Why you’re going to see many janitorial companies go out of business over the next 12 to 18 months.
That’s a bold statement, so let me explain.
The first reason I want to share is that we’ve entered into a new economic cycle. After many, many years of solid growth, the United States is in a mild recession, if not a full-blown recession.
Part of what the Fed is trying to do is to break the labor market, which has been incredibly strong in recent years. Low unemployment is an indicator of a strong labor market which is normally not during a weak economic cycle or downturn.
For example, look at the restaurant industry. If you go out to eat, many restaurants can’t find enough help. And I’m not talking exclusively about fast food, or chain restaurants, either. I’m talking about well-established pillars in your neighborhood. There simply isn’t enough help from the staff.
I recently saw a very popular restaurant here in Phoenix, Pizzeria Bianco, announcing that they need to close a few nights per week because they can’t staff the way they normally do with their current team. And, as it is, their current staff is already working overtime.
Believe it or not, the same staffing issues exist in the janitorial industry.
Let me explain.
Recession-proof your strong staff
When you have a good staff full of strong, skilled workers, you tend to lean on them more and more when you run into difficult times. For example, when you have low staffing. As a manager, you simply reach a point when you cannot lean on that staff anymore without sacrificing quality. But before you reach that point you push your quality staff members to work overtime. Typically, those overtime hours aren’t built into your pricing model. When you see this begin to happen, janitorial companies only have a few options.
The first thing the janitorial company needs to do actually happens before the staff begins work. During the project bidding process, it’s imperative to know how many staff members will be required to do the work. Once the projected number of hours is calculated, you can more accurately figure those numbers into the bid.
However, when your all-star workers need to work overtime hours to cover the lack of staff, it eats into the janitorial company’s margins.
That’s when the low-bid janitorial company’s pricing model starts to fall apart. The janitorial industry is a low-margin business. Many of the companies that win the work, bid the project low simply in order to get the work… and nothing more. They don’t want to be as profitable as they could be — or should be — because they don’t want to risk losing the business.
The result is the janitorial company gets bought up or closed down. In fact, we recently received a call back from a client in the last week who fired us. The reason they wanted us back? The client needed us because the company they hired is now going out of business.
That type of story is just beginning.
The second reason you will see a lot of janitorial companies go out of business is that they can’t find enough skilled, driven people to join their team.
So you are left with an untenable situation: you have no choice but to pay your stellar staff overtime in order to cover the void left by staff positions you can’t fill. This two-headed dragon will force many janitorial companies out of business. Once the recession is in full swing, I firmly believe we will see this begin to play out with a three to six-month lag period.
There will only be a certain number of companies standing once this begins. The first companies wiped out will be the low-price bidders.
If you’re looking to hire a new janitorial company in early 2023, you might want to start following a few companies on your shortlist. See if you notice an uptick or downtrend in their hiring over the next 12 to 18 months.
The fact is that the United States is in a labor crisis. We do not have enough willing workers to fill job openings. And until that crisis is solved, employers will continue to pay more for the workers they have and struggle to hire the workers they want. The question you need to think about is whether or not partnering with a low-price bidder is the best interest long-term solution for your property.