Facing A Positive Future
By Bill Garland, Senior Partner, Daniels & Associates Inc.

Much has been written and spoken about the recession. Times are tough, but as the old saying goes – ‘When times get tough, the tough get going’. It is important not to let these times become a self-fulfilling prophecy of doom and hard times.

There is not a doubt that the industry for janitorial service providers has changed and some of the reasons include the following:

Change in Ownership of Real Estate: Today almost 80 per cent of the prime real estate in Canada is owned by financial institutions such as banks, pension funds, insurance companies and Real Estate Investment Trusts (REITs). These new owners focus a lot more on the bottom line and also on operating costs as they see reductions in total occupancy cost actually increasing the value of the building. In addition it has become a measurement of how well a building was managed. There is also not the same pride of ownership that many private owners take in their real estate.

Lower Margins: Gross profits have fallen from over 30 per cent in 1970 to less than 10 per cent in most cases today. This has made it more difficult for contractors to provide the level of service that they have in the past. They simply do not have the same flexibility to provide the same level of service by doing work outside of the cleaning specifications. They are also not in a position to provide many of the quality programs and training sessions essential for a successful operation.

Bulk Purchasing: The advent of bulk purchasing or the consolidation of a large number of buildings into one package has significantly impacted the smaller contractors who performed many of these contracts. This has benefited many of the larger contractors who can handle the large portfolios. These contracts, because of their volume, have also contributed to the reductions in gross profit.

Facility Management: These individuals and firms, equipped with greater knowledge, have raised tenant and owner awareness regarding the cost of cleaning and other services. They are becoming knowledgeable buyers, however, much of their revenue in the past was driven by how much they could reduce costs, resulting in contracts being awarded simply on cost and a ‘hope I can do it’ attitude from the contractor.

Alliances and Mergers: The cleaning industry is maturing and we see the founders of many companies selling them or merging their firms, as often times, the next generation does not want to take over. This has resulted in the disappearance of many industry leaders in the last few years and the growth of many others. Today we have at least three contract cleaning firms with sales over $100 million in Canada.
So much for the bad news. There is a new level of professionalism coming in the industry as cleaning companies have learned to survive despite these tough times. Many are now starting to earn reasonable returns. What are some of the features that will earn success in the future?

Sell quality service and not price: If price is the only factor in a company’s pricing then the price had better always be the lowest. Almost 100 per cent of the time, low price doesn’t have enough labour or resources to do the job. Customers need to be educated that a clean building is a healthier building. Additionally, a clean facility can actually increase the productivity of the most expensive cost that they have, which is the cost of their employees. The difference between good cleaning and poor cleaning can be as low as 15 cents per sq. foot which, in a normal office building, costs less than $40 per employee per year. A small investment for more productivity.

Cleaning contractors also need to promise only what they can deliver. In almost every bidding situation that our firm handles there is always one firm who will bid low just to get the business for prestige or some other reason. We increasingly have less difficulty convincing our clients that this is not the best road to follow and that a higher priced contractor will provide better value for the money.

Green Cleaning: Jump onto the Green cleaning bandwagon. It is coming and it is coming very quickly as Green products are now much more effective and available at more competitive costs than they have been in the past. Programs such as Green Seal’s GS-42, ISSA’s CIMS-Green and LEED are all going to get stronger over the next few years.

Tenants and building owners are now starting to look at it as they are realizing the impact that dust, cleaning chemicals and poor sanitation can have on their employees. Responsible cleaning contractors are also understanding that chemicals with high VOC’s and other carcinogens, plus dust from poorly-filtered vacuums, can have a negative impact on the health of their employees.

Day Cleaning: I have been writing articles on this subject since 1985 along with its many benefits. It is now starting to catch on due to rising energy costs. Day cleaning programs are now proving that not only are energy costs being reduced to between 12 and 15 per cent, but cleaning costs can actually be reduced as well. These results are achievable with the additional benefit of increased occupant satisfaction in almost every case.

Workloading: This has been around since the 1970s and is now becoming an essential tool in every bid situation. Workloading is the engineering tool which makes the difference between a five- and 15 per cent gross profit. It is a tool that can be used to improve existing accounts and make bids even more competitive. Old style methods of bidding such as the ‘optical scan’ and ‘average productivity numbers’ simply don’t work in today’s competitive market.

Training and quality control: These two functions go hand in hand. Everybody talks about them but few actually practice formal programs. It has been proven that a formal quality program can improve customer satisfaction and reduce costs. Costs are reduced as employees because employees become better trained and more efficient in performing their work.

Success in the future will be based on presenting new and creative solutions to clients and not just the same old style of business. A large client, whose company based their entire performance review on reduced costs and improved performance, recently commented to me that the only service provider who had increased their costs was the cleaning contractor. As a result he felt they did not understand his job or his mission, and wanted a new contractor. It is important to note, that he probably was prepared to pay the new price but what bothered him was that there wasn’t any innovation coming from his current provider. What he was looking for was creativity and an understanding of his needs.