Are You Charging ‘By the Bag’ or ‘By the Pound?’
I don’t think any of us would be surprised to hear that pickup and delivery is the hot topic in our industry today.
In fact, this month I presented a keynote presentation on this very topic at the inaugural Laundromat Millionaire Conference in Fort Lauderdale, Fla.
Although the event’s nearly 200 attendees learned about several other laundromat-related subjects as well, the pickup-and-delivery topic is too hot not to address – so I dissected and broke down my entire business model for this presentation.
Although some owners shun pickup and delivery entirely, most are at least intrigued by the idea, and thousands of laundromat operators are giving it a go. That’s exciting to see. It has changed my life, and I think it can do the same for many others. It’s certainly not as easy as it’s sometimes made out to be; however, I firmly believe that no one is in a better position to meet the growing needs of this “to your door” service than laundromat owners.
After six years of obsessing over pickup and delivery, I feel like our model and our PUD operations in Cincinnati are rather fine-tuned – at least to the point where I feel comfortable sharing what we’ve learned with the rest of the industry in this publication. Obviously, I couldn’t possibly break down our PUD operation in just one article, so I’ll be discussing this topic in detail with a series of targeted pieces throughout the year.
Before we jump into the nitty-gritty of PUD, let me state that there are several ways to succeed in any business, and that our model is just one way to do so in pickup and delivery. However, I believe our operations, our team, our strategies and our moderate market size uniquely position us to help the majority of laundromat owners across the country.
Simply put, during the last six years, we’ve tried nearly every trick out there – including a route-based model versus an on-demand model, and by-the-bag pricing as opposed to by-the-pound pricing.
Additionally, we’ve spent the last few years coaching other laundromat owners how to launch and scale PUD the right way, and we’ve learned a lot from them along the way. We’ve steered them away from any flawed ideas, advice and models – and toward more effective strategies.
In this first installment, let’s talk pricing. Essentially, there are two core methods (and a few offshoots) for pricing your pickup-and-delivery service. We’re going to focus on those two main pricing strategies.
Pricing: By the Bag vs. By the Pound
The two most common ways to price pickup and delivery are by the bag and by the pound. We’ve tried and researched both extensively, and we’ve also mentored many operators who have tried both. And I believe the tried-and-true, by-the-pound method is by far the best approach – simply because it’s the fairest for all involved.
I love to study our industry’s history, because there are always valuable lessons to be learned there. And, for decades, the laundry industry has debated these two pricing models. So, why has the majority of the industry chosen the by-the-pound method?
Although by-the-bag pricing seems like a simplistic approach to pricing and scalability, it’s mostly anecdotal. In the real world, the laundry industry has spoken loud and clear.
The justification for by-the-bag pricing I hear most often is that customers don’t know how much a pound of laundry is or what it looks like. The concept confuses them.
However, this obstacle is easy to overcome. A simple way to do so is to let customers know that a standard load of laundry weighs about 10 pounds.
A second option is to suggest they fill a bag with laundry and set it on their bathroom scale to get a close estimate as to the weight (and, in turn, their price). Of course, be sure to explain that a standard bathroom scale isn’t calibrated for trade, but that it can provide a fairly accurate number.
We’ve discovered that these two quick suggestions enable us to easily overcome this common obstacle nearly every time. In fact, since we’ve added them to the FAQ section of our website, it really hasn’t been an issue.
The next – and much larger – issue you’ll face is pricing fairness. Having tried both PUD pricing models, I’ve found that the owner and the customer both lose when it comes to by-the-bag pricing.
With a by-the-bag model, we discovered that we lost money on about 25 percent to 30 percent of our orders – and this percentage is consistent with other operators I’ve spoken to. However, by-the-bag advocates counter that those losses can be more than offset by the insanely profitable “other 70 percent.”
For the most part, with by-the-bag pricing, customers either under-fill the bag or they pack it so full that the bag is about to rip. If they overstuff the bag, that’s damaging to the bag – and the laundry owner loses money. By contrast, if they under-fill the bag, they are being drastically overcharged.
I’m not going to tell you that by-the-bag pricing can’t be profitable, because it can. But I will tell you that, as a business owner, something doesn’t sit well with me when I realize that – within the context of my business model – someone must lose for the other to win. Fundamentally, I can’t accept that.
It would bother me to know that we were losing money on approximately one-third of our PUD orders. And it would annoy me even more to realize that the other 70 percent of my customers were being overcharged – so they’d be losing money. And, in my opinion, it’s all because of a concocted, anecdotal “issue” that customers don’t know how much a pound of laundry really is.
In business, my philosophy is that we should always try to find a win/win situation for everyone.
What’s more, customers aren’t stupid. They know they’re being overcharged if they don’t completely fill up the bag. Given that, over time, customers learn to wait until their laundry bags are stuffed to the gills before requesting your service.
By default, the by-the-bag model of pricing “trains” customers to wait – and, as a result, margins will eventually slip over time. Of course, some customers won’t wait and will send you partially filled bags. However, with these customers, ask yourself: are they truly happy with your service, or are they just begrudgingly paying the premium?
We probably can agree there’s likely a mix of both. Again, that’s not a good situation, in my opinion.
Don’t Be Pound Foolish
Now, let’s look at a by-the-pound pricing scenario:
The owner picks up an order of 42 pounds and charges the customer accordingly. Next, a 32-pound order, same thing – and on and on. It’s reasonable, fair and everyone is happy with the value exchange taking place.
Again, by-the-pound pricing has stood the test of time in our industry, and the reason is clear. It’s simple and it’s fair. Yes, we do have to weigh the bags, which requires a little work.
How much work? I recently had my team members time themselves doing PUD weigh-ins for a day. They took in a total of 78 orders, and the time needed to accurately weigh all of the bags was 16.9 minutes, or just 13 seconds per order.
To me, a 13-second investment is well worth the “hassle” to know that every customer is treated and charged fairly – and, of course, that our business is fairly compensated for its services.
Do yourself and your community a favor – charge by the pound for your wash-dry-fold PUD service. It’s the perfect symbiotic relationship between service and fairness – and it’s an ideal value exchange between your customers and your laundry business.
Everyone – except your by-the-bag competitors – will thank you.
