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Turning the Corner

Written by  Chris Towery

12-TurningtheCornerThe year 2012 marked an important turning point for the BSC industry, and fortunately the shift was in a largely positive direction. The economy steadily picked up steam over the past year, with unemployment dropping to its lowest levels since the onset of the recession and a majority of BSCs seeing an increase in their gross annual sales. By the end of 2012, it finally seemed like we could see light at the end of what has been a long dark tunnel.

While the last few years have been tough, the industry seems to have emerged in even better shape than before. To accommodate for the sluggish growth of the past few years, many BSCs streamlined their operations and made their businesses more efficient. New advances in technology and sustainability have been valuable tools for BSCs to both enhance their efficiency and modernize their operations. Cleaning companies have also diversified their businesses, moving from offering primarily janitorial services to offering a wide range of facility services.

Although issues such as health insurance, illegal immigration, and labor shortages continue to weigh heavily on many BSCs, the industry has always proved incredibly resilient, so it’s likely that the industry will find innovative ways to adapt—and possibly even benefit from—such challenges. With the positive momentum gained in 2012, all of the early 12-ttc-2indications suggest that 2013 will be even better.

Recession Proof

The phrase “recession proof ” is often used to describe the commercial cleaning industry’s ability to successfully survive recessions. For the industry as a whole, this has proved true, but nearly everyone experienced some pain from the more than three years of slow growth. This was reflected in the results of SERVICES annual industry survey of BSCs, which found that while 61 percent of respondents experienced an increase in their gross annual sales in 2012, 22 percent saw flat growth, and 17 percent actually had decreased sales.

For this reason, it’s perhaps more accurate to describe the industry as “recession resistant.” This is largely due to the fact that most of the services provided by BSCs are so essential to clients that they can never be fully eliminated. In June 2012, the BSCAI and Marketdata Enterpises released their The US Commercial & Residential Cleaning Services Industry 2012 study, which noted that cleaning services will always be in demand.

“Building cleaning and maintenance is a service that will always be needed, thereby ensuring a certain recession-resistant buffer, compared to other service sectors,” notes the Marketdata study. “Essentially, this is not a ‘luxury’ or discretionary service, but more of a commodity business.”

In the end, the downturn in the economy may even have some positive effects. Tough times have a way of “trimming the fat” from the overall industry, and the businesses that weather the storm successfully have a tendency to emerge stronger. According to Dick Ollek, owner of Consultants in Cleaning LLC, this resilience is the result of proper planning and forward-looking management.

“The companies that had a solid plan and a solid direction of where they wanted to go long term, most of those companies made it through the recession okay.” said Ollek. “The companies that survived are now stronger. They learned that by having the right plan of action they can survive some really tough times.”

16-ttcLabor Pains

When unemployment is high, it seems only logical that it would be easier to find employees to fill positions. But in spite of the glut of available workers during the past few years, BSCs are still having a hard time hiring and retaining a qualified workforce. In fact, a majority of BSCs responding to the SERVICES survey said that the “shortage of qualified labor” was the most challenging issue related to workforce management.

During the worst of the recession, there were periods when more qualified workers moved into the cleaning industry from other sectors; however, this proved to be mainly temporary, as many of them took other jobs once the economy recovered. But this isn’t an entirely new phenomenon: the commercial cleaning industry has always had trouble finding well-qualified workers. The shortage of labor is caused by two major factors: low pay and high turnover.

Although cheap labor is one reason you can start a new cleaning business with a comparatively little upfront investment, this often proves to be a negative factor when it comes to maintaining and growing the business. According to the Marketdata study, the average starting wage in 2012 was only $8.62 per hour, while the average wage for all workers was $10.49 per hour. Such low wages are extremely difficult to live on, even when working full-time, which means that many janitorial employees work more than one job just to survive.

And those who do take a job within the field often move on to better-paying industries after only a short period of time. Indeed, for many who entered the cleaning profession from other sectors during the recession, the work was simply a way make ends meet after losing their primary employment, and they had no intention of staying in the industry once they found better paying jobs.

According to the Marketdata study, turnover can run as high as 200 percent per year, and for many BSCs, an annual turnover rate of 80 to 100 percent is considered “lucky.” Of course, offering better wages can be effective at reducing turnover, especially if you pay better than your competitors. Unfortunately, because the cleaning profession is extremely labor intensive, increasing wages can be difficult without passing along that added expense to clients. For those BSCS who can’t afford to raise wages, turnover can be reduced by implementing effective hiring and management strategies. However, since turnover is likely to be an issue both in down times and periods of growth, such strategies make good sense even as the industry sees an uptick in business.

“The coming year should be much better for BSCs,” says Ollek. “However, those companies without solid hiring practices, without solid training programs, and without effective systems and processes for attracting well-qualified employees are going to find 14-ttc-2themselves on the outside looking in, while the others are thriving.”

Going High Tech

Another longtime challenge faced by BSCs is the largely negative public image of the profession. Many people view working as a janitor to be a lowly job, so attracting qualified, hardworking staff can be difficult even when there is plenty of business. As the Marketdata study notes: “It is hard to find ‘people who are not subjected to negative perceptions of janitorial services.’”

However, recent developments in technology are helping to alter this perception and make commercial cleaning a more modern and progressive industry. The SERVICES industry survey showed that in 2012, the vast majority of BSCs invested in new digital technologies, such as cloud computing, social media, inspection software, mobile devices, and comprehensive custodial management software. As business operations become more digitized, this equipment not only increases efficiency, but it makes the profession appear more professional.

“The new technology is fantastic,” says Ollek. “It’s a great way to sell the business and sell accounts to customers. When we’re presenting proposals to clients, this new technology really gives the presentations a certain ‘wow’ factor. At first, some clients may think of us as the guys who drive up in a dirty van with a mop and bucket, but the technology shows that we’re truly professionals.”

From Basic Cleaning to Total Service

While the largest cleaning companies have been branching out into other facility services such as landscaping, pest control, and security for several years now, this diversification has been slower to catch on among small to mid-size BSCs. But with the recession, many clients outsourced their in-house facility services, so more and more BSCs are adding additional services. Nearly every respondent to the SERVICES survey said they are offering at least one service to clients outside of traditional cleaning, and more than half boasted multiple facility services.

By shifting to a total service model, BSCs are not only able to tap into new revenue sources, but they also help clients simplify their businesses and reduce soft costs. Even more, by diversifying their services, BSCs can actually help protect their businesses during slow times.

“I’m seeing a strong trend of cleaning companies becoming facility service providers,” says Ollek. “BSCs are looking for additional ways they can help customers, both to decrease their soft costs and to solidify the business relationship, so that the cleaning companies don’t have to be dependent on just one revenue stream.”

Mainstream Green

As in years past, 2012 saw increasing numbers of BSCs adopting sustainability practices. Although the sustainability movement is still in its infancy—particularly among smaller-sized BSCs—recent developments in technology, research, and certification have transformed green into more than just a fad.

“We saw the offering of green and sustainable cleaning products and services become ‘mainstream’ in 2012,” says Kelly Cramer, manager of Staples Facility Solutions. “Today, sustainability is virtually ubiquitous, especially among BSCs who service mid-to-large size business customers.”

Steve Ashkin, President of The Ashkin Group, echoes Cramer’s observation: “Last year, I predicted that facility managers and BSCs would begin to see ‘green as a given.’ By this, I meant that managers and cleaning professionals would select green cleaning products first and conventional cleaning products only if green ones were not available. Looking back, I believe this has definitely come to pass.”

Like the numerous technological advances now used by BSCs, the push for sustainability is also helping commercial cleaning companies gain an enhanced sense of professionalism. Because sustainability is not only mainstream in our industry, but also in most other sectors, many clients seek out BSCs who can demonstrate their “green credentials.” And this is not just about helping the environment—clients are looking for sustainable cleaning companies because adopting such practices demonstrates good business sense. “Increasing numbers of clients are requiring that vendors serving their facilities show ‘proof of sustainability,’ documenting how they address sustainability within their own businesses,” says Ashkin. “They are doing this not only to see that their vendors are taking steps to be greener, but because of a belief that a business that operates in a green and sustainable manner is likely more efficiently run, is able to provide a higher-quality service, has a better- trained staff, is more cost efficient, and can help managers in their own efforts to become greener and more sustainable.”

While transforming a cleaning company into a highly sustainable operation can take time and require significant research, those BSCs that provide evidence that their green practices are more than just a marketing ploy can see an incredible payoff.

“I have several clients who are LEED-accredited professionals who have taken the time to seriously embrace sustainability, and they are getting business like you wouldn’t believe,” says Ollek.

Health Insurance Hassles

One issue that was on the forefront of everyone’s mind in 2012 was the Affordable Care Act, a.k.a. Obamacare. Up until June, when the Supreme Court upheld the constitutionality of the legislation, business owners were essentially in a holding pattern, waiting to see how the court would rule. For some, this holding pattern continued even after the landmark decision, as Republican presidential candidate Mitt Romney promised to repeal the Act if elected. However, with the reelection of President Obama in November, it looks as if the nation’s healthcare system is definitely in for an overhaul.

Most BSCs aren’t optimistic about the legislation’s effect on their companies, and a majority of respondents (53 percent) to the SERVICES survey believe the Affordable Care Act will negatively impact their businesses. Even now, with the full implementation of Obamacare virtually guaranteed in 2014, there’s still a sense of uncertainty surrounding the legislation, and this keeps BSCs on edge.

“The passing of the Affordable Care Act continues to be a strain on my nerves,” says Matthew Stowe, CEO of OctoClean. “The confusion of how this will impact small business owners continues to be stressful.”

Only time will tell how Obamacare eventually impacts the industry, but one thing is for certain: BSCs will have to find a way to adapt. Like nearly every major regulatory change, business owners will be largely resistant to the legislation’s initial implementation, but over time, the consequences may not prove as dire as predicted. Moreover, for truly innovative BSCs, there may even be a way to profit from the new law.

“I think most of the industry is opposed to Obamacare, but we have to deal with it,” says Ollek. “In my opinion, Obamacare could even become an opportunity. I think many customers will want to avoid the cost of providing healthcare for all of their employees, so they will start outsourcing work, and we will have an opportunity to take on that business. We could sit and pout while our business goes down the drain, or we could figure out a way to deal with 15-ttcObamacare and even make a dollar out of it.”

The Immigration Issue

Outside of healthcare reform, illegal immigration emerged as another hot-button issue for many business owners. There is a widespread push from both political parties for a major overhaul of the nation’s immigration policies; however, the scope of such reform remains hotly debated. That said, the rise in country’s Hispanic population and the re-election of President Obama has politicians on both sides of the aisle seriously considering incorporating a “pathway to citizenship” for undocumented immigrants as part of such reform.

As the SERVICES survey seems to reflect, immigration reform is not seen as a highly important issue for all BSCs. Indeed, 64 percent of BSCs surveyed said illegal immigration does not have a major impact on their business, while 30 percent said it did, and six percent said the issue didn’t apply to them. Further, a majority of respondents (58 percent) said that immigration reform should not be a top priority for the federal government, while 42 percent said that it should. Obviously, immigration is generally a more pressing concern for BSCs based in border states, and the majority of respondents listing immigration as a major issue were from these regions.

Regardless of what part of the country BSCs are located, as we move into 2013 and beyond, major immigration reform seems likely, which could make the issue just as contentious as healthcare. “Immigration is going to be a big issue in the coming years,” says Ollek. “I think it will become the Obamacare of 2013, so to speak.” For those BSCs located in areas with high levels of immigrant labor, such legislation will undoubtedly have a significant impact on both hiring practices and business in general. Depending on the final scope of reform and whether or not a pathway to citizenship is included, such new laws could eventually affect clients as well.

“Immigration reform is an interesting issue, because the industry here in Southern California is largely staffed by Mexican Americans and other documented immigrant workers,” says Stowe. “The number of undocumented people working for BSCs ‘under the table’ is unknown, but my guess is that it is staggering. When and if an immigration bill passes, we could see an eventual uptick in prices to customers leveling the playing field.”

Looking to the Future

While 2012 was a good year for most BSCs, 2013 is shaping up to be even better. Nearly 60 percent of the SERVICES survey respondents plan to increase their product and services budgets in 2013, while 33 percent will keep them roughly the same, and nine percent plan to reduce them. For the industry as a whole, the Marketdata study forecasts a growth rate in commercial cleaning revenue of 3.5 percent in 2013, and it estimates revenues will rise to 4 percent and higher between 2014 and 2016.

For individual BSCs, especially those with aggressive business plans in place, 2013 could bring a significantly higher volume of business. “We are looking forward to a great year in 2013,” says Stowe. “In fact, we are forecasting growth to be 20 percent plus this year.”

Even though we’re only a few months into the new year, the industry already appears to be steadily gaining momentum, which is inspiring levels of optimism we haven’t seen since before the recession. If the industry continues on the positive trajectory we experienced in 2012, the coming year will provide conclusive evidence that we’ve finally turned the corner and are heading for bigger and better things.

“There’s no question things are picking up,” says Ollek. “I can tell that based on the calls I’m getting from people looking for help and from the orders I’m getting for our products. On January 1st, it was as if somebody turned on a switch—it’s unbelievable. We’re seeing increases in both excitement and business, and if it stays like this, we’re going to have a truly great year in 2013.”

This feature is based on research from a variety of sources, including the 2012 SERVICES industry survey, Marketdata Enterprises’ The US Commercial & Residential Cleaning Services Industry 2012, and personal interviews the author conducted with BSCs, industry experts, and vendors.

To access the Marketdata study, visit www.bscai.org/Marketplace/tabid/106/pid/204/ The-U-S-Commercial-Residential-Cleaning-Services-Industry-2012-eBook.aspx. In addition to the full version of the study, which includes 226 pages and 152 tables, individual chapters are also available for purchase.




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