The Entrepreneur's Edge

By Scott Rendall

October 13, 2010

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Q: I primarily provide high-end residential cleaning services in my market, but have lately noticed a down-trend. Customers are spending less than they used to and are scrutinizing my charges. I am thinking of adding commercial carpet cleaning services to offset the downturn of residential in my market. Is this a good idea?

— A.L., Tampa

A: If you hadn''t written what city you''re from, I could''ve mistaken you from being from Detroit, Los Angeles, Las Vegas and many other areas where disposable income is drying up.

The ugly

As I write, A.L, consider this. I live 50 miles from the City of Detroit. According to Realcomp, a Michigan property valuation service, in 2003, the median price of a home in Detroit was nearly $100,000.

Here is a headline from December 23, 2008: "Depression Hits Detroit: Average Home Price $18,513 — Unemployment Rate 21%."

(Author''s note: The above home price statistic is widely disputed as being too high)

Fast-forward to March 2009, and the median home price is now … are you sitting down? Seven thousand five hundred dollars and 00/100.

I wrote it out so there is no confusion. Not $75,000; $7,500!

Some people are literally buying a house with a credit card in Detroit these days.

Now, granted, for $7,500 you''re not getting a great house. You''re getting a bare-bones 1950s inner city home that needs some work, but that''s the average price in Detroit.

Also recently in the news was a story of a home and property that sold for $1 here, and on ABC''s 20/20 not long ago there was a story about many families moving into Detroit and buying homes for $500 and less.

One industrious husband and wife artist team from the Pacific Northwest bought their home for $100, put in $10,000 in repairs, and now use it as a home/art studio.

In my area, a very safe suburb approximately one hour west of Detroit, my own property value has lost more than $100,000 in just the past three years.

Shocking, isn''t it?

Well, it''s shocking to your customers too. They are scared of the future, of their job security, of the debt that their kids and grandkids will inherit and they''re not spending wildly as they once did.

The bad

While home prices and the economy in general in other areas of the United States aren''t as beat up as Detroit, I''m sure you''ve seen headlines like: "No bottom seen in the housing slide," "Foreclosures up sharply," "Credit dries up," etc.

Frankly, there is a lot of bad news out there and virtually all of our customers are feeling the pinch, too.

As access to money becomes tighter, it hurts all of us, and not just those in the residential cleaning market.

For the first time in my life, a few months ago, I saw a surgeon advertise a sale on surgical procedures.

I wish I was kidding. I won''t name the practice, but those of us in the Detroit area have undoubtedly gotten a chuckle out of the "Two For One Plastic Surgery Procedures" advertised lately.

It''s painfully laughable, but a sign of the times.

The good

Now that I''ve painted a completely dour picture of the reality in the times we live, believe it or not there is some good news:
1.
Your competition is feeling the pinch, just like you. I hope you are like me and don''t feel good about any company having a difficult time, but it is a little comforting to know it''s not just you.

2.
Carpet still gets dirty and it still needs to be cleaned. Best of all, there is no shortage of self-admitted "clean freaks" in any given market.

3.
Thinning out of poorly-run companies is perfectly natural in a free economy.

4.
It won''t last forever. This is just another economic cycle. The market went up too high and now it''s going to go down too low. After some time the market will seek equilibrium, just as it always does. None of us know when, but it will swing back to positive sooner or later. Usually when the last positive signs of any possibility of a rebound are lost; when the most optimistic of economists finally throws in the towel; when every one is negative in the market — at that very moment it starts to tick up … and up … and up some more — and then we''re back into a bull cycle once again before anyone really realizes it.

Time to focus

A.L., your question was whether or not you should add commercial cleaning to your list of services. I say "Yes!"

It''s now confession time.

Several years ago, our average residential job ticket approached $500 and we were swamped with residential work day in and day out.

But about six years ago, things started to change. Our residential job tickets started to slide.

I went into sales training overdrive to get the tickets back up.

My team members were doing everything right; the customers just weren''t buying. That continued for two painful years, and then I had an awakening, which I share often.

We had to adapt — or die.

It wasn''t that our quality was poor — far from it.

I have testimonial after testimonial and referral after referral to prove it. Our residential slide happened for a few reasons:
•
Because of job losses and the general poor economic conditions in Michigan, our local economy shifted to that of more value- based than premium-based.

•
People who used to live in exquisite homes could no longer afford them as their jobs dried up.

•
Hard floors bit off a chunk of the carpet care market. Of course, we adapted by cleaning hard surfaces and rugs, but with fewer residential customers — there has been a flight out of Michigan for quite some time now — combined with less-frequent maintenance required of hard floor surfaces, we had to do something different.

Commercial cleaning services to the rescue

After my rude awakening about our local market, and my initial stubbornness to adapt, I came to my senses and looked at the big picture.

The big picture told me that we needed to get into the commercial carpet cleaning game in order to get back on track.

Yes, there are fewer companies in Michigan now than five years ago, but the beauty with the right commercial work includes:
1.
It''s year-round work. Residential always dries up in the winter months in cold states like Michigan. In Tampa, I understand your slow season is the summer with snowbirds returning to their northern perches. Commercial work is generally steady, year-round work.

2.
The best commercial jobs will want you back at least a couple of times a year, and more often if they''re a Class A property — high rent, high visibility to the general public.

3.
Commercial work can be extremely profitable if you understand production numbers.

If you use this opportunity to view and take action on your own "big picture" as I did above, the answers to what you should do next should become crystal clear.

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Scott Rendall is a second-generation cleaning and restoration business owner as well as entrepreneur, writer and founder of Banana Profits, LLC (BananaProfits.com). Banana Profits helps cleaners, restorers and other service businesses dominate their market with the motto "Become a Banana and Become the Brand of Choice not Chance!" Rendall can be reached by email at scott@BananaProfits.com or by telephone at (517) 618-3038.

Do you have questions for The Entrepreneur''s Edge section? E-mail them to Jeff Cross, senior editor of CM/Cleanfax® magazine, at jcross@ntpmedia.com.