The 10% Rule. WHAT it is and WHY it’s IMPORTANT.

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by Tom Watson on April 14, 2013

When you first start your cleaning business you are really just trying to get some accounts under your belt. I know that when I was new to the game I took just about anything.

That approach worked well for me as my goal was to just get some experience AND some money coming in. I knew I needed the experience, and I knew I needed the money. After all, no money = no options!

Anyway… As you start to collect accounts it’s easy to not pay attention to how well you are DIVERSIFIED. By “diversified” I mean how much revenue is coming from EACH ACCOUNT.

In a sense you need to view your cleaning accounts much the same way you do your investment portfolio. What do financial advisors always say when investing your money?  “Don’t put all your eggs in one basket”.

Well the same is true when you look at your cleaning accounts. The simple rule to follow is that no one cleaning account should be more than 10% of all revenue generated in your business.

For instance let’s say you have 10 commercial cleaning accounts that bring in $5,000 per month. In this scenario your AVERAGE invoice would be exactly $500.00 per month ($5,000 ÷ 10 accounts = $500.00).

Now this “average” invoice value is rather meaningless in one sense. After all, odds are you did not land ten identical accounts that pay you $500.00 each. Instead you probably have 10 accounts that have 10 DIFFERENT monthly totals.

You may have landed one cleaning customer one at $300.00 per month, one at $350.00 per month, one at $400.00 per month, two at $475.00 per month, four at $500.00 per month plus one LARGER ACCOUNT at $1,000.00 per month.

The only value associated in knowing the average invoice amount is in UNDERSTANDING that one big account you have for $1,000 per month EXCEEDS the 10% rule. In fact it exceeds it by a lot, as it amounts to a FULL 20% of all revenue.

Having jobs that generate LOTS OF REVENUE is good, the only worry for you is to make sure you don’t get UNBALANCED in the financial sense. I mean, what happens if that one customer FIRES YOU?

That would really impact your day-to-day operations. It may even impact your ability to pay your bills, perhaps even your mortgage if you are relying solely on the cleaning business for income.

Even if you don’t get fired by that one big account you still may have problems if they don’t pay you on-time. In my experience the larger the account the SLOWER they pay you.

Now this DOES NOT MEAN you should be afraid of getting larger and larger accounts. In fact I think it’s healthy to grow into the larger jobs provided that is your goal. The only suggestion I can offer is once you realize you have an unbalance, work hard at FIXING IT.

Fixing it is not hard, but it does require some more effort as the only way to create a better BALANCE is by ADDING MORE CLEANING ACCOUNTS that don’t exceed the 10% rule.

When you start adding accounts you immediately begin to DILUTE the importance of that one big account. Now this process is NEVER-ENDING for many cleaning companies.

Odds are you will be adding and subtracting accounts each year you are in business. Keep in mind you may never reach the perfect balance. I mean you never know who your next customer is going to be!

So my goal for you is to just BE AWARE of financial imbalances so that you don’t get burned by them. Good luck with your efforts and share any thoughts in the comments below!

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{ 4 comments… read them below or add one }

1 Susan April 14, 2013 at 7:58 pm

Hi Tom,

Thanks for the reminder and along those same lines, I have another question. I have been in the cleaning business now for one year. When I took my first 2 jobs, as you mentioned, I was so excited to get them that I agreed to do the jobs for the same amount as the service I was replacing. There was no negotiating of the price. Now a year later, I would like to increase those monthly service charges. Do you have any advice for how to go about broaching the subject with my client (one client owns 2 businesses) or increasing my monthly fee?

Thanks so much,
Susan

2 Tom Watson April 15, 2013 at 12:25 pm

Hi Susan! We normally send out a letter in advance of the anniversary date indicating a small increase in the monthly charge will take effect due to the increased costs of providing services. You could perhaps also just make note of this on the invoice you send out (just let them know 30 days in advance).

I don’t know what other companies charge per year as an increase, we do 2.5 to 5 percent. For the record, I don’t raise everyone every year, as I go on a case by case basis. Also… there is no right or wrong way… if you feel comfortable call them, if not write them. Your call!

3 Susan April 17, 2013 at 7:57 pm

Excellent! Thanks!
Susan

4 Tom Watson April 17, 2013 at 8:25 pm

Thanks Susan!

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