Originally posted – Mar 16, 2012
One aspect of the commercial laundry business with which many self-service laundry owners have had great success – and a segment of the drop-off laundry category that all operators should at least consider – is linen rental. Basically, this refers to actually purchasing (as well as laundering) items such as towels and sheets for your commercial clients.
There are two key factors to consider when it comes to linen rental – pricing and inventory. It’s also crucial to understand how those two factors can differ between a self-service laundry operation and a commercial linen rental company.
Let’s start from the bottom up. First of all, as a laundromat owner in the commercial laundry business, you’re probably not going to want to get into the heavily blood-borne pathogen, or “medical,” side of the linen rental business. As you become more experienced, you certainly can do so if you like, but be forewarned that it is a lot of extra work, with several additional factors to take into consideration.
Most laundry owners who have gotten into the linen rental business has focused on what I refer to as “light medical”account, which includes acupuncturists, massage therapists, med spas, hair salons and so on. And that category mainly uses two types of items: a sheet and some type of towel.
So, let’s break down the cost of those particular items. After you understand how price out and inventory them, you will be able to apply the same thought process to almost any type of linen rental product you want to inventory.
First of all, these are going to be lightly soiled, lower-risk, easier-to-process items. And, because of this, you’re not going to have to apply the same harsh treatment to these linens that a commercial laundry will when process the exact same items in bulk.
This is a huge advantage that self-service laundries have over commercial linen rental companies, and it’s where you can be competitive – because it’s going to allow your linens to last significantly longer than those of the commercial operations. For example, I own sheets that are more than five years old and are still in my inventory, because I’m able to treat them just for specific stains. And they still look like they’re brand new.
By contrast, a linen rental company, because it’s washing these same items in bulk, will just beat up the linens with very heavy chemistry and high temperatures – and those linens may last only a year at most. Some polyester restaurant linens may last a bit longer, but any of the cotton stuff will break down quickly.
As a laundromat owner, you want to take that into consideration, because in the commercial laundry business, it all comes down to selling a product to a customer, and then delivering a price that is profitable and makes it worthwhile for you to do that business.
Personally, here’s how I look at it: My sheets cost me between $3 and $5 a sheet, depending on the time of year. (As an aside: due to market conditions, cotton is currently priced at an all-time high.) I usually can get more than 200 washings per sheet, which brings the cost per sheet per use over time to about 2.5 cents.
And, in my marketplace, a delivered sheet goes for somewhere between 80 cents and $1 each.
For our purposes, let’s say we’re charging $1; so, as we mentioned, the cost of the sheet itself is 2.5 cents, or 2.5 percent.
A major cost is labor. At my store, it takes my attendants approximately two minutes of labor to process a sheet. I’ve figured that total labor costs average out to about $10 per hour – and, with FICA and all of the other costs added in, it works out to about 16 cents per minute, or approximately 32 cents per sheet.
On top of that, I figure my washing costs to be approximately 5 cents per sheet, and that includes chemistry and utilities. We wash about 60 sheets at a time in our largest machine, which works out to $3 in cost to wash 60 sheets.
To sum up, our costs are 5 cents for washing, 32 cents for labor and about 2.5 cents in acquisition costs per sheet. Next, be sure to apply your pickup and delivery costs (which were discussed in detail in my February 2012 column). Typically, I like to shoot for somewhere in the neighborhood of a 30 percent to 40 percent profit margin on commercial accounts.
Another very popular rented item is a 16- by 30-inch massage towel or hand towel. Once again, the price of cotton is high; however, if you’re buying in large volume, you usually can get them for somewhere between 80 cents and 90 cents apiece. In smaller volumes, you may have to pay $1 to $1.10 apiece.
It’s been my experience that, because the towels are usually a bit more heavily soiled than the sheets, I can get about 30 uses out of each towel. This works out to about 3 cents to 4 cents per use per towel. In my market, I’m seeing towel rental prices of anywhere from 16 cents to 25 cents per towel.
One of the other major cost differences between towels and sheets is the cost to process them. It takes an attendant only about 10 to 15 seconds to fold and package a towel, which equates to about 4 cents per towel in labor (again, at a $10 per hour rate). So, the labor on a towel, as a percentage of the rental cost, is significantly lower than it is for a sheet. However, the replacement cost is higher, and that’s where you’ll see the two balance each other out.
Also, we rent out our slightly stained towels to lower-end hair salons and companies that offer cleaning services. So, in the end, after we get a premium price for the product, we’ll continue to get additional, lower-priced uses. In all, we’ll probably get a total of 50 uses out of a hand towel before we have to completely retire it. But, then again, the margins are lower because we’re at a lower price for such linens.
And those are the basics as far as how I personally approach commercial laundry and, more specifically, owning an inventory of linens and renting them out to professional clients. It’s certainly something to consider when looking to grow your laundry business.
