it’s probably time to look for a small office warehouse. Most cities have industrial parks that offer low cost, low frill spaces for very low rent.
- Decrease Labor Costs: You reduce labor costs by increasing production rates, thereby decreasing payroll costs. This is done by workloading the labor in your building correctly from the start, using and fine tuning your cleaning methods, i.e., Team Cleaning, Zone Cleaning or a combination of the two. This will increase your hourly production rates and decrease your payroll labor costs without cutting your employees hourly rates. If you just start cutting hourly rates to save money, you destroy morale and you can bet quality and customer satisfaction will be casualties as well. Remember the workman is worthy of his /her pay!
By the way, the crux of my CleanGuidePro Janitorial Bidding Software is its popular Workloading and Pricing screen. You can’t decrease your costs unless you can see your costs, and that’s what this innovative screen enables you to do!
- Decrease Inventory: Have a “just in time” inventory. Full warehouses look nice, but floor wax, bowl cleaner, toilet paper, multi fold towels, etc., just sitting in the warehouse costs money from day one (or on day 30 if you have vendor terms). I tried to never have more inventory in the warehouse than I could use or sell in 30 days. Don’t run out, but don’t overstock!
- Decrease Delivery Costs:Deliveries to job sites are necessary, but costs money. Fuel and labor costs add up quickly! All deliveries should be coordinated to accomplish multiple deliveries and tasks. For example, coordinate multiple supply deliveries to job sites on the same day if possible. You can even have your traveling floor crew drop off supply orders, paychecks, etc., at various sites along their route. $20 of traveling labor costs saved 5 days a week is $430 a month saved!
- Decrease Chemical Costs: Buy chemicals in dilutable, concentrate form to keep costs down. Chemical mixing stations are great also. Products like bowl cleaner and stainless steel cleaner are usually sold “ready to use” (RTU), and cost a bit more, so shop around for good pricing.
- Decrease Insurance Costs :You need Insurance! General business liability and auto insurance is a must have. As you grow, your insurance needs grow. Business, auto, work comp, etc. Multiple car discounts, discounted work comp rates through payroll companies, discounts for bundling business and auto, etc. You can save lots of money here! A 2% work comp discount on a $50,000 a month payroll is $1000 a month saved! Shop around and ask for better rates.
- Decrease Sales People: I had to learn the hard way that salespeople cost money on day one. To pay someone $500 a week / $2165 a month to go cold calling and chasing leads requires them to sell $8-$10,000 a month just to break even. There’s nothing wrong at all being a salesperson and I consider it a top profession. In fact, I consider myself one and pretty good at it, if I don’t say so myself. It’s just that for janitorial sales the most cost effective, hands down, no close second is a targeted, direct mail marketing program. It’s cheap, very effective and will have customers calling your office every month to place bids.
- Decrease Cell Phones: I’m not sure why, but In the beginning I thought it was my responsibility to provide every manager with a cell phone. When (for a short time) I had salespeople, they got one too. I guess I figured if they’re talking business on a cell phone, I should pay for it. At some point, a long time ago, a light bulb went off in my head and I realized that just about everyone has and needs a cell phone and the few minutes they used them talking my business wasn’t saving them any money, but it sure was costing me a lot. Seeing personal, international call charges on my cell phone bill might have been the light bulb moment!
Remember, running your operations smart and efficiently is the #1 way to decrease your costs and increase your bottom line within your existing customer base!