Originally posted – March issue/2012
Accurately Calculating What Your Vend Prices Should Be Goes Well Beyond Figuring Out the Cost of a Wash and Dry
It’s not uncommon for newcomers to the industry to ask how to accurately calculate the cost of a wash and a dry to help in determining vend prices.
However, when making these calculations, be careful – the cost of natural gas, water and electricity, along with your sewer fees, tell only part of your pricing story.
In general, after 50 years of laundromats in North America, coin laundries are virtually everywhere, so wherever you turn there are vend prices in place with which to compete.
I typically don’t get too bogged down in the minutia of costs per gallon, costs per therm, costs per cubic foot, etc. Rather, I prefer to look at overall utility costs. For the record, the national average for the cost of all utilities as a percentage of vended revenue is 25 percent – newer, more energy-efficient stores tend to be closer to 20 percent, while older stores or more likely to be at 25 percent to 30 percent.
You should look at your utility costs to see where they fall into this formula. If they are high, you might consider raising your prices. But, remember, utilities don’t tell the entire story.
If your utilities are very high, you might want to consider replacing older equipment with newer, more energy-saving machines. Before doing so, check with your local CLA-member distributor to examine the utility savings you could enjoy by purchasing new equipment. And, of course, new equipment is typically an ideal reason to raise your vend prices, so it can provide a double benefit.
Back in the day, we were taught in business school that if our costs were X and we wanted a profit of Y, we should sell at X plus Y. But no more!
Competition has changed all that. It doesn’t matter if you are selling cars, televisions, homes or laundry services; your product has to be competitive. Today, you have to take a hard look at all of your costs to see where you can set your vend prices, and if that will yield the profits and returns you are looking to earn.
Therefore, all of your expenses need to be taken into consideration – rent, rent increases, taxes, mortgage (if you own the building), labor, note payment, insurance and so on.
For example, I know of an outstanding location in Philadelphia, with great demographics and good visibility; however, the owner wants more than $2 million for the building, which would then have to be torn down and a brand new laundromat built in its place. Unfortunately, at the prevailing vend prices in that marketplace, even going to the high side, it would never cash flow or provide a solid return on that investment.
Another example are small stores. Even if the utilities are relatively low and represent a reasonable percentage of vended sales, the numbers still may make it unworkable, unless perhaps it’s an unattended store, which in some neighborhoods simply are not practical. However, if the location can do considerable wash-dry-fold and/or commercial business, this may change the dynamics and make that location viable.
Your business plan also has a lot to do with your vend price and profits. Some business plans are high volume, low price; in such cases, your percentage of utilities to retail income will be higher and your profit percentage lower. Or you may want to build (my favorite) a first-class store, vend at higher prices, and provide your customers with more value. In this instance, your utilities will be lower as a percentage of retail vended income, your profit percentage will be higher, and there will be less wear and tear on your equipment. Of course, with this business model, you have to offer real value – not just say that you do.
Pricing strategies are part of every business, whether it’s done consciously or subconsciously. Within every marketplace for every business, there are the upper, middle and lower tiers. Your laundry business probably already attracts mostly one of the three, either by design or by accident.
Look at other retailers: Walmart and Kmart target one market; Sears and JC Penny target another; Nordstrom still another; and Neiman Marcus yet another. That’s not by accident.
Your pricing strategy should mirror your store’s décor, your marketing and advertising, your attendant training, etc. It all should tie together.
Bob Eisenberg is president of Qualclean Equipment, LLC, based in Blue Bell, Pa. He is available for one-on-one business consulting. To reach him directly, call (610) 270-2811, or e-mail firstname.lastname@example.org.