Systems And Efficiency Are The Keys To A Successful Pressure Washing Business
Everyone operating a pressure washing business wants to be profitable, but most of us are not actually trained in operating a business! Lacking this formal business education, some of us are successful and some are not. I have had my share of struggles in business, and came away with a respect for knowledge rather than a wish for luck. I want to share some of the things that you might have missed during all of those business classes at college. If you grab on to the concepts, you will forever look at your business in a different way. I hope by sharing to contribute you your future business performance. Learn more about all of our pressure washing training classes and Take Your Pressure Washing Business To The Next Level!
Here is an example of the material covered in our Pressure Washing 102 Class (PW102)
Profitability comes from a number of sources. It starts with proper pricing – not asking for so much that you don’t get the job and not leaving any amount of extra money on the table when you do get a job. It continues by owning the ideal tools for any job and matching the power of those tools to the exact job. Underpowered equipment wastes your money, for example. Another case in point is that using lousy cleaners or skipping the use of cleaners at all often costs more when you factor in labor. Finally, it rests on your labor force, the training they have, the equipment you have for them to use, the expectations you place on them, the techniques they use, and how well you monitor their performance. Once you put all the pieces of the puzzle together, you begin to run efficiently. Profit then naturally maximizes for the amount of business you have.
It all starts with pricing, so we have to start there too. Pricing has basic dynamics that you have to understand as a business owner. Basic pricing for pressure wash services has remained remarkably stable over the last twenty years (in spite of an amazing amount of cost inflation over the same period) because of improved efficiency factors. Better equipment, better cleaners, and better techniques have compensated for inflation by reducing labor.
What that means is that the most efficient operators are the ones who set the going rate for any job. If you bid against a company who has the equipment and technology to get a job done in an hour, and that company has set $200 as its hourly revenue target, they will bid that job at $200. If another company targets only $150 per hour but would take 1.5 hours to do that job, that company’s bid will be $225. As you can see, the price/value of that work has been set by the most efficient company, which would also apparently be the most profitable company in this situation.
One of the hardest problems a business owner faces is determining how much to charge per hour so that his hourly target provides enough money to cover overhead and expenses, a decent living for the owner, and enough profit to make a return on the money it took to establish that business. Most company owners just work as hard as possible, and whether they make a profit or don’t comes down to the same odds as rolling dice. There is a much better way.
To start, every company owner should calculate and evaluate his company’s costs and efficiency in order to determine his target earnings per hour. What is your hourly target for revenues? One thing is for sure – we can’t figure that out for you. No two businesses are alike in this figure. All we can do is help you think about how to figure out your ideal target.
Using a formula to calculate your company’s Break Even point will go a long way in helping you establish a good hourly earnings target amount. It will give you a strong edge when bidding jobs.
The Break-Even point is a calculated level of operations where revenues equal all of your expenses. At this amount of sales, theoretically there is no profit and no loss. You are at your “Break Even” point. Sales after this point start delivering profit to your bottom line at a predictable rate.
Once you know your Break Even point, you can begin calculating your hourly target. We have to be precise, so we are going to use the following typical terms and definitions:Net Sales:
Net Sales is the base we use as 100% for comparing all costs and profit on the P & L.Fixed Costs:
Costs that are set; they don't fluctuate with sales. Generally speaking, if a cost is expressed as a specific dollar amount, it is a Fixed Cost. An example would be rent or phone, which stay the same whether you do any business or not.Variable Costs:
Costs whose dollar amounts vary in direct proportion to sales. An example would be the cost of cleaners. The amount you spend on cleaners goes up when you do a lot of cleaning and goes down when you don’t do much business.Contribution Margin Ratio:
The part of each sales dollar available to you for covering fixed costs.
CMR= Net Sales - Variable Costs
Controllable / Non-controllable:
Indicates whether or not the business owner can control a cost. It DOES NOT always follow that variable costs are controllable or fixed costs are non-controllable.
A break-even analysis can be broken down into five easy steps. Pull out your current financial statements and take a good look at the expenses you see on the P & L. You will have to think about each expense and then categorize each one in these steps:
1. Separate all costs from your P & L into either Variable Costs or Fixed Costs.
2. Add up all variable costs. If cleaners are 6% of your sales and advertising is 7% of your sales and employee wages are 23% of your sales, so far you have 36% in Variable Costs (assuming you consider those as variable)
3. Compute the Contribution Margin Ratio (CMR). Use the formula
CMR= Net Sales - Variable Costs
Using this formula, a contractor who did 10,000 in net sales and had 7,500 in Variable Costs would have a CMR of 25%. 25 cents of every dollar would be available to cover fixed costs.
4. Add up all of your Fixed Costs. Let’s assume this contractor had Fixed Costs of $1,400
5. Divide the Fixed Costs (the $1,400 from step 4) by the CMR (the 25% calculated in step 3).
BREAK EVEN = Fixed Costs ($)
Contribution Margin Ratio
The resulting Break Even point for this mythical contractor would be: $5,600. At that amount of sales, he would cover all of his fixed costs and all of his variable costs. If he does sales below that amount he is losing money. If he does sales above that amount he is making money.
This was a quick example of how our PW102 class will help you to set up your business for success. For more information on starting a profitable pressure washing company, sign up for the class or Learn more about all of our pressure washing training classes and Take Your Pressure Washing Business To The Next Level!