Home › magazine › february march 2011 › european reports › The profit challenge
The profit challenge16th of March 2011
Oleg Popov - general director for cleaning company Cristanval and Russian correspondent for ECJ - takes a look at the level of profitability within the country's cleaning businesses.
How much does a cleaning company earn in today's Russia? Less than it was just three to four years ago. The economic crisis forced customers to take a more conservative approach to their upkeep expenses, so in many cases financial considerations became the decisive factor in choosing a cleaning company at the tender stage.
The cleaning companies had to reduce their rates by at least 20 per cent, and today professional cleaning prices lag behind rates in western Europe. Even long-established companies have to adjust themselves to the low rates and earn less than was possible when the market was still growing.
Competitive cleaning companies try to resort to 'dumping' - selling contracts at cost price in the hope that they will be able to capitalise on the client’s good name in the future. The deepest 'dumping' takes place in the instance of shopping centres and retail chains. Cleaning companies try to get a grip of these properties at any cost, since they hope to expand their services through new tenants and cleaning of more and more areas within the complex.
Even experienced cleaning companies often agree to work at the break-even level. It is thought prestigious to clean public areas – train stations, tax offices, public prosecutors' offices - even though these clients don’t bring any serious profit. As a rule, very (and sometimes extremely) low rates are put up for tender at government institutions, however a cleaning company which has just entered the market usually agrees to such unattractive terms to establish a reputation. Again the company works for its future in the hope that one day it will get its chain client.
The profitability of the cleaning business is not very high. It is just five to seven per cent for the top players – large companies with hundreds of clients – and up to 15 per cent for small companies (with staff of 10-20 persons). If a company completely obeys the law, pays salaries on time, uses brand new equipment and professional chemicals, it could hardly earn more.
While daily cleaning services bring the lowest revenue, profitability of one-off jobs can be 50 per cent and more. Today it takes about 18 months for investments (in daily cleaning services rather than one-off jobs) to return.
In order to increase profitability, the companies devise and offer new directions in service. Being unique in some way is the best way for a company to promote itself in today’s market. Besides, cleaners compete in their aspiration to take on a big client, offering him various bonuses. One example is post-construction cleaning, which cleaning companies sometimes offer free of charge as a bonus to the contract with a brand new shopping mall or business centre.
The necessity of making business more profitable forces large cleaning companies to develop new areas of business which would previously have been of no interest. For example, housing, private sector, small shops and boutiques.