How Much Is a Cleaning Business Worth?
A cleaning business is worth what its maintainable earnings support after a market wage for the owner, adjusted for how secure its contracts are and whether its cleaners are being paid correctly. Because margins are thin and the business owns little, the value rests on the contracts: how long they run, how quickly a customer can leave, and whether the labour cost built into them is realistic. The worked example below restates labour cost using illustrative figures.
- Contract cleaning has thin margins, so small changes in price, hours or labour cost move value more than in most trades.
- The notice period, not the written term, shows how long a contract’s revenue is realistically protected.
- Labour cost is rebuilt from rostered hours and award-correct rates, because underpayment makes reported profit look better than it is.
- A customer who retenders on a cycle puts price, and sometimes the whole contract, at risk.
- The asset base is small, so value rests on contracts and earnings and not on equipment.
What decides the value of a cleaning business?
A cleaning business is worth what its contracts will keep earning once the cleaners are paid correctly and the owner is paid a market wage. Unlike most tradie businesses, a cleaning business owns very little that a buyer can see. The value sits in the contracts, the people who run the sites and the margin between what customers pay and what labour costs.
Margins are thin. A small rise in labour cost, a lost site or an under-priced tender can remove a large part of the profit, which is why contract security and labour compliance move value more here than they do in most trades.
This guide uses an illustrative business with $2,400,000 of revenue. The wider list of factors is on our page on cleaning business valuations. Every figure below is illustrative. None is a benchmark and none describes a real business.
Why does the notice period matter more than the contract term?
Some cleaning contracts allow the customer to end them on short notice, whatever term is written on the front page. We read the term remaining, the termination for convenience clause, the notice period and any change of control or assignment provision. Together they set how long the revenue is realistically protected.
| Contract | Share of revenue | Term remaining | Notice to end |
|---|---|---|---|
| Office portfolio, property group | 30% ($720,000) | 24 months | 30 days |
| Medical centres, three sites | 20% ($480,000) | 36 months | 90 days |
| School group, rebid due | 25% ($600,000) | 12 months | 60 days |
| Strata buildings, 14 sites | 15% ($360,000) | Rolling | 30 days |
| Specialist and periodic work | 10% ($240,000) | Job by job | Not applicable |
Illustrative figures only. The terms are invented to show why notice periods matter. Real contracts differ, and a valuer reads each one.
On these terms the office portfolio and the strata buildings can end on 30 days’ notice. Together they are $1,080,000, or 45% of revenue, whatever term is written on the front page. The school group is also due for retender, so its 25% rests on a rebid as well as a notice period.
We look at when each major contract next comes up and how the business has fared in earlier rebids. Our guide on customer concentration and business value explains why a few large customers matter so much.
Sector matters too. Offices, medical centres, schools and strata buildings differ in hours, standards, supervision and how often they retender. Healthcare cleaning needs infection control training and records, which is harder for a competitor to copy but raises the cost of getting it wrong.
How is labour cost checked in a cleaning business?
Labour is the dominant cost, so we rebuild it for each site from rostered hours and award-correct rates, including penalty rates for evening and night work, superannuation, leave, workers compensation and payroll tax. We then compare the result with what the customer pays. That is where margin is made or lost.
Suppose a site is cleaned 15 hours a week, or 780 hours a year, for $44,000. At an assumed all-in labour cost of $48 an hour the cost is $37,440 and the margin is $6,560, or 14.9%. If the books carry labour at $41 an hour because some pay is below award or off payroll, the cost shows as $31,980 and the margin as $12,020, or 27.3%. The same site looks almost twice as profitable on paper. The rates here are invented to show the effect and are not award rates.
Where cleaners have been paid below the award, paid in cash or engaged as contractors when they are in substance employees, reported profit is higher than a compliant business would earn, and the business may carry a liability for what was underpaid. We restate earnings at award-correct cost and treat any exposure as an issue a buyer will price. Whether an arrangement is lawful, and what may be owed, is a question for your lawyer or employment adviser.
How are maintainable earnings turned into a value?
In the example, restating labour is the largest adjustment. We then replace the owner’s work at a market cost, remove one-off work and apply a multiple that reflects the contract risk above. With few assets there is little asset backing to fall back on, so the earnings and the contracts carry the value.
Illustrative cleaning business: restated earnings and value
Illustrative- Reported net profit before tax
- $376,000
- Add: interest and depreciation
- $20,000
- Reported EBITDA
- $396,000
- Less: labour restated to award rates and on-costs ($1,780,000 against $1,630,000 recorded)
- $150,000
- Less: owner’s role at market cost ($110,000 less $50,000 already paid)
- $60,000
- Less: profit on a one-off post-construction clean
- $22,000
- Maintainable EBITDA
- $164,000
- Multiple chosen for illustration
- 2.5 times
- Illustrative enterprise value
- $410,000
Illustrative figures only. The multiple is chosen for illustration and is not a market figure. A real multiple would also reflect the notice periods, rebid dates and customer concentration.
Reported EBITDA of $396,000 falls to maintainable EBITDA of $164,000, which is 41.4% of the reported figure. Labour and the owner’s role account for $210,000 of the $232,000 fall. Nothing about the business changed. The profit was simply never as high as the accounts showed, which is why reported profit alone is a poor guide in a thin-margin trade.
Specialist and periodic work such as end of lease, carpet, window and post-construction cleaning is priced and won differently from routine contract work. It can carry better margins, but it is usually project based, referral driven or seasonal, so we separate it from the contract base before any multiple is applied.
What reduces and what increases the value of a cleaning business?
- Increases: contracts with time remaining and longer notice periods. Customers that have renewed before are worth more than customers who have never been tested.
- Increases: a spread of customers and sectors. No single rebid then decides the year.
- Increases: documented award compliance. Payroll reviews, rosters and time and attendance records that match the hours billed are evidence a buyer can rely on.
- Increases: supervisors who inspect, train and cover absences. The owner is then not the supervisor, and the sites run without them.
- Reduces: a large share of revenue on short notice or due for rebid.
- Reduces: contract prices that do not follow wages. Award increases reach payroll on a set date, but a contract price may be reviewed only on its anniversary, or not at all.
- Reduces: reliance on labour hire or contractors whose status is unclear. Rules on labour hire differ by state, and some require providers to be licensed.
- Reduces: an owner who wins the work, manages the relationships and covers shifts. A buyer has to replace that time.
- Franchise units: the franchise agreement decides who holds the customer contracts, what fees are paid and what can be sold.
What should a cleaning business owner prepare for a valuation?
- a contract schedule with customer, site, term remaining, notice period, price and last price review
- tender history for three years, including tenders won, lost and due for rebid
- revenue and gross margin by contract, and rostered hours and labour cost by site
- the split of employees, labour hire and contractors, with agreements
- payroll reviews, time and attendance records and any correspondence with a regulator about pay
- the supervisor structure, showing who inspects each site and how often
- the franchise agreement and fee statements, if the business is a franchise unit
An independent valuation then sets out the adjustments and the evidence behind them, and a draft report is provided before it is finalised. Cleaning is often sold alongside other building services, and our guide on how much a facilities maintenance business is worth covers a related contract model. When your records are together you can start online.
This guide is general information, not legal, taxation or financial advice. Examples are illustrative. The appropriate valuation approach depends on the circumstances and purpose of each engagement.