Growing Your Business

Keeping Your Power Sweeping Company Profitable

Because of the economic downturn, contractors around the country have been complaining more than usual about 'lowball' competition. If you are not familiar with the term, it's intended to depict a contractors who routinely charges below his -- or anyone's -- long-run costs just to get accounts.

Low-balling occurs for one of two reasons. One is that the offending company is of the 'fly-by-night' variety. Because they don't pay all of the legitimate expenses which are incurred by reputable sweepers, such contractors can afford to sweep for less. A few operators of this type exist in virtually every field, of course, but it can especially be a problem in industries like sweeping which don't require a licensing procedure. Although, unfortunately, there are some sweeping contractors who fit this profile, the majority of lowball bidders are contractors who just don't really understand how to figure out their actual costs. As a result of this inability, often the company is able to stay in business only until the first major breakdown, typically 6 months to a year. And, while they are driving themselves broke by getting every contract in sight at whatever price it takes, they are also wreaking havoc with the market in their area.

For most, this is entirely unintentional. Many newcomers are of the 'mom and pop' variety. Once they decide to buy a sweeper, many just hope to get enough accounts to stay in the business. Although they have no intention of going out and undercutting bids to do it, often that's just what happens. Most of the time it's a product of not planning for the future by factoring in all the actual long-run costs. They think no further ahead than their next sweeper, if that far, and don't bid so that they can afford to expand their operation.

The problem is, none of the other contractors in their area will tell them how to figure their expenses and markup. Then, because they don't know enough to add in all the factors, many find it amazing that an established local contractor is doing the job for $50 per sweep, while their figures show that they can make money at $30 per sweep. So...they bid successfully at $35 per sweep and think they are getting a $5 windfall profit!

But, because they themselves sell only low price, they invariably lack the money to build quality into their company. They don't care about doing a great job. The unintentional result is that they sabotage their future. Pretty soon they can't afford the licenses, repairs, insurance, etc. that long-term contractors take for granted. Quality of sweeping suffers; clients cancel, income drops. Well intentioned people end up becoming fly-by-night outfits, rather than stable members of the business community. Finally, most find themselves wiped out by a major breakdown, a wreck or a liability suit for which there is no coverage.

Although the individual stories can be heart wrenching, in a business sense we don't have anything against the weeding out process of competition: the free market system is what keeps all of us on our toes. Unfortunately, the people who bid a little, promise a lot (and a clean one at that!), and then can't follow through hurt more than just themselves. They give a black eye to the entire industry of sweeping contractors, keeping them from gaining the respectable niche they so well deserve. An unfortunate by-product for legitimate contractors is that a mall manager who switched and then becomes unsatisfied is usually too embarrassed to call their previous sweeper to come back.

If you are not accounting for your company's true costs -- or if you have plenty of clients but don't seem to be able to get ahead -- check out Getting Profitable.

If you and other established contractors in your area are finding yourselves undercut, it may well be that you're dealing with a lowball outfit, someone who doesn't pay taxes or carry insurance. Alert the property manager at your affected accounts to the questions they should ask any new sweeping contractor. To assist you, we have compiled a chart (on the next page) of items which, by and large, should be complied with by every reputable sweeping business. Boxed in and re-titled, it is suitable for photocopying for use as a business handout.

If the competitor who just got your best client does pass the reputability test, however, then perhaps it's time for you to do an overall cost assessment of your own operation. Are some of your sweepers running you more in monthly upkeep than the payments' outlay would be for newer ones? Are you using a costly heavy-duty unit where a smaller machine would make more money for you? Could your routes be better constructed? Would a switch from gas to diesel improve your bottom line? The only way to stay long-run competitive is to constantly re-assess your operating procedure. Don't wait for the other companies in your area to do it for you.

At the time he wrote this article, Mark Schwarze was president of Schwarze Industries, Inc.

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