3. - The Mechanics of Raising Commercial Laundry Prices

From my previous articles, Is Now the Time to Increase Your Vend Prices, hopefully you realize that you need to bring your commercial laundry vend prices into line with what is a fair and reasonable profit. But how high should I raise my vend prices? How much for each machine? Should I raise my Washers & Dryers at the same time? How do I go about determining what a fair and reasonable vend price actually is? What are the mechanics of evaluating & raising my vend prices?

I own and manage 4 Laundromats in some very competitive areas. My first task is to visit all of my competitors and make accurate records of their different sized washers & dryers. I record all of the vend prices including the "Special Prices" and "Extra Feature" prices for all of the commercial laundry equipment. If I meet the owner of the store, then I will offer to buy him a cup of coffee. I will explain that I am in the process of raising my vend prices to offset the increases in utility costs. Hopefully this opens up a conversation to discuss the Laundromat business. My Laundromat competitor is my neighbor, one that I may not have to like but a neighbor that I have to co-exist with and respect. Who knows, maybe he will call me when he is looking to sell his store. I eventually end my conversation with the assurance that I will be raising my prices, I will let him know when I do and hopefully he will raise his prices too.

I have been in the commercial laundry business too long to think that my competitor is going to go out of business. So my approach is not to beat him, but be friendly, respectful and form a mutual respect for both of our operations, and (most importantly) to make money. I have seen the "dumb operator" who takes his Laundromat's competition "personally" and vows to bankrupt them out of business. Well it just is not going to happen. Any business man, who just invested $100-200,000 into a business, will accept a slow start and do what ever he thinks he has to do, to make a living. The investor will even tolerate monthly losses rather than walk away from the sizable investment. When a new competitor comes into the market place, each slice of the pie gets smaller. The question is how does everyone survive? By cutting the vend price? NO. Everyone can make a decent living if each slice of the pie is worth more. Yes, by raising your vend price, you survive and so does your competitor; but you both make money. (What is wrong with that?)

Once I know my competitors' vend prices, I then have to look at my own numbers. What are my utilities as a percent of Gross Income? Traditionally a well operated all front load Laundromat would have 20% utilities and an all Top Load Laundromat would be in the 30% range. This went out the window in 2005 when we had a tripling in the cost of Natural Gas. Now even for the most energy efficient front load Laundromats our target is between 20-25% utilities as a percent of gross income.

In this example, my target is to have my utilities be 25% of the Gross Income. In today's reality, you need to be flexible and maybe you can't get to the projected target figure in the first price increase. You need to be realistic and look at your market place and then set your target pricing. Can you be $2.00 higher on your vend prices than the competitor next door...probably not. But you can be several quarters higher and still make a decent return on your investment.

Please note that the Laundromat "Gross Income" figure is only the self-service washer & dryer income. This excludes any revenue from soap, over the counter sales and vending machine income. We only want to look at the utility costs and the revenue from the washers & dryers. We also need to include the revenue for the machines being used in the Wash, Dry & Fold process. The easiest way to handle this is to add up the attendant's cost to start the machines. This may already be in the money boxes, especially if you use nail polish to paint the coins you provide for your attendants. We need to account for the WD&F revenue (to operated these machines) and add this figure to the Laundromat's "Gross Income".

Once we have established our true utilities as a percentage of "Gross Income" we have to ask what is the new Gross Income (dollar amount) do I need to reach to achieve a 25% utilities? What is the dollar difference between where I currently am and where I want to be? What percentage increase across the board to achieve my target percentage? See the attached example of a 20 washer and 20 pocket dryer Laundromat.

We initially calculate the current utilities as a percentage of our gross. As you can see from our example this store currently have utilities at 32% of gross. That means we are only working with 68% of each dollar to cover all of our overhead (rather than the ideal 75-80%). This is not very good economic situation and we need to correct this.

If I can increase my vend price and be within 25% of my competitors prices, then I will raise my prices and track my revenue closely for the next 2 months. It takes approximately 2 months for the "market" to balance itself out. A couple of weeks to lose customers and then a couple more weeks to have most of them return. I use a minimum of an 8 weeks timeline to be safe and to be able to see a real trend in your Laundromat.

Please note that I have also tried to balance out my vend price per pound of washing capacity. Most Laundromat deeply discount the big washers. Why? The large washers are the most expensive to purchase, the fewest in number and are always in demand. According to supply and demand they should also be the most expensive. So why do we discount the large washers with lower vend price per pound of capacity? So why do we subside the large washer to our customers? These machines use the same proportion of water, gas, and electricity, why discount the big machines?

Also note that I did not touch my dryer vend prices. Customers seem hyper-sensitive to any reduction in dryer time and react negatively and emotionally to any dryer price increase. Customers, who are content to pay an extra dollar for a washer, go ballistic when they have to insert one more quarter into the dryers. There is no logic to this emotion, but people can be irrational when they have to pay an extra quarter in the dryers. I don't know why. I would like to hear your theories.

So in this example I would raise the 20 lbs. washers from $2.50 to $3.00 a wash which is a 25% increase. The 30 lbs. washers would go from $3.50 to $4.50 or an increase of 28% and the 60 lbs. washers would increase from $5.00 to $6.25 which is a 25% increase. Wow. It seems like a huge increase. Would anyone be left coming to the Laundromat? Well it depends upon the location and the social economics of your market. If you are in a very poor neighborhood and close to several good Laundromat then you may not be able to reach so high in the first round of increases.

I can also tell you from first hand experience that I have done just as large vend increase and it has gone off without a problem. When I execute any vend price change I do 3 things:

1. Make sure your store is in the best possible condition before you increase the vend prices. Don't give your customers an excuse to leave your Laundromat for the competition. A dirty, dingy Laundromat with out-of-order tags, will scare away more customers than a price change ever will. Run the best commercial laundry operation possible!!! Have the store professionally cleaned before you start the increase.
2. I always let my customer know that there is a price increase and why I have to increase the prices. Remember your customer know exactly which dryer runs the longest and which one is the hottest...don't you think that they would notice an increase in prices. Don't insult your customers, let then know right up front you have had to raise your prices and why. I place laminated signs right on my bill changes and I make the signs in English and in Spanish. I start by saying "Dear Valued Customers....".
3. I also place a laminated newspaper article from USA Today about natural gas prices jumping over 50% right next to my bill changers. Sometime you have to go back a few months (or years) to find the right article on the web, but then our timing is not always correct. This helps justify the price increase and most people will take this in stride just like the rapid increase in gasoline prices. It is a kind of the resignation that everything has to go up at some time or another.

The absolute best tip I have about raising prices is with the washer coin drop mechanisms. Some manufacturer have the "number of quarters" to start displayed on the drop coin mechanism. I have changed all of my washer digital coin mechanisms to read "Number of Quarters to Start". This honestly is a little smoke & mirrors but quickly how many dollars is 29 quarters? 23 quarters? Most customers will realize that the price has gone up because it will cost a little more to do their laundry, but it is only a couple of quarters. Everyone can spare a couple of quarters.

By increasing the vend price from 17 quarters to 19 quarters, well it is only 2 more quarters (vs. $.50 or half a dollar). Change in our pocket is what we drop in the Duncan Donuts Tip Jar. Change in our pockets is not "real money"; it is just "nothings". But when we open our wallet, that is where the real money is stored. We are talking Dollars, not loose change; Dollars. So if we increase the vend price from 17 nothings to 19 nothings, so what... but if we increase it ½ a dollar; WOO that becomes "real money". All digital drop coin mechanisms can be converted to the "# of quarters to start". Just change the "amount per coin to 1" and the "amount to start to the # of quarters" and away you go... We also place a label right next to the drop coin unit saying "# of Quarters to Start" both in English & in Spanish.

Once you have performed your price increase the last step is probably the most important. You need to go back and visit your competition and let them know that you have raised your vend prices and to what level. You my find that your competitor has been waiting for you to raise your vend prices, so maybe he will too. If not, then you ride the wave and take a look at your profitability in 8 weeks. Even if you lose business, you may find that you are more profitable now. With fewer customers you have reduced the utility costs, have fewer repairs, less wear & tear on the Laundromat & your equipment.

One of the side benefits of being higher in price than your competition is the higher quality of your customers. I have always found that the people who patronize the cheapest Laundromats are also the customers with the least amount of respect. Low respect for your Laundromat, little or not respect for keeping the Laundromat clean and these are the customers who always yell the loudest and complain the most. We should enjoy visiting our Laundromat without being harassed; send these "bottom feeders" to your competitors.

Please email me and let me know how you make out! I would love to hear of your success and challenges and any other winning pricing strategies. Write me at karl@hklaundry.com.