Growth is exciting. More customers, more employees, more trucks on the road all look like success. But behind that growth, many building service contractors are discovering a harder truth: revenue doesn’t automatically translate into profit.
Jeff Carman of Elite BSC works with janitorial and building service contractors on exactly this problem, and he sees the same pattern repeat itself across the industry. Companies chase a bigger top line while profit quietly slips away underneath it.
Revenue is visible, profit isn’t
Contractors talk about revenue because it’s easy to see and easy to say, Carman said. A company describes itself by what it billed last year, whether that’s $1 million or $10 million, and the number becomes shorthand for success.
That visibility skews where owners look for advice, he noted. A search for videos on growing a cleaning company turns up hundreds of results. A search for videos on profit turns up far fewer, even though profitability matters just as much.
Growth is good, Carman said, but only to a point, since a company can grow itself out of business if it isn’t watching the right numbers. Revenue is one factor in profitability, not the whole picture.
Look at profitability job by job
Carman compared a company that only tracks revenue to a patient whose doctor glances in the room, says everything looks fine, and leaves. It doesn’t tell an owner what’s happening underneath the surface.
To find out, owners need a budget for every job and a way to track labor hours against it, he explained. That’s usually where the surprises show up.
The first surprise is how much variance exists between similarly sized customers once an owner looks past monthly revenue and checks gross margin. The second is that larger customers usually contribute more dollars toward overhead and profit, even when their margin percentage runs lower.
Carman offered an example. A $500-a-month customer at an 80% margin contributes $400 a month. A $5,000-a-month customer at 30% contributes $1,500 a month. The percentage is lower on the larger account, but the dollar contribution is much greater.
“Margin percentage tells you efficiency. Margin dollars tell you contribution,” Carman said, adding that owners need to track both, which is why job costing matters.
Treat labor like a car dashboard
Labor is a contractor’s biggest expense, and Carman uses a driving analogy to explain how to manage it. Picture the dashboard of a car, he said, and think of labor hours as the speedometer.
Watch it constantly, he advised. At a building service contracting company Carmon worked with in the past, the team compared budgeted labor hours against actual hours every day. He recommends owners check that comparison at least once a week, and ideally every day.
Labor dollars behave more like a fuel gauge, Carman said, something owners should watch but that moves more slowly. Overtime and unplanned wage increases are usually what shifts it.
The goal is to catch patterns before they become problems, he said. Running an hour over budget on a single night isn’t a concern on its own. Three nights in a row of climbing overtime is a signal to send a manager to the site and find out what’s going on, whether that’s scope creep, an inefficient process, or a piece of broken equipment.
“Don’t wait till the engine light comes on,” Carman said. “Be looking at those things and run out there to make sure that you’ve got everything in order.”
Keep pricing legs in balance
As companies grow, pricing discipline tends to slip, and Carman pointed to three reasons why. Owners get busy taking care of customers and lose track of it. They worry a price increase will push a customer to shop around. Or they simply don’t have a plan.
Carman described pricing as a three-legged stool, with labor hours, labor dollars, and what customers pay as the three legs. Keep all three in balance, he said, or the stool falls over.
His fix is a pricing strategy built around bands of monthly recurring revenue, each with its own target gross margin. Customers around $1,000 a month might need to sit at a 50% margin or higher; customers between $1,000 and $5,000 a month might target 40%. Mapping every customer against those bands makes it clear which accounts need an adjustment.
Carman recommends reviewing prices with every customer annually, even in years when an increase isn’t offered. He described working with a contractor in his coaching group who hadn’t adjusted prices in years. Margins stayed healthy for a while, then slipped, and the contractor ended up needing one large increase instead of several smaller ones along the way.
Small increases are easier for customers to accept, he said. When Carman does raise prices, he frames the conversation around rising costs and fair wages for the team rather than the owner’s bottom line, noting that paying market wages leads to less turnover and more consistency for the customer.
“In a low-margin business, every penny matters,” Carman said. “The owners who do well in this business are the people who know their numbers cold.”
