Vend Pricing: Philosophies and Fallacies

By Bob Nieman, CLA Member posted 05-31-2017 10:11

  
Laundry Owners Discuss Their Pricing Strategies for Success

[This is the first of a two-part series on vend price strategies for today’s self-service laundry businesses.]

CoverStory617.jpgPricing is perhaps the most exciting, talked-about and gut-wrenching aspect of owning and operating a self-service laundry. After all, your pricing strategy can make or break your business.

It’s both an art and a science, requiring an experimental attitude coupled with an intuitive feel for how you want your brand and, by extension, your products and services to be perceived.

There are a number of factors to examine when considering a price adjustment – including revenue, store quality and the competitive landscape.

The first thing a store owner should do when considering a change in pricing is to get familiar with the numbers. Understanding the basic costs to operate a store and how that store’s total income stacks up to the revenue brought in by the washers and dryers will let you know whether or not a price adjustment is in order.

Next, does your store warrant a price increase? According to Coin Laundry Association research, the leading reasons laundry customers choose a location has more to do with the store’s operation – safety, cleanliness, customer service and machine availability – than vend prices. So, owners who keep up their stores and continually add value for their customers have no reason to shy away from increased vend prices.

It’s also important for most owners to be at least somewhat aware of their competitors’ pricing strategies. After all, if your laundry offers the highest quality equipment and amenities but your pricing is similar to competitors who may be offering a less attractive customer experience, then there’s definitely room for a price increase.

Clearly, no matter what is decided – to raise prices or not – you should regularly monitor your business and its market conditions so that your pricing strategy is in line with the prevailing climate. Without all of the facts and careful consideration, your potential profits and the future of your laundromat could end up circling the drain.

This month, we asked a number of laundry owners to share their own thoughts and strategies on this key component of a successful self-service laundry operation:

Ross Dodds
Wash On Western
Los Angeles, Calif.

Most Recent Vend Price Adjustment: I just re-opened in January 2017, so my pricing was set for launch.

Pricing Strategy: I would say I’m the price leader in the area. Here on the West Coast, laundry owners in the past seemed to be racing to the bottom, and now we find ourselves in a place where we are far below the rest of the country in pricing. Customers complain when prices increase, but that’s just laundry owners shooting themselves in the foot. I want no part of being anywhere close to the bottom, and I plan to raise my prices before the end of this year.

Not only are my machines new, but my store is fully attended, very clean and safe – that doesn’t come free, and my customers knows this, if they are my true customers.

Dryers: I’m a full-cycle dry store, and it was the best decision I’ve ever made. Again, on the West Coast, laundry owners have shot themselves in the foot with as many as 15 minutes of dry time for a quarter. They probably spend close to that on natural gas and electricity – it’s crazy.

When we first opened, no one had seen full-cycle dry in this market before. Guaranteeing the dry and running the dryer again if the clothes weren’t dry, gave us a chance to educate our customers about the drying process; for example, 90 pounds of clothes will not get dry when stuffed into a 30-pound machine. It also gave a chance to explain the benefits of full-cycle drying, and most of our customers love it. They start the machines and walk away – the clothes don’t need to be “checked on,” so there is less opening and closing of the doors mid-cycle and less moving laundry around, such as when customer will start with six dryers, then go down to three and then one, as they try to spend the least amount of money to get all of their clothes dry.

My Market: Vend prices are ridiculously low in this market, we have some of the highest rents and most expensive utilities in the country – and by far the lowest vend prices.

Larry Adamski
Muskegon Laundromat
Muskegon, Mich.

Most Recent Vend Price Adjustment: I’ve been vending dollar coin only since 2009, and I’ve increased vend prices in dollar increments about a dozen times since then.

Pricing Strategy: Vend pricing is the single area of operations that receives more long-term planning than any other. Optimal vend pricing maximizes return on investment, while the wrong vend pricing can severely limit one’s net profit. Vend pricing can be thought of as a tug of war between maximizing profit per turn and maximizing the number of turns. Generally, charging more per turn results in fewer turns but increases the revenue per turn. Charging less per turn results in more turns but decreases the revenue per turn. I often take advantage of this generally accepted theory when I raise some prices with the goal of “thinning the herd” to make my facility more comfortable for those customers who choose to pay my increased price. Over time, many of those customers who leave will find their way back to my laundromat after checking out my competitors.

I maintain a high price leader strategy, which demands a high level of service to provide a fair value. That high level of service is evident in our convenient hours, automatic entrance doors, air conditioning, uniformed attendants, high-quality hard-mount washers, single-pocket dryers with stainless steel cylinders, large folding tables, free WiFi, through-the-wall ATM, hot and cold vended snacks, convenient dollar-coin-only vend and extremely clean facility. In fact, my attendants don’t process drop-off laundry because we don’t offer that service. My attendants are there to help our self-serve customers and to clean.

Washers and Dryers: My vend prices are $4 for the 20-pound washers, $5 for the 30-pound washers, $7 for the 40-pound washers, and $12 for the 80-pound washers. Most washers offer customers an opportunity to purchase an extra wash or rinse for $1 more. My 30-pound dryers vend for $1 for 16 minutes, and the 35-pound dryers vend for $1 for 15 minutes. It takes a minimum of a dollar to start a dryer, since the washers and dryers don’t accept quarters.

My Market: My market has tended to lag with vend prices over the past two decades. Whenever I increased my prices – because that’s what a high price leader does – the low price leader laundromat failed to raise his prices, resulting in the low price follower laundromats failing to raise their prices. As a result, both of those low-priced business models typically lagged well behind my pricing.

However, since I often followed my price increases with facility improvements to maintain a favorable price/value relationship, each price increase was successfully instituted. For example, I raised my 40-pound washers by a dollar last March, and I am now in the middle of a major repaving project to improve my parking lots.

Bo McKenzie
BBM Coin Laundry
Rome, Ga.

Most Recent Vend Price Adjustment: August 2016 – this was the second time we increased prices since opening in 2008. We were the lowest-priced store in town, and we felt we gave a better quality service than some of our competitors. We received no complaints about the increase.

Pricing Strategy: In our market, I am lower than the competitor who has a card system. However, compared to competitors who are coin vended, we are all at about the same price points. Being the lowest is not our driving force. We feel cleanliness and the working condition of our machines outweighs the customers concern over price.

When I started out, I wanted to be the lowest-priced store. But everything I read and heard kept telling me that being the lowest wasn’t the best approach, so I decided to increase our pricing because of the quality of service we provide.

Washers: We charge an extra 25 cents for a “plus cycle,” which is three more minutes added to the wash cycle. This addition to our standard pricing took some time for our customers to figure out; some of them thought the machine was telling them to just add another quarter, not understanding that they were getting three extra wash minutes.

My Market: We’re located about 60 miles outside the metro Atlanta area so, while I feel our prices are competitive, they’re probably still below that larger market.

Mark Shields
University Laundry
Tucson, Ariz.

Most Recent Vend Price Adjustment: I increased vend prices the first of the year. The minimum wage increased in my market at the beginning of this year, and the price hike was in response to that expense increase.

Pricing Strategy: I don’t have the most expensive laundries in town, but I’m toward the top. I don’t want to have the most expensive stores, but my places are attended and they’re better than most, so I price accordingly. My laundromats deserve to be on the higher end of the pricing spectrum. Plus, over the years, I’ve learned that customers accept price changes much better than I thought they would.

Washers: With regard to tiered pricing, I think it’s good to give customers options. However, your standard pricing has to include cleaning moderately dirty clothes. You can’t force customers to upgrade and then only give them what they would consider to be standard, such as hot water. I would never charge extra for hot water, because my customers expect that as standard.

Dryers: I think full-cycle dry is a good idea; however, it brings up the issue of what to do if the clothes aren’t completely dry at end of the cycle. I wish dryers provided the capability of variable pricing. For example, six quarters for 36 minutes; for less than the six quarters, the customer would get five minutes of dry time per quarter. That way, the dryers still could be started with one quarter.

My Market: Toploaders in my area are priced too low. I think the frontloaders are priced about right, but the dryers again are on low end.

Mike Sitz
Holiday Cleaners
Grand Junction, Colo.

Most Recent Vend Price Adjustment: We raised prices just this past March. Colorado increased its minimum wage, which is being phased in at approximately $1 per hour per year. We hadn’t upped our prices in a while, so the increase was due.

Pricing Strategy: With our pricing, we try to be close to the top, but we do offer a midweek discount, as well as a bonus to customers who put $10 onto their laundry cards at one time. My rule of thumb is that my smallest washers need to vend for a minimum of 25 percent of the current minimum wage. The rest of the washers’ prices are based on volume, using the cost per unit of the small washer. I calculate basket volume, rather than using OEM ratings; this should help us maintain a profit, unless the government gets even more creative.

Inflation will erode profit if nothing else changes, and we need to make enough to repair and replace machines. Our attendants need periodic raises, and maintenance costs have been increasing.

With the national frenzy over “a living wage,” I needed to find a way to gauge our pricing to the market. The 25 percent of minimum wage idea seems like it should work. Time will tell.

Dryers: Given the variables within the textile mix, I think that it’s fair to allow customers to buy the amount of dryer time they require. We also allow restarts if the door is opened. In addition, we offer free dry in tandem with our larger frontload washers; the altitude here makes our dryers extremely efficient.

My Market: Vend prices are too low. The economy has been bad here. Two laundromats have gone out of business. Any store smaller than 2,000 square feet simply can’t make enough money to stay in business at the current prices. Some owners have attempted to keep their prices too low in order to attract business, and that’s failed.

Phil Irwin
Waters Express Laundry Center
Tampa, Fla.

Most Recent Vend Price Adjustment: I changed the prices on all of my washers last month.

Pricing Strategy: I’m looking to be the price leader in my market, although I’m not presently. To get there, I plan to systematically raise my prices every six months. I have the newest and latest technology in the industry, and I’m also the only operator with 90-pound machines in the area.

Although I’m a relatively new laundry operator, I’m not new to business. Price increases need to be part of any business plan. My customers have grown accustomed to my every-six-months price increase.

Washers: I currently offer tiered pricing on my washers. I like to pass on the savings to the customers, who in turn reward me with their loyalty.

Dryers: With regard to dryer pricing philosophies, I would never consider free dry. However, I like the idea of full-cycle drying and definitely intend to explore that option more closely.

My Market: I believe the vend prices in my market are low. If prices were up where I believe they should be, we all would have the funds to pay our attendants more, to develop professional store managers and, all in all, to create a better climate for our customers.

Brian Brunckhorst
Advantage Laundry
Dublin, Calif.

Most Recent Vend Price Adjustment: I changed vend prices at our Oakland location on January 1. This was due to an increase in the minimum wages, which is now at $12.86 per hour.

Pricing Strategy: Our pricing strategy is based on the number of turns per day that each store is doing. Ultimately, we strive to be at about five turns per day storewide for each location. As costs increase, we typically will nudge our prices higher, while increasing advertising to bring in additional customers. If we see our turns starting to dip, we will run various specials to regain lost turns where needed. The goal is to try to maximize net profits – the key word being “net.”
    
There is a “sweet spot,” where profit potential is maximized. Too many turns, and you’re leaving money on the table. Expense ratios become too high and profit margins are too low. Then again, if you have too few turns, you’re pricing your store out of the market. Income falls below its potential. Yes, your margins and utility costs look fantastic, but you are again leaving potential cash on the table, because the machines are not being used enough.
    
Each location I own has differing costs for variable expenses, so the sweet spot isn’t always the same. However, when I graph out my income, minus my variable expenses, as my turns increase (taking into account decreasing vend prices per pound and increasing expense ratios), I find that the sweet spot is usually right around five turns per day. This strategy allows my stores to operate at their highest profit potential.

When I first got into this business some 14 years ago, my pricing strategy was to match my competitors. That lasted for about a year, until I actually analyzed the numbers and found that, by controlling the turns per day, I could greatly increase my net profit. Since then, my stores have been busy, and my customers are happy.

Washers: I use multi-tiered pricing in all of my stores. First, I default all cycles to hot water pricing, not cold. I’ve found that customers will complain they have to pay more for hot water if the default setting is cold or warm. By defaulting to hot water, my customers equate a discount for using warm or cold water. My complaints dropped dramatically once implementing this strategy. In addition, all of my washers have the ability to include a value-added cycle, for which I also charge extra; sometimes it’s an extra rinse cycle or extra spin time. In other machines, it’s designated based upon the soil level – light, medium or heavy. These modifiers all get a price bump, and my average is about a 20 percent modifier usage rate.

Dryers: As machine G-force speeds have increased over the years, dry times have decreased, which has both positive and negative implications when it comes to dryer revenue. With older 80-G machines, it has been pretty standard to get about 50 percent of your revenue on the drying side, but with 200-G machines and shorter dry times, that ratio has fallen to 33 percent or lower. The good news is that customer churn on a busy day is faster so that you can squeeze more turns through your store.

Of course, one way to combat the lower dryer revenue is to implement full-cycle drying and price the dryers so that the dry revenue still represents 50 percent of the total revenue. Personally, I still charge per quarter, because that’s what my customers are expecting in my market. However, I do have a 50-cent start price on my 75-pound dryers and have not experienced much pushback on that.
    
My Market: In my market, my competitors have been reluctant to change prices until recently. But I don’t shop competitor’s prices like I used to – because, with my strategy, their pricing is irrelevant. My prices will always be a combination of what the market will bear for the quality of the experience, along with the age and condition of the equipment I provide. And, interestingly enough, I am not the lowest-priced store in each market.

Bob Frandsen
Maytag Laundry
Rush City, Minn.

Pricing Strategy: In our market, we are the price leader. In six of our eight stores, we have 20-pound washers at $3.00, 40-pound washers at $5.00, 60-pound washers at $7.00 and 80-pound washers at $9.00. In two of our stores, our prices are $3.00, $6.00, $8.00 and $10.00, as those cities have higher water and sewer costs, so we need to charge more.

Our goal is to keep our utility costs at approximately 22 percent of sales. Through our pricing, we try to encourage our customers to use the larger washers. For example, it’s cheaper for the customer to use one 40-pound washer at $5.00 then it is to use two 20-pound washers for $6.00; it’s cheaper to use one 60-pound washer at $7.00 then it is to use three 20-pound washers for $9.00; and it’s cheaper to use one 80-pound washer at $9.00 then it is to use two 40-pounder washers for $10.00. And so on.

Despite taking in fewer dollars on the surface, this strategy means our equipment has less turns, our utilities are lower and more machines are open for other customers. The bottom line is that we profit more in the end when our customers use larger washers.

Dryers: Last year, we upgraded all of our stores, adding 45-pound stack dryers. We now have 30-pound stack dryers at $1.75 for 30 minutes, 45-pound stack dryers at $3.00 for 30 minutes, and 76-pound dryers at $4.50 for 30 minutes. The customer can add more dry time in 25-cent increments, as long as the original 30 minutes hasn’t expired.

Adjusting Vend Prices: When I first got into the laundry business in 1982, the price of a topload wash was 65 cents, while 30 minutes of dry time in a 20-pound stack dryer set you back a quarter.

With that said, I’ve discovered that the best time to increase vend prices is when we install new equipment or immediately after there’s been a sizable increase in utility costs. Our prices are a little higher than our competition, but you get what you pay for. We keep our stores clean, we have newer equipment, and we refund customers if they have a problem. If our competition has older machines, doesn’t keep its stores clean and won’t pay out refunds, we can charge more and still capture 75 percent of the laundry business within that market.

Ed Ellis
1 Clean Laundry
St. Cloud, Fla.

Most Recent Vend Price Adjustment: My washer prices went up 25 cents for a basic wash in July 2016, and I reduced the time on my dryers by one minute in December. I have a superior product and facility, so it warrants a higher price. We had no complaints about the increases. Also, I want my customers to become accustomed to price increases, just like any other retail establishment.

Pricing Strategy: We’ve been open for two years now. I used my competitors’ pricing as a base and then went below it. However, with the cycle modifiers, I top out higher. My competition has a one-price strategy – in essence, giving away their hot water.

I’m not in business to subsidize my customers’ laundry. Therefore, charging extra for hot and warm water – or “discounting cold water” – is a huge win. First, fewer customers will use the hot water, thus saving me on energy costs. And, secondly, those who do use hot water pay for my energy costs. With this strategy, energy costs go down and revenue goes up. Of course, when you charge extra for hot and warm water, it’s important that your attendants know how to explain it to the customers. The explanation is simple: it costs more to make hot water.

Customers like options and choices. They understand that it costs more to produce hot water than cold water, so the price is justified. If they want a pre-wash, that also will be an upcharge, just like supersizing your meal at a fast food restaurant. About 30 percent to 35 percent of my customers choose the extra cycles or hot/warm water – so, not charging extra would be leaving 30 percent to 35 percent of my revenue on the table, if I were to give it away.

Washers: Do you want a Chevette or a Corvette? Chevrolet doesn’t sell both models for the same price, even though both will get you from Point A to Point B. If you want more, you should expect to pay more – and it’s the same with my washers.

For my 20- and 30-pound washers, customers can add a longer wash cycle for an extra 25 cents, a prewash for an extra 50 cents, and warm or hot water for an extra 25 cents. On my 40-, 60- and 80-pounders, the price is 50 cents extra for a longer wash, 75 cents extra for a prewash, and 50 cents more for warm or hot water.

Also, I run a special on Tuesday mornings, where the double-load machines are discounted by 75 cents from open until 1:00 p.m. This shifts some of the customers who might do laundry on Saturday or Sunday to a less-crowded weekday slot. This, in turn, frees up some of the machines during the more hectic weekends. It’s a win-win.

Dryers: I love full-cycle drying. It’s more energy-efficient because the dryer isn’t heating up and cooling down due to the customers dropping a couple of quarters a time. The dryers do most of the work in the beginning, getting up to the proper temperature. With full-cycle dry, once the dryer is up to the right temperature, it’s all about just maintaining. This saves me money on my energy costs, and the customers get their clothes dried without the constant checking and adding extra quarters.

In addition, I offer a discount on my lower dryer pockets to encourage use. By doing so, the upper and lower pockets are being used equally, thus they should wear out evenly. My upper pockets are $1.50 for 35 minutes, while the lower pockets are $1.25 for 35 minutes.

My Market: Prices are always too low. Owners are afraid to raise prices for fear of losing customers. If the owner is adding new equipment, new lighting, fresh paint, etc., a price increase should go along with it, because customers will appreciate the effort and will drop that extra quarter into your machines… with a smile.
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