Originally posted – Feb 08, 2012
I get frequent calls from laundry owners asking me how to accurately price their commercial accounts. And the first thing I point out to them is that commercial laundry is a slightly different animal than residential wash-dry-fold business.
For that reason, pricing this type of business requires a slightly different thought process as well.
So how do you figure out your commercial pricing?
There are two main costs associated with this type of work: your pickup and delivery costs and the cost of actually doing the laundry, which can vary depending on the type of items and how much work is involved with each load.
However, if you decide to rent linens to your clients, there is a third factor, which would be your acquisition and replacement costs.
First things first, if you’re going to be in the commercial business and do any type of serious volume, you’re going to have to offer pickup and delivery services.
You can start small. For example, my friend Ron Lane, who now does a thriving business in northern California, started out by picking up and delivering to his commercial accounts in his wife’s Lincoln Continental. And I did the same thing in the beginning with a small SUV.
However, you’ll likely progress past that beginning stage rather quickly, to the point of owning a company vehicle and hiring a driver – and incurring all of the costs associated with that. Of course, when I’m trying to figure out my commercial laundry pricing, one of the things I take into consideration is how much that affects the cost.
Personally, my pickup and delivery costs run approximately $20 an hour. And here’s how I arrive at that figure:
I pay my driver $8 an hour base pay. Plus, I have a vehicle acquisition cost, where I take my monthly vehicle payment and divide it by the approximate number of hours I operate that vehicle per week.
I do the same with my average fuel cost, my insurance cost and my maintenance cost. Basically, I took all my costs associated with using my company vehicle and divided them by the number of hours on average I was operating that vehicle. And I came up with $20 an hour.
Again, your costs, at the very least, will include gas, labor, insurance and workers’ compensation.
Next, you need to consider the distance where you clients are located in relation to your store, as well as to you other commercial customers. For instance, if a stop is just a few blocks from another stop, that’s not going to be as large a factor as if the client were more out of the way. If my driver has to go five or 10 minutes off of the normal route to make a pickup, I’m going to factor that 10 minutes out and 10 minutes back into my pricing.
Also, if the client has customer-owned goods – in other words, it’s the client’s laundry, versus items that I’m renting to him – then I’m going to have to pick it up and deliver it to get paid for that one order, so I’m going to incur pickup and delivery costs for that one batch of laundry. Of course, sometimes the customer will have enough laundry so that he will have the next order ready to pick up when you drop off – so you need to take that into consideration.
On the other hand, if an order includes my own linens that I’m renting to a client, I’m not going to have those same costs; I’ll only have half of that cost. After all, if it’s my laundry, I’m picking it up at one client, washing it and perhaps bringing it to another customer. I don’t necessarily have to bring the exact same items back to the original client. And that, in essence, reduces my delivery costs.
The next factor to consider when setting your prices is what exactly you’re being asked to wash. How long is it going to take you to process the order? With a wash-dry-fold business, most laundry owners price everything simply by the pound.
However, per-pound pricing doesn’t always work so well in the commercial realm. For example, if you’ve got a health club client sending you a larger load of big towels, the labor involved with that account per pound is going to be minute compared to a batch of small hand towels from a spa or salon, which may require all of them to be hand ironed.
You need to carefully consider every account individually. To this end, I often suggest to laundry owners that they do the first load for a new account free of charge. During this time, watch your employees closely, time how long it takes them to do the work and factor that into your pricing. This is a great way to accurately arrive at sensible pricing. (Plus, it’s a great sales tool, because everyone likes to get something for free.)
If you’re paying your attendants $8 an hour to do the work, understand that the real cost will probably be closer to $10 an hour, once you factor in all of the elements associated with labor, including real productivity levels over time. Let’s say it takes your attendant an hour to process a particular account – the labor costs for that load will be $10.
Next, consider your chemical, washing and drying costs. This is another area where doing a test load can be quite helpful, as these costs can vary.
Typically, your chemical and washing costs will likely be somewhere in the $1 to $2 range.
If you offer linen rental, your linen costs will be a couple of cents per item, or 50 cents to $1 per load. You definitely need to consider that.
Now, let’s look at an example of a weekly account of 300 wash cloths.
If it takes 20 minutes, at $20 an hour, for example, the delivery cost for this client will be about $7.
All in all, you’ve got $10 for processing labor, $2 for chemicals and washing, $1 for linen rental replacement, and $7 for pickup and delivery. You’ve got $20 invested in this order.
Next, you’ll want to build in a profit margin. I would suggest shooting for a minimum margin of around 50 percent. That being the case, you would price this specific account at $30, or 10 cents apiece.
With commercial laundry, all of these factors can vary greatly, so I look closely at all of them every time I consider new business.