In the last episode, we touched on a few controversial subjects. I encourage you to check out "Poor Character Produces Long-Term Pain" and let me know your thoughts. I want to take a more positive approach in this episode. Just as poor character produces short-term gain and long-term pain, good collaboration produces short-term pain and long-term gain. Before I share my stories, let me explain. It's hopefully clear that the 2 example stories from last episode created a short-term solution. It made the cleaning companies more money in the short-term. But in my opinion, it hurt them long-term in reputation and ultimately revenue. When a company is less referable, they will create less revenue. Collaboration is an act of generosity and focuses in on one of the "7 Habits of Highly Effective People" by Stephen Covey. Stephen calls it, "Habit 4: Think Win-Win". When we collaborate with another local company, we build a bridge between us. Our customers can become their customers and vice-versa. It allows us to stay in our lane and service the areas we are best able to serve, while allowing our collaborator to do the same. This ultimately creates a better outcome for the customer that we share as well. Let's go back to the past example. The house cleaner that decided to add carpet cleaning was able to earn more revenue on each customer, but she wasn't providing the best carpet service. She was also spreading herself thin and potentially watering down the quality of the main lane she served. If this occurs, the customer receives a lesser house or office cleaning along with a lesser carpet cleaning. This customer is less happy and less willing to refer the business. Let's examine these two stories from the C3 Experience.
Story 1: I met Wanda Alderfer at a Believers in Business networking group breakfast. We were sitting next to each other and were shocked to meet another commercial cleaner like that! Most would see the direct competition at the same table and not want to talk. They have a competition mindset. Wanda and I have a collaboration mindset. As I explained in the opening of this podcast, collaboration allows both businesses to stay in their lane. This serves the customer best and allows the two collaborating companies to win together. It's like the Clydesdale horse story. One horse can pull approximately 5,000 pounds. Two yoked together can pull how much? Most guess 10,000 pounds. This is logical. They can actually pull around 20,000 pounds! In other words, 2 horses can pull 4 times the load as a single horse. This is what happens when 2 businesses collaborate. I met up for lunch a week later with Wanda. Here's what was so cool. We both walked away excited to help each other. I need clients more than employees right now. And she needs employees more than clients. I have prospect employees that I could not hire that could be fits for her. She has prospect clients that could be great fits for me. As we talked at lunch about our business models, I was able to map them both out in my notebook and saw something powerful. Her so-so prospect clients and employees are great ones for me. Likewise, my so-so prospect client and employees are great ones for her. I won't go into too much detail, but I'll explain a little more. First of all, we're both Christians and have a heart to serve others. We both believe that we are stewards and that God owns it all. Our foundation aligns. Wanda and I have a core values and mission fit. This is huge in a collaboration! Wanda's sweet spot are churches and professional/industrial settings desiring 3 cleans per week or more. My sweet spot are small professional offices desiring 1-2 cleans per week. Wanda's ideal location is near her office, which are my further clients. My idea clients are near my office, which are Wanda's further away clients. Lastly, Wanda's ideal team member is blue-collar working 20-25 hours per week. My ideal team member is white-collar working a side-gig 6-10 hours per week. Individually, Wanda and I serve the same community as a whole and we need to find our own ideal clients and employees. When we collaborate, we can each search and keep what is best for us and refer what isn't best. This is so cool because what's not best for Wanda may be best for me and vice versa. We have built a powerful bridge to each grow faster in our ideal niche. Since this lunch meeting, Wanda has sent 2 client referrals to me that are close to my office. I have sent 5 employee candidates to Wanda. Do you see the power of collaboration?
Wanda is the owner of Debbie's Cleaning out of Telford, PA. They have serviced the Philadelphia Area for over 20 years with excellence. That's why we collaborate.
Story 2: James Hardy is getting a ton of free PR in this podcast and the last. You've already heard how great of a carpet, upholstery, and floor cleaner he is. Jim and I have set up a similar collaboration. I clean small professional offices. He does floor cleaning for small professional offices. I have referred him and he has referred me because we have similar core values. We are both Christians (like Wanda and I). Jim and I are both on the high end of the quality range and serve the community with excellence. This is a big time fit. We don't have any crossover. I don't do any deep cleaning floor service and Jim doesn't offer any maintenance cleaning. Every one of my clients is a prospect for Jim and every one of Jim's clients is a prospect for me. This creates the Clydesdale Horse potential again. I want to add one more piece to this collaboration. Most carpet and house or office cleaning companies set up a subcontractor relationship. There is nothing wrong with this. It works like this. If Jim wanted to refer me, he would sub C3 cleaning out. I'd give him a price and he'd submit the proposal. I'd do my end of the work and Jim would pay me after the customer pays him. Jim would mark up my price by 10%. Thus, if I did $10k per year in work for him, he'd profit $1,000. This is a win-win for sure. We both get business. However, I believe it is short-sighted. Jim has a high-performance cleaning business. He is an expert at explaining what he does and can sell jobs at a premium. If I had a customer that wanted a carpet or floor cleaning, I would NOT subcontract this work. I would need Jim to undercut his prices so that I could add my 10%. I am very aware that there is no way that I could sell his service as good as he does. Therefore, I have chosen to partner or collaborate in a referral model only. Let me demonstrate the two options (subcontractor vs. referral) with some numbers. This will give you the ability to decide which works best for you. These numbers are made up and for illustration purposes only. Also, my bias is obvious!
Example 1: Jim can sell his restoration carpet cleaning to a typical office building for $1,000. Ken chooses to subcontract Jim. Ken does the customer estimate and proposal. Since Ken is not as thorough as Jim in selling a premium valued carpet cleaning, Ken is only able to sell Jim's service for $800 (a $200 discount). Ken wants to make 10%, so he asks Jim to further discount his price to $725. Jim does the job and earns $725 of revenue that he wouldn't have received otherwise. Ken earns $75. They duplicate this 2 times in the first year at 10 of Ken's locations. Ken earns $1,500 for the year and Jim adds $14,500. This is a win-win in appearance. But in reality, Jim realizes that the jobs Ken sent him are way less profitable than other clients. Jim is very busy and doesn't need the business. He opts to say no to Ken's subcontracting the following year to focus on jobs he sells. There are no hard feelings. Jim is wise enough to focus on the most profitable clients. When he evaluated the year's worth of business, the referrals from Ken yielded 30% less profit. The customers that Jim helped Ken with were very happy with the work. They want Jim to come back the next year, but unfortunately Jim says no. They are also unwilling to pay 30% more for Jim's full price. This makes the customer unhappy and hurts Jim's and Ken's reputation. Ken and Jim are still friends but not as likely to refer each other. This costs both friends a lot in opportunity cost from lost referrals. In summary, Ken and Jim shared a win-win in year 1 but experienced a huge lose-lose in subsequent years.
Example 2: Ken chooses to refer Jim to the same customer in example 1. Jim does his own estimate and proposal. He wins the job for full price and knocks it out of the park. The customer was willing to pay $1,000 for Jim's service because he was best able to communicate the value of his own service. Ken received no referral fee. At the end of the first year (as in example 1), Jim serves 10 of Ken's customers twice. Jim earns $20,000 in revenue and Ken earned $0. This is a win-lose model in the first year. Jim's new customers from Ken's referrals are very happy and continue to use Jim twice per year. Jim's revenue has increased $20,000 per year and his profits align with his other clients. Therefore, Jim is very happy. The customers are happy with Jim and happy with Ken for referring Jim. Jim is thrilled with the collaboration and sends 5 referrals to Ken in the second year. Ken does his own estimates and proposals. He wins 3 of 5 at $600 per month in revenue. Ken's revenue grows by $21,600 in year 2 and subsequent years. These new clients are in Ken's wheelhouse and very profitable. This is a HUGE win-win-win. Jim is happier. Ken is happier. The customer is happier.
Did you catch my obvious bias? You should. I laid it on very thick. It might not play out exactly like this. I just believe that the long-term gain on collaboration and referrals is way more profitable than playing the 10% subcontractor game. We've spent a lot of time sharing stories in the last 2 episodes to show you that long-term benefit is the way to think about your business. Operate with great character. Build collaboration partners that align.
Would you like to collaborate with other cleaning companies nationally. Check out the Smart Cleaning Tribe. We are a family of cleaning company owners who connect every week via Zoom to brainstorm, solve problems, set goals, hold each other accountable, and support each other.
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The Smart Cleaning School Podcast helps cleaning business owners from start-up to the struggling solo to the striving seven-figure get SMARTER in their businesses, reshape their mindset, increase productivity, clear the overwhelm, and get clarity through SMART goal-setting & personal accountability. Ken Carfagno is a lifetime learner and teacher. His mission is to help visionaries make the impact they were meant to make.