Friday, March 5, 2010

The Truth About Cleaning Business Franchises

Janitorial services franchise companies, are not in the cleaning business, but rather in the business of selling franchises to would-be entrepreneurs.
This is how franchises work. for Example: there are two companies, the family owned business and the franchiser both bidding on a typical 5 day a week 2.25 hr per day office cleaning account. The family owned company places a normal bid of $755.00 per month for the account. The franchiser sales person bids lower in order to win the account. He places $631.00 per month for it. The customer not aware of what is going on likes the very low price and decides to sign with the franchiser. Now after signing, that contract will be sold to one of the franchisee for $1893.00 3 times the worth of the account. They have to pay it off in 3 months; they will actually clean that account for 3 months for free in order to pay for it. After the account is paid for, then the franchiser takes 20% per month off the top for franchise fee ($157.75.) plus $50 for insurance per month for each account. So now the franchisee gets $473.35 per month for that account...The franchiser sales person has now made $1893.00 on the account, plus $144.65 per month as long as they have the account. So the head franchiser makes there money on quantity and re-sell of accounts not quality. What happens in almost all cases the franchisee that has purchased the account starts to realize he is not making much money on the account so he calculates it to see how much he is really getting. $473.35 per month divided into 4.33 = $109.31 per week, divided into 5 days = $21.86 per day, dividing that into normal cleaning time 2.25 hours = $9.71 per hour. after he deducts his cost for materials, equipment, etc. He realizes he is only making $9.00 per hour. Now he can not afford to hire labor unless he makes some changes. For labor its going to cost $8.00 per hour but after taxes, workman comp, etc, etc, the total hourly cost for labor will be $10.00 per hour. So now he needs a solution.
The Solution: What happens he cuts back on material, supplies, etc? Maybe even water down the chemicals to stretch it out, cuts the cleaning time in half say from 2.25 down to 1.25 hours. After all is done, he can know afford to have an employee and still make his 5 to 10% profit.
Now the problem, the customer has now become a victim. The customer is being short change; the cleaning supplies have been cut and the cleaning time is being cut in half, leading to very extreme poor quality cleaning. Now the customer has to complain to the head franchiser, The sales Rep promises they will take care of it. Again no changes and the customer now needs to complain many more times, they explain that the building is in poor condition, there customers and employees are also complaining about the poor cleaning quality in there building. Now the sales rep for the franchisee needs to solve the problem in order to save the account. He or she takes the account from the franchisee and re-sells it to another franchisee making another $1893.00 on that same account, totaling $3786.00. Now the problems will just starts all over again but with the new franchisee, as they start the same process the last one did, usually it will continue till the customer has had enough and decides to switch companies. But in some situations the customer could be locked into a three year contract. If there is for instance 2 years left on the contract, they will need to pay the two years left in the contract in one large sum in order to be released from it, costing the customer an additional $15,144.00 in the end the franchiser has made over $18,930.00 on that one account.According to industry information, the typical legally-operated cleaning company profits between 5% to 10% after all costs and overhead are paid. Some very large corporate operations function on as little as 2-3%, but these are the exception in the industry. Franchises and/ or others who operate unethically or illegally typically under price their services since they don't have to actually suffer the direct consequences of their pricing strategy - instead making their money "off the top". It's the poor franchisee or illegal subcontractor who suffers trying to make a reasonable wage from the predicament. If a franchiser has taken any where from 15 to 20% off the Top, It is most likely the franchisee would not succeed. In the end, they and the customer have become victims of the franchiser.