Fire & Water Remediation Services

The interviewee should perform a back-of-envelope calculation which answers two key questions:

• What is the size of the market?
• Should the firm enter the market?

Suggested Case Structure:

• The population of US is approximately 320 million and the average household size is 2.5. Therefore we can say that there are approximately 125 million households
• We can split these households according to their annual income. Approximately 50% households earn more than and 50% earn less than $80k per year
• Assuming 35% of households earning more than $80k and 15% earning less than $80k are willing to pay for these services, we get 35% of 125/2 households + 15% of 125/2 households =31.25 or approx. 30 million households will buy the annual service

Assume annual cleaning fees of $1600.

Therefore the market size would be approximately $50 billion

If asked about competition, provide the following information to the candidate:

• National players - 15% of the market
• Local players - 20% of the market
• Independent individuals - 60-70% of the market

If asked about customers, provide the following information to the candidate:

• Customers of national players usually rate quality over price
• Customers of independent individual cleaners usually give more weight to price than quality
• Customers of local players look at a mix of both quality and price

If asked about profitability, provide the following information to the candidate:

• The national players charge an average price of $60 per cleaning service (4-hour job)
• $10 per hour worth of labor costs would be incurred by the client
• Additionally, one job requires $5 worth of cleaning materials

Provide the following information, if requested

• The household cleaning market is quite similar to the disaster remediation market
• Even though the sales processes are quite different, the client could leverage its contacts and customer ratings in the cleaning market

The market is large and looks attractive; the client also has transferable skills and contacts.

We can do a preliminary margin analysis:

[$60 price] - [4 hours * $10 hourly labor costs] - [$5 cleaning materials costs] = $15

Important things to do before entering the market:

• Develop a value proposition to the prospective quality-conscious clients
• Research and anticipate likely competitive reactions

The size of the US household cleaning market is $50 billion; it is large and attractive (25% margin). Therefore the client should enter the market.