Originally posted – Jul 02, 2012
Throughout the last five years, the market has changed drastically. Prior to the recession, commodity prices, especially natural gas, were at all-time highs. Many store owners had no choice but to raise vend prices, as well as lower dry time. When the recession hit, store owners that successfully seeded price increases were in a far better position to survive the tightening of consumers’ wallets.
But today, as the economy continues to recover, there’s no better time for store owners who haven’t done so already to evaluate their pricing strategies.
There are a number of factors to examine when considering a price increase, such as revenue, store quality and the competitive landscape.
Where does the store’s revenue fall?
The first thing a store owner should do when considering a change in pricing is look at the numbers in black and white. Understanding the basic costs to operate the store and how the store’s total income stacks up to the revenue brought in by the washers and dryers will give the owner a good idea if a price adjustment is needed.
As a rule of thumb, the dryer revenue should be at least 35 percent of a store’s total income. It’s obvious that the washers are a laundromat’s moneymakers, and some manufacturers offer additional revenue-enhancing features on washer controls, such as cycle modifiers and time-of-day pricing.
The mix of washers and dryers is really the most important thing to look at when it comes to vend pricing strategies. Larger-capacity washers and stack dryers offer the most profit per square foot in a laundromat. They also are becoming more popular among consumers, and if a store offers them, owners can – and should – command a premium price.
Does the store warrant a price increase?
According to the Coin Laundry Association, the leading reasons laundromat customers choose a location has more to do with the store’s operation – safety, cleanliness, customer service and machine availability – than vend prices. If an owner keeps up the store and continues to add value for the customers, increased vend prices will not likely impact the store negatively.
The concern most store owners have when considering increased vend prices is whether existing customers will be scared away, but this is typically not the result.
For example, if a store owner raises prices 15 percent, and as a result, loses 3 percent of his or her customer base, the store is still more profitable – and the machines receive less wear and tear, which leads to reduced maintenance and replacement costs.
What’s the competitive landscape?
Being a low-cost leader in the laundromat industry is not a viable long-term formula for success.
It’s important for owners to know their competitors’ pricing strategies. If their stores offer the highest quality of equipment – such as stainless steel, highly efficient, reliable and advanced machines – and their pricing is similar to their competitors, who feature older, out-of-date equipment, then there’s room for a price increase.
Consumers are willing to pay more money for a quality experience.
How should a store communicate a price increase?
Once an owner has decided to adjust the vend pricing, a marketing plan should be developed and executed to communicate the upcoming change to customers.
Since the recession, consumers have become more aware of the costs of goods and services. On any given day you can find news about increased commodity prices driving up the cost of milk, eggs and clothing. However, most people don’t think about the commodities’ effect on services. If a laundry owner needs to adjust vend prices because of the cost of natural gas, he or she should explain it to the customers, leaving no doubt in their minds why they are spending more money for each wash and/or dry.
Owners can effectively communicate a price increase before it takes effect via a store newsletter or signage throughout the laundromat. Consumers appreciate transparency.
No matter what is decided – to raise or not to raise – laundry owners should continually monitor their market conditions and evaluate their research results to determine their vend pricing strategies. Without all of the facts and careful consideration, you could wind up washing your profitability down the drain.