Knowing your expected profit margin when starting a house cleaning business is important not only for managing the business but also for deciding whether you can operate profitably. The profit margin is the ratio of net income to revenue. Revenue is the total amount of money the business brought in by cleaning houses. Net income is your revenue minus any expenses. The profit margin tells you what percent of every dollar in sales is actually profit.
For the sake of simplicity, we'll take the example of cleaning one house. Let's assume that it takes one employee five hours to clean the house and we can charge $100 for the service. What you can actually charge will depend on the size of the houses you are cleaning, the amount of competition in the area and the demand. In this example, our revenue is $100.
We now need to calculate all the expenses the business incurred while cleaning the house. If you pay your employee $10 per hour, that's $50 in payroll expenses. If you're also reimbursing for gas, that will be an extra expense that depends on the distance driven--let's assume for this job it was $2. Many cleaning services ask that customers supply their own cleaning products. If your business runs like this, the only other expense you have is your insurance expense. This cost will depend on many factors. We will ignore it for now and calculate our expenses to be $52.
Calculating Profit Margin
The profit margin is net income divided by revenue. Net income is our revenue, $100, minus our expenses, $52. In this case our net income is $48. When we divide net income by revenue, we come to a profit margin of 48 percent. If you have greater expenses or earn less revenue, your profit margin will be lower.
Putting it all Together
A profit margin of 48 percent means that for every dollar our house cleaning business takes in, 48 cents is profit. This is a very healthy profit margin. If you want to factor insurance expense into the profit margin, you must divide your monthly insurance cost by the total number of houses you clean in one month and add this to our total expense number above. Keep in mind that this is the profit margin after we have paid any initial startup or capital expenses--like the purchase of a vacuum, steam machine or carpet cleaner. House cleaning businesses tend to have low startup costs and high profit margins.
George Hariri is a business writer who has been writing in 2011. He has great expertise and experience in the area of new business startup and finance. Hariri studied international business at The George Washington University where he completed his Bachelor of Business Administration. Since then, he has been instrumental in numerous start-up ventures, including several where he acted as CEO.