14 April 2011 | Adviser Q&A
One of my suppliers prices cleaning on a cost per person basis. He knows how much each person costs within the business and applies this to cleaning. How would I calculate cost per person within our business? Category manager, Cheshire
John Bower, director, Gulfhaven and chairman, British Institute of Facilities Management procurement special interests group
Costing models always use a cost unit, and in cleaning this is typically area based – per square metre, for example. There will also be a different cost for common areas, open plan, modular layouts and so on. This will include the labour cost, so it is fairly straightforward to use the person as the cost unit, using productivity levels to input the area information.
From a sales viewpoint, understanding what revenue is earnt per employee is important, because it can help to make profit more visible, as well as driving efficiencies. The latter point is very useful to know as a buyer to help manage and improve a contract over its duration.
Focusing on the person also helps to make them the centre of the issue. Areas such as training, recruitment, motivation and retention may be the supplier’s problem, but those costs ultimately get paid by the buyer, so taking an interest in the people and what they cost is worth it in the long run.
Graham Crawshaw, director, Purchasing for Profit
Typically, 80 per cent of a cleaning contract is direct labour cost. The rest covers equipment, supplies and contractor’s overhead and profit.
With such a significant cost going into labour, the supplier should be asked to break this down. The buyer should determine the specification for what cleaning needs to be carried out. The supplier should be asked to specify the number of cleaning operatives required and the hours each person will work to meet the specification.
The build up of the labour cost is:
• Hourly rate paid to the cleaning operative multiplied by the number of hours worked in the week.
• Employer’s National Insurance cost, taking into account that the first £130 a week of gross wages does not attract NI. Wages above this are charged at 13.8 per cent.
• Working Time Directive cost, namely 28 days holiday a year calculated at 12.07 per cent.
The sum of the above equals the total weekly direct labour cost. This approach results in a transparent contract that can be updated as the number of cleaning hours change.
Paul Plummer, senior procurement manager, Transport for London
When you are procuring cleaning services, my recommendation would be to look at the facilities that need to be cleaned and divide them into activity areas. For example, this could include office space, washrooms, kitchens, communal areas and meeting spaces.
Then work out the size of each area on a square-metre basis, ideally using any plans that you may have access to for the building/area to achieve this. The amount of work required for each area will differ – the cleaning of washrooms, for example, is more labour intensive than, say, communal areas.
By working up a specification based on the area and type of work to be undertaken, you should be able to identify cost per square metre and use this as a comparator between bidders for the contract.
This method is reasonably typical within the facilities management environment, and can be used for benchmarking purposes across a range of similar buildings or contracts.
Key Facts
1. Work out the area that needs cleaning
2. Take into account the amount of work required for different types of spaces
3. Build up a picture of the labour costs and how they are broken down
4. Use the information as a benchmark for the future
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