Don't be fooled by low janitorial franchise bids
In part one, we covered the beginning steps of investigating the prices quoted in Janitorial service bids. (Read it here) In this article we'll tackle the next few steps of that process.
Now that we know what the base payable wages are, we need to factor in general estimates for other expenses that are necessary to maintain your account. Why? Because if there is no margin after all expenses then the company is not earning money. If your account will not be profitable it will clearly reflect in the level of service that you receive.
The operational costs
So the base payroll amount is just the hourly rate multiplied by the working hours. As you know, much more goes into employee expenses and operational expenses than just that. Lets take a look in more detail.
Both companies will have to pay the costs of equipment, chemicals used to clean your office. Also, they have the expense for liability insurance and worker's compensation insurance. Each account has to handle their fair share of this expense. Usually this amount can be estimated at 20%.
The next factor are payroll taxes. Any business that has employees must pay payroll taxes including unemployment taxes. This is usually around 15% of the payroll amount. For both companies this amount works out to be an additional $203.80 per month.
Now here comes the real difference. The independently owned We Clean Janitorial walks away with a profit of around $200 per month or $2400 annually. It appears that the franchise owner will make $76 per month. While that is still something, how hard to you think the franchise owner is going to work to keep your building clean when they are earning less than $1000 per year on your account?
However that would be the best case scenario, the franchise owner won’t even make the $76 per month. There are a few more monthly expenses for the franchise owner. To start they must pay for the account. No, that slick looking sales person that came by your office is not representing the actual “owner” who will be responsible for your account.
On average franchise owners pay 3 times the monthly fee to acquire the account. So for this example the fee would be $1893 to purchase the account. Essentially for the first three months the franchise owner will be working for free and somehow figure out how to pay the employees during this time.
Ok, so after the three months are over the franchise owner unlike the family owned business will have to fork over the following to the big national franchise:
Now it appears that we are doing negative math. The franchise owner is out another $176. Now if we look back at what was left over after operational expenses like payroll expenses, supplies, and insurance was only $76. The franchise owner is now in the negative, meaning they are looking to pay out $100 per month instead of earning anything.
We all know no one goes into business to lose money. Franchise owners have mortgages, utility bills and the same personal expenses as everyone else. So how will they earn a profit? It won’t be by failing to pay the national franchise their fees. They can’t even if they wanted to because the national franchise takes their money off the top and the franchise owner gets what’s left. The expenses they can control get cut to make a profit. It plays out something like this.
But at the end the only party gaining and not loosing is the national franchise. So before you get lured into a janitorial service based on a cheap price, ask some questions and most importantly do the math. Because in the end, if it is not profitable for the cleaning service you will get much less than you paid.
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