- THE MAGAZINE
Calculating the price for performing services using a price-per-square-foot method is common in our industry. Often, the price-per-square-foot multiplier is based on the fair market value for the service(s) in a geographical region or local area.
It is not uncommon for companies and entrepreneurs to get caught up in the competitiveness of the market and forget what their primary objective is: profit!
The price-per-square-foot method of calculation is easy, that's why it is so popular. Simply take the total square feet of the area to be serviced and multiply that number with the price-per-square-foot multiplier (Note: The numbers used in the examples were selected for ease of demonstration and are not intended to represent actual price per square foot or wage rates.):
2,500 Square Feet x 50 cents per Square Foot = $1,250
It doesn't get any easier than that. Unfortunately, there are pitfalls to using this system. All costs and profit need to be built into the system to make it work right. It's like the calculator; we have all come to depend on it, but do we know how to do the math?
Price Per Square Foot
The principle behind using the price-per-square-foot method is simplicity. Sales personnel like to use it because it is much faster than crunching the numbers. Facility and building managers like to use it because it makes comparing competing proposals easier. Although the method can work, it is up to the individual or company to set the multipliers so they are profitable.
Because individual companies have distinct differences in operation, the-price-per-square-foot method of calculation will yield different results. There are basic components involved that impact the values a company can use: Overhead costs (the general, continuing costs involved in running a business, as of rent, maintenance, utilities, etc.), supply costs (chemicals, equipment and materials for supplying the service(s)), wage rates (labor cost plus taxes, insurance, etc.) and profit margin. Do not assume that just because another company can charge a certain price per square foot and be profitable that you can.
For example, an independent floor maintenance contractor will generally have lower overall costs; as a result, this individual may be able to use a wage rate of $50 per hour (the wage rate includes all overhead, supply, and labor costs plus profit margin built into it). A larger company that has higher overall costs and offers a good benefit plan may have to charge $75 per hour. This gives the distinct advantage of a lower price-per-square-foot number to the independent.
Using 1,600 square feet as an example:
A. 8 Hours @ $50 per hour = $400/1,600 Square Feet = 25 cents
B. 8 Hours @ $75 per hour = $600/1,600 Square Feet = 38 cents
Regardless of the wage rate a company charges, the physical size of the job can derail even the smallest company when using the price-per-square-foot method. For example, 25,000 square feet @ 10 cents per square foot = $ 2,500, whereas 100 square feet @ 10 cents per square foot = $10. The first scenario has the potential of making money; the second does not even cover the gas to get to the job. Be aware that this method of calculating can be dangerous if the multiplier is not closely monitored.
What is a Price-Per-Square-Foot Multiplier?
The price-per-square-foot multiplier is the key to the system. It is a dynamic number that changes based on the service procedure(s) being performed, assessment criteria gathered from the service area and wage rate. Determining the multiplier is a function of calculation that takes into consideration every aspect of performing the job.
In the end, everything is based on productivity. Most individuals or companies will know what their price-per-square-foot rates are for the services they perform. These values are determined by a company's experience. Take a 5,000-square-foot area with a known productivity rate for the service procedure of 200 square feet an hour. The amount of labor hours required to complete the assignment will be 25 hours. The loaded wage rate (Overhead + Supply Costs + Profit) is multiplied by the hours. Having established the price of the service, divide the number by the total square feet and you will have the price per square foot for the service procedure.
Establishing a price per square foot is only the beginning; the value established is not stable and may be adjusted based on the assessment criteria of the facility.
The square footage of the floor area in a building or facility is a static number and does not change, unless the physical properties of the building or facility change. There are many criteria that can alter how that number is represented, but for the most part the square footage itself does not change. The square footage is the basis of the calculation and therefore the number to which the price per square foot is anchored.
Assessment criteria are the physical variables of a facility or building that can change the productivity rates used in the calculation, which in turn changes the price per square foot. It would be nice if all floor coverings and service procedures took exactly the same amount of time, but this is unrealistic. The assessment criteria help to refine the calculation to a much more precise number that helps to ensure profitability.
The soiling conditions of the floor area can impact productivity immensely. Moderate soiling is generally the base median or average productivity multiplier used for the calculation. Heavy soiled areas may take 25 percent to 33 percent more time to complete, while light soiling or newly installed floor coverings may take 25 percent to 33 percent less time to complete. Altering the productivity rates, in turn, alters the price-per-square-foot multiplier used for the service procedure.
Traffic conditions determine how the soil moves through a building. Although traffic conditions contribute considerably to the soiling conditions, they really represent how frequently the service needs to be performed. This is generally more applicable to a hard-floor maintenance program, but if a floor is exposed to high-traffic conditions and low frequency, the soil will be more difficult to remove, requiring more time or a lower productivity rate. Conversely, if the floor is exposed to low-traffic conditions and high frequency, the soil will be much easier to remove and as a result will require less time, increasing the productivity rate. Each will impact the price-per-square-foot multiplier, raising it or lowering it respectively.
In addition to the soil and traffic condition that the floor is exposed to, there is also a need to establish the amount of congestion within the work area. Congestion falls into three classifications: physical congestion, area congestion and personnel congestion. The more congested an area, the more impact it has on the hard-floor maintenance of that area. Congestion or the lack of congestion impacts the productivity of the service procedure being performed. Decreasing or increasing the productivity has a direct influence on the price per square foot a service might be set at.
Physical congestion equates into obstacles that have the potential of obstructing or impeding hard-floor maintenance services. More congestion equates into navigating around or removing obstacles, which is more time consuming than an empty area. The effects of area congestion are not only in the realm of productivity and proficiency but also a matter of safety and liability. When you operate in a congested area, the potential for damage or injury to personal property or people is greatly increased.
Area congestion is related to how the area is divided. A large area divided into smaller areas will have additional linear feet (edges and corners), which equates into more detailing. The increase of linear feet is in direct correlation to the division of the area; the more the area is divided the more the linear footage increases.
Additionally, when an area is divided, the larger areas become smaller. When this occurs, the use of smaller equipment will be required, again reducing the productivity of the job. In large open areas, the use of more efficient equipment can increase productivity dramatically, which again impacts the multiplier value.
Finally there is personnel congestion, or the amount of people that have to be contended with to perform the services. This could be a 24-hours-a-day, seven-days-a-week operation, which is the most difficult congestion to operate in. Personnel congestion creates the highest potential of liability and requires your maximum level of attention. Often this equates into cutting areas in half to allow traffic through an area, reducing productivity significantly.
There are many variables related to time. Some of these factors can be predictable, while others are not so easy to foresee. They may seem insignificant individually, but when you add them all together they can consume a considerable amount of time.
Time factors can be initiated by the customer or they can be internal. The customer may have a social function in progress and may ask to hold off until the attending participants have all left. Conversely, if technicians do not arrive for work on time, the customer will be the one waiting.
Time factors, both predictable and unpredictable, have a significant impact on the productivity rate of the service being performed. When assessing the hard floor maintenance within the facility, try to consider all things that can impact the performance of the service. Each of these items may very well impact the productivity of the services.
It is usually time factors like these that cause a job to go over budget. They generally occur because of a time-related factor that was omitted or overlooked during the information-gathering phase. This is the inherent problem with price-per-square-foot calculating. One cannot predict everything that can or will go wrong. Evaluation of the hard-floor maintenance requires close scrutiny. Whether estimating the cost of a job or setting it up for service, try to see everything in a very broad perspective. Take your time and examine everything very closely.
The budget dictates the amount of time or money allocated for a specific, one-time-only service or for contractual service. The budget in terms of sales and marketing is relational to profit and loss. The budget for operational personnel is stated in terms of equipment, materials and designated hours to complete the task. It is far easier to accomplish services that have an appropriate budget. It is imperative that both sides work to support the other, even when there are times when budgets do not agree.
The customer will agree to pay a set fee based on the estimate provided by the salesperson. It is the salesperson's responsibility to evaluate, estimate and sell the service at a profit. This calculation is based on productivity rates or price-per-square-foot rates that have proven profitable for like or similar services performed in the past. When the customer requirements go below these guidelines, the potential of a non-profit situation exists.
It would be ludicrous to pay to clean someone else's building, yet it happens all the time. All of the aforementioned topics have to be considered for an accurate estimate. When using the price-per-square-foot method of calculation, be sure to take into consideration the variables and include them in the price. This is the only true way to have an accurate price per square foot. So, before you use someone else's price per square foot, do the math and make sure it is profitable for you.