Operations and Systems Video

Providing Consumable Supplies at a Fixed Price Destroys Profit

What You’ll Learn

Estimate supply use from building headcount
Track inventory with reorder points
Bill supplies as a line item with a markup

Short Summary

A flat price each month for paper goods can lose money. Use can change a lot for toilet paper, soap, and towels. Start by estimating use from the number of people in the building. Next track supply counts during service and set a reorder level for each item. Write down what was restocked and the unit cost. Bill paper goods on a separate line on the invoice. Price that line as cost plus a set percent. If you must offer one monthly flat price, ask for a year or two of past usage first.

Frequently Asked Questions

Should a cleaning company offer a flat monthly supply price?

A flat price is risky when use changes. A separate invoice line is safer.

What is the first number to base a supply estimate on?

Use the number of people in the building. That number drives restroom supply use.

What does a reorder level do?

It shows when supplies are running low. When stock drops to that level, it’s time to reorder.

How should supplies show up on the invoice?

List supplies on their own line. Price them as cost plus a set percent.

How much markup should be added to supplies?

Dan thinks his company used about 20 percent. The right amount is up to you.

Full Transcript

Well, hi there. Welcome back. Dan again from CleanGuru.

So, a building that you’re bidding on: when you’re talking to them about the specifications and what they need done, they say, “Hey, by the way, why don’t you include in your price providing all of the consumable poly paper supplies?” Hand towels, hand soap, toilet paper—those kinds of things.

Now, it’s real tempting to say, “Oh, no problem. I will.” And certainly, I get why you want to do that. You’re trying to create connections by adding additional services. But if that ends up costing you money, and you’re losing because you’re not able to track the supplies properly, and you underestimated their usage, or you’re not pricing them in terms of how expensive they are, as far as that goes.

Let’s say you say, “I’ll charge you $350 a month, and I’ll always make sure you have enough toilet paper, hand towels, hand soap—all of your consumable supplies.” A bell should go off, because that’s really hard to do.

Now, there are ways around this to try to deal with this, because if you can do it profitably, that’s a good service to be able to offer to them, and you can make money on providing them. But there’s a lot of ifs in there.

First of all, to estimate the usage: like I say, we have a calculator that can help to estimate based on the number of people in the building using the building—restroom to restroom, break room, those kinds of things. But it is an estimate of usage, and then an estimate based on just really—not all items—but we have it set up for hand towels, hand soap, toilet tissue, just a few items, because it’s that difficult. And even then, that is a cost estimate.

From there, you would need to mark up from there to make money on that. I think we used to mark up possibly 20%, is what seems to come to mind, but that’s up to you. The point is, it’s an estimate of usage, and then it’s a cost-plus basis of a profit you want built in, percentage-wise.

However, if it’s at all possible, another way to go is to say, “There’s no problem. I can take care of the supplies, but because usage is such a variable thing…” And by the way, let me stop and tell you: not only that, sometimes we don’t notice, and you can see this too, sometimes the toilet paper walks out of the building. There’s stealing that goes on. That’s just the truth. Not a lot of this, but it can happen. Or maybe the building, they have a plant down the road or in a little nearby city, and all of a sudden they’re emptying all the supplies out of there, and they go, “Hey, we’re out of supplies.” And you want to say, “Well, they’re all down the end of the road,” because you think that this can create an awkward situation. This usage issue can really make it vulnerable.

So if you say, “Well, I’ll tell you what. What we can do is, every time, we’ll track it. We’ll track the inventory, and we’ll know there’s a reorder point. And when we notice that the supplies get to this point on all these items, we’ll reorder, and we’ll bring it out here. We’ll restock it, and we’ll just charge you on a line item on your invoice that says the price that we did for providing those.” That’s fine. That’s one way to go.

If they don’t want to go that way and they force your hand to provide them, another way, I suppose, is to say, “Listen, do you happen to have a year or two of your usage?” And they may say, “Well, yeah, here’s a record of what we’ve used for all these different items.” Again, that is an indication, but it’s not a guarantee. So you do go into that with a little bit of vulnerability as to how that’s going to go.

We like to provide them based on us tracking them, ordering them when they needed them, and then the money we made was simply on the line item: the difference between the cost and the profit markup that we had. And so, that’s how we did it.

So just be careful when this concept, or this idea, of asking you to provide the poly paper consumable supplies comes up. Give it some thought on usage and pricing all along the way, so you don’t end up regretting it. Then all of a sudden, the money that you’re maybe making on cleaning, you’re actually losing when you’re providing the supplies.

Till next time, remember: you can do this. You really can.