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To Increase Your Vend Price (or Not)
August 31, 2008 -
This is one of the most frequently asked questions I get these days. It's a big question and the answer will become clear to you by the end of this article.
But before I answer this question for my coin laundry stores, let me ask you some questions:
Why did you get in to the Laundromat business? (To make money.)
How much money did you invest? (A lot of money in present day dollars.)
What was your expected rate of return on your investment? (A decent return, 30-60%.)
What has changed from now (at this moment) from when you originally got into the coin laundry business?
What happens every year with your rent; does it go up? What happens with your utility bills; do they go up? What is happening with inflation over the last 10 years; has the cost of living gone up? Then why can’t we, as an industry, raise our prices to a fair level?
Maybe the laundry equipment is paid for…maybe you don’t need the money now since your kids have graduated from college…maybe the Laundromat is just a secondary business that you don’t track as close as you should…or maybe the competition is just too tight to increase your coin laundry vend prices. All these are excuses.
Why did you get in to the Laundromat business? (To make money!!!)
Now with the excesses out of the way, how do we make money where your Laundromat’s vend price is determined by the most stupid Laundromat owner in your market? Don’t use the knucklehead, simple use different gauge to set your prices. In one of the most recent articles the author said you need to see what your competition is doing and you need to visit them every quarter (90 days). Who else can you determine if you are low or high in your pricing? How else can you tell if you have any advantages (or disadvantages) over your competitor? Survey the competition. Don’t visit every Laundromat, just the ones that you see as your competitor(s).
Once you have received the information about your competition, now you can start to look at your costs of operating a coin laundry business. I use total utility costs as a basis of determining my vending price structure. I DO NOT want my total utilities to be any higher than 25% of my gross (self service) income. In this example all “Gross Income” is expressed as self-service income. For the economics of a Laundromat to work and to make money, certain numbers need to be kept in balance. One month’s Total Rent (triple net rent) should be equal or less than 1 weeks gross revenue. The total monthly utilities should NOT be more than 25% of your gross (self service) revenue. If these numbers start to go above these baselines, then the money is coming directly out of your pocket. You are helping pay your customers’ do their wash.
The utilities as 20-25% of your Gross Income are the goal & target. In today’s reality, you need to be flexible and in for the long run and that is why you need to realistically look at your market place and then set your target pricing. Can you be $1.00 higher on your vend prices than the competitor next door…probably not. But you can be a quarter or 2 higher and still make a decent return on your investment.
I own and manage 5 Laundromats, some in very competitive areas. I first visit all of my competitors and make accurate records of their different sized washers & dryers. I record all of the vend prices including the variable prices. If I meet the owner there I buy him a cup of coffee and explain that I will be raising my vend prices and hope he will follow too. Once I have my competitors vend prices I look at my own numbers. What are my utilities as a percent of Gross Income? With static utility prices what Gross Income number do I need to reach to achieve a 25% percentage? Or a 20% percentage? Now what is the dollar difference between where I currently am and where I want to be? What percentage increase across the board to achieve my target percentage? (see example) Now this is a simplified example, but I have also included the more complex example with different vend price increase for different machine types.
If I can increase my vend price and be within 50¢ of my competitors prices, then I will raise my prices and track my revenue closely for the next 2 months. It takes approximately 2 months for the market to balance itself out. A couple of weeks to lose customers and then a couple more weeks to have most of them return. Use 8 weeks to be safe and see a trend.
When I execute a vend price change I do 3 things:
1) Make sure the Laundromat is in the best possible condition before your price increase. Don’t give your customers an excuse to leave your Laundromat for the competition. A dirty, dingy Laundromat with equipment out-of-order will scare away more customers than a price change ever will. Run the best operation possible!!!
2) I always let my customer know that there is a price increase and why I had to increase the prices. Remember your customers know exactly which dryers run the longest and which one is the hottest…don’t you think they would notice an increase in prices? Don’t insult your customers, let then know right up front that you have had to raise your prices and why. I place laminated signs right on my bill changers and I make the signs in English and in Spanish. I start by saying “Dear Valued Customers...”.
3) I place a laminated color newspaper article, from USA Today about natural gas prices jumping over 50%, right next to my bill changers. Sometimes you have to go back a few months to find the right article on the web, but then our timing is not always correct. This justifies the increase and most people will take this in stride, just like the rapid increase in gasoline prices. It is a kind of resignation that everything is, and has to, go up.
The absolute best tip I have about raising prices is with the washer coin drop mechanisms. Some manufacturers have the “number of quarters” to start displayed on the drop coin mechanism. I have changed all of my washer digital coin mechs to read “Number of Quarters to Start”. This honestly is a little smoke and mirrors, but quickly, how much money is 21 quarters? Or 19 quarters? By increasing the number of quarters from 17 to 19 to start the washers…is only 2 more quarters (vs. 50¢ or half a dollar). Change in our pocket is what we drop in the Duncan Donuts Tip Jar. Change in our pockets is not real money. When you take out your wallet, that's where the real money is stored. So if we increase the vend price from 17 nothings to 19 nothings, so what…but if we increase it a half dollar; woooooo, that becomes “real money”. All digital drop coin mechs can be converted to the “number of quarters to start”. Just change the “amount per coin to 1” and the “amount to start to the number of quarters” and away you go.
Please send me an email and let me know how you make out? I would love to hear any other winning pricing strategies.
