Building service contractors spend much of their time focused on growth—adding customers, managing crews, and keeping facilities clean and safe. But according to Jeff Carmon, a business coach and consultant with Elite BSC, long-term success depends less on chasing revenue and more on understanding what the numbers behind the business are actually saying.
“Everybody talks about growing revenue,” Carmon said, “but revenue kind of talks about how busy you are and potentially doesn’t talk about how healthy you are.”
Carmon explained that bank balances offer only a snapshot of the present. Financial ratios, on the other hand, help contractors anticipate what may come next.
“I think about it this way,” he said. “You could be running 120 miles an hour down the interstate, and everything’s fine in your car. But if your oil pressure is rising or the car’s overheating, you’re still running at 120 miles an hour, and you’re on the verge of serious problems. These ratios are kind of like a little dashboard.”
Four ratios that reveal business health
When Carmon works with building service contractors, he focuses on four core financial ratios that help guide pricing, management decisions, and long-term sustainability.
The first is the labor-to-sales ratio, which shows how effectively labor is being managed. “Labor is such a big part of what we’re doing,” Carmon said. “That ratio helps contractors understand how much of their revenue is going toward staffing.”
The second is gross margin, which Carmon described simply as determining whether there is any money left after paying cleaners and covering direct expenses. “Gross margin is revenue less direct expenses,” he said. “It’s a good way to check if your pricing is on point and if you’re managing your direct costs.”
The third ratio—contribution margin—is one that Carmon believes is often overlooked in the cleaning industry, especially among contractors with $500,000 to $3 million in revenue.
“Contribution margin says, collectively as our portfolio of businesses, is it helping support the growth of our company?” he said. “Of all the work we’re doing, what work is worth keeping? What work should we improve? And what jobs may we need to get rid of?”
Carmon explained that while gross margin focuses on individual accounts, contribution margin accounts for fixed and semi-variable costs associated with growth, such as hiring an operations manager, HR support, or sales leadership.
He offered a clear comparison. “You could have a $2,000-a-month customer at a 75% gross margin, and that’s contributing about $1,400 to covering fixed expenses. On the other hand, you could have a $20,000-a-month customer at a 25% margin that’s contributing $5,000. As business owners, we need to ask which customers are contributing more toward helping our business grow and survive.”
The fourth ratio is cash on hand, which Carmon described as essential breathing room.
“We use a straightforward cash-on-hand ratio,” he said. “Take your cash and cash equivalents and divide that by your total annual revenue. We want that number to be about 8%, which usually covers 30 to 60 days of cash.”
That cushion becomes critical when unexpected events occur. “You lose a large customer, a client goes 60 days without paying, and then goes out of business—you still have to make payroll,” Carmon said. “If that ratio starts shrinking, it’s a warning sign.”
Labor: The biggest number to watch
Labor remains the single most significant cost for most BSCs, often accounting for 60% to 70% of total revenue.
“That’s kind of amazing,” Carmon said. “Sixty to 70 cents out of every dollar is going to pay our workers.”
He emphasized tracking not just labor dollars but labor hours. “Every single day, on every job, we looked at whether we were hitting our budgeted hours,” he said. “That labor-to-sales ratio is something you really need to watch all the time.”
Beyond the numbers, Carmon reminded contractors of the human impact behind them. “You’re supporting families,” he said. “This industry shows up every single day to keep buildings clean to make a nickel or a dime at the end.”
Focus on health, not just growth
Carmon’s advice to contractors is deliberate but straightforward. “Don’t overdo it with ratios,” he said. “Pick four or five. Start tracking them. Get a system.”
Most importantly, he cautioned against focusing solely on top-line growth. “Don’t chase revenue,” Carmon said. “Chase a healthy business. These ratios give you a picture of whether your business is healthy and able to grow into the future.”
Watch the interview and listen to the podcast below: