Years Of Charity Pricing ... For What?

[Adamski]

Guys,

A disturbing new trend is lurking among us. It goes something like this:

An operator opens a newly built or completely rehabbed laundromat and sets ultra-low (Charity) pricing on all of the smaller washers. Unlike openings in the past when low prices were a temporary come-on to attract customers and get the place on its feet; these operators maintain the ultra low wash prices for years. As you might expect, this practice results in good turns at the new laundromat and reduced turns at the older, competing laundromats. Normally, a new laundromat would normalize its pricing after a set number of weeks or months or at least upon reaching 3 TPDs but that doesn't happen in this case.

One is left to wonder just what further goal does the operator have that is yet to be accomplished with his Charity pricing. Does he expect to actually run the competing laundromats out of business so that he has the whole market to himself? Is he fulfilling some community service requirement that a judge ordered as part of a sentence? Is it his intention to ensure that the laundromat does not make a taxable profit to take full offset of its depreciation against other income?

I can only guess at what thought process (or lack there of) some operators might go through when they decide to use Charity pricing techniques over an indefinite period of time. It is very hard to make an established laundromat die. Oh, the operator might sell or go bankrupt but the laundromat will likely live on in the hands of another operator. Of course, the community service quip was written in jest. If one wanted a depreciation deduction for his income taxes, he could simply buy and lease back a few dozen railroad boxcars to get that with far less risk and aggravation.

So why does an operator rent Maytag toploaders and Neptunes for 75 cents a turn year after year? Does anyone know? More importantly, do these Charity operators know? I'm befuddled.

[Howard]

Well Larry, it may not mesh with your business plan - but it might be profitable for him. You would have to see his costs an P&L to be certain that it does not. If he can do double the turns at half the price and we assume that he prices his dryers to make money then he may actually be ahead of the game depending on his utility cost. Many of us don't want to operate that way, but it is possible that it can work. Now the 50 cent wash is a whole different animal.

[Adamski]

Howard,

For the sake of argument, let's assume that he is eaking out a small profit by getting 4 TPDs each. Could he not make a much larger profit by simply bringing his top loaders and Neptunes up to market level of perhaps $2.00 per turn? (I'm currently charging $3.00 for similiar sized washers) That would net him an extra $1.25 per turn so even if his turns dropped in half (which they wouldn't) he'd make more money with lower machine maintenance and reduced utility costs. I would think that anyone with half a brain would rather have 2 turns at $2.00 each than 4 turns at $.75 each. I know this place is not doing more than 4 turns because parking is very limited for the size of the laundromat. By the way, this is not a competitor of mine.

[CanCanCase]

Maybe his State government planned on a tax increase, spent an extra $4 billion last year, and is now pushing a vote on an income tax based on GROSS INCOME while making it retro-active 18 months? If that's the case (as it is here in Oregon) it might make sense to run your profit margin to next to nothing... if a sole proprietor grosses less than $125K (or $250K household) they won't be subject to the new tax. If I had business history that placed me at the $124.9K mark, I'd leave prices where they were too...

More likely, however, the "charitable" folks have:
- Found a way to make the pricing work in their local market;
- grown up ignorant and are only covering their overhead while slowly going broke not making a profit;
- discovered the money laundering aspect of a cash business (pun only partially intended.)

-Case

[wizard]

I'm going back ten years or so, but the California Laundry Owners Assoc. put out a very detailed breakout of cost to vend a topload washer. The vend price ended up being 50 cents, and that produced a 50% profit to the operator (at the time). They were not promoting that price, but they were showing that it was profitable.

I also know a couple of operators in the Midwest that loved "free dry" and when asked why they left it in place for years, said it doesn't cost very much, customers love it, and it P***'s Off every other store operator. The point here was they liked getting under everyone else's skin. When I looked at buying their stores (and their books) they really did make money. The problem was they thought their stores were GOLD PLATED, and had them priced way higher than what I was willing to pay. They did find someone that paid their price.

I think every operator should price to make a profit...the operator is the only one that can define what that profit means to him (or her).

[Adamski]

Maybe his State government planned on a tax increase, spent an extra $4 billion last year, and is now pushing a vote on an income tax based on GROSS INCOME while making it retro-active 18 months? (as it is here in Oregon) ...

Case,

And I thought Michigan was screwed up ...

[CanCanCase]

Case,

And I thought Michigan was screwed up ...

Oh, and guess what the extra money was already spent on? Bad investments for the public employee's retirement system (PERS)... they've got all of these employees ready to retire with contracts that state how much payout they WILL receive, yet the fund is all but bankrupt... In a state that's lost 70K jobs in private sector, they've managed to create 20K new jobs in government...

This Prop 66/67 business even made the Wall Street Journal last week as an example of what not to do in case Michigan, California or Washington happened to be reading!

But I digress... sorry for the politics... I just needed to vent a bit. I can see how a $.75 wash would be profitable given the right market and overhead.... I would also do the opposite method of earning a profit. Keeping maintenance down is a good thing. Different strokes for different folks, eh?

-Case

[Adamski]

I'm going back ten years or so, but the California Laundry Owners Assoc. put out a very detailed breakout of cost to vend a topload washer. The vend price ended up being 50 cents, and that produced a 50% profit to the operator (at the time). They were not promoting that price, but they were showing that it was profitable...

Martin,

I'm sure that a laundromat in just the right location with just the right features could actually get enough TPDs at Charity prices (certainly not 50 cents though) to make a profit. However, it would take 6+ turns which would require plenty of parking and substantial population density, neither of which is available at the laundromat in question.

With reference to running Free Dry just for the purpose of teeing off one's competitors - well, that's just plain childish.

Show me an operator who prices in a way that minimizes profit and I'll show you an operator who has limited his own incentive to maintain a first class operation for the benefit of his community.

[Howard]

Larry, of course it makes no sense at 4 TPD but it could at 6 TPD. I know of a store that a number of years ago priced their double load washers at less than half the price of everyone else - and they ran close to 12 TPD! Yes they made a lot of money at low prices, even with high absolute utilities and more maintenance costs. You have to push the numbers, and it may surprise you what can work.

[James2011]

depends on location

[BMWHD3060]

12 TPD on a Top Load Washer at a 75 cent vend, you are making maybe .10 cents per turn if you are Lucky, I make more money even if I only did 1 TPD at my $3.00 vend for my Top's.

I know I have said this before, you would not believe how many times I have been told by Mat owners that I have met over the yrs that are in this business for a "Hobby" just to give them something to do, & don't care if they make any Money $$$ as long as they break even, they are happy because it gives them something to do.

[Howard]

12 TPD on a Top Load Washer at a 75 cent vend, you are making maybe .10 cents per turn if you are Lucky, I make more money even if I only did 1 TPD at my $3.00 vend for my Top's.



Think you misread something -- I never said top loader, I was talking about an 18# front loader. Also at 12 TPD even if it was only 75 cents they are making much more than you would make one 1 TPD. What you fail to account for is that you are also running one usage of the dryers from that turn while he is getting 12 usages of the dryer. Assuming he has them priced to make money he makes much more than you would. I am not advocating operating this way, just reporting an observation.

[bodman]

Hi all, I am one of those evil charity mat owners. My experience is at the end of the month at one mat I put 6k in the bank after all expenses including taxes except for my time to go by the mat and collect and fix something. that is 72k then from my other two I clear another 84k and in 6 years when loans are paid off thats another 84k. 4th mat not charity another 65k I own 3 homes no mtg, 4 vehicles no payments. I guess I am doing something wrong doing charity washes what do you think?

[Super Clean]

Hi all, I am one of those evil charity mat owners. My experience is at the end of the month at one mat I put 6k in the bank after all expenses including taxes except for my time to go by the mat and collect and fix something. that is 72k then from my other two I clear another 84k and in 6 years when loans are paid off thats another 84k. 4th mat not charity another 65k I own 3 homes no mtg, 4 vehicles no payments. I guess I am doing something wrong doing charity washes what do you think?

You never said what your charity pricing is.




What ppl fail to realize is low prices and high turns means you'll be replacing your equipment sooner or it will be looking like hell.

[BMWHD3060]

Hi all, I am one of those evil charity mat owners. My experience is at the end of the month at one mat I put 6k in the bank after all expenses including taxes except for my time to go by the mat and collect and fix something. that is 72k then from my other two I clear another 84k and in 6 years when loans are paid off thats another 84k. 4th mat not charity another 65k I own 3 homes no mtg, 4 vehicles no payments. I guess I am doing something wrong doing charity washes what do you think?


Bodman, you say Charity,
but you are making what seems to be a Good ROI.

Would you agree, if you were running these mats at "No Profit" or just over "Break Even", would be the way you would want to go?

Give us an example of your Charity Prices? LOL

[bodman]

tps 2.00,,,,, 18lb 1.25,,,, 27lb 1.50,,,,, 40s 2.00,,,, 80s 4.50 . dryer .25 for 5 min. @ 190 degree.

[Adamski]

Hi all, I am one of those evil charity mat owners. My experience is at the end of the month at one mat I put 6k in the bank after all expenses including taxes except for my time to go by the mat and collect and fix something. that is 72k then from my other two I clear another 84k and in 6 years when loans are paid off thats another 84k. 4th mat not charity another 65k I own 3 homes no mtg, 4 vehicles no payments. I guess I am doing something wrong doing charity washes what do you think?

Dale,

I'm sorry but all this is meaningless without providing some detail. For example: What is the value of the 3 homes? What is the value of the 4 cars? How large are the 4 laundromats and how long have you owned them? Do the laundromats pay rent to a landlord or to you or to no one? Are you making an allowance for equipment replacement?

Rather than sharing all this intimate information with us, however; it might be better to just tell us how many turns you're averaging on your washers and also how much (as a percentage) your prices are below your competitor's prices.

[bodman]

Larry I do not keep track of tpd, all mats i rent, my properties values 750,000 vehicles 45k . competitors pricing double mine . I have plenty of cash saved for eqpt replacement or just replace with new and new note at 7 year mark one mat 3 years new, 2nd 2 yr, 3rd less than one year, 4th not charity eqpt mix 1998 to 2002 i have owned it 4 years. Just sharing info for my good buddies here, you always wonder what the next guy is doing. store size 1500 to 2400 average 26 washers. hope this answers your questions.

[pressandclean]

Bodman, why do you think this stategy works so well? Do you break-even on the wash and make it up on the dry? Or what?

[Bluestreak]

tps 2.00,,,,, 18lb 1.25,,,, 27lb 1.50,,,,, 40s 2.00,,,, 80s 4.50 . dryer .25 for 5 min. @ 190 degree.


You know, I am quite new at this, but this does not appear to be "charity pricing" to me.

I'm in a small town but what I have observed in major metro areas is that they discount the sh*t out of the tops or give free dry. THAT is charity pricing IMO.

Tops are the most expensive washer to operate, as a portion of utilities, Bodman has his tops at the same price as his 40 lb. Yet I bet his 40 lb gets more profit per turn than his tops.

For dryers, 5 min/quarter is on the edge of being a price leader in many markets. I'm at 7 min and will be at 6 by the summer, but there's a lot of ways to skin a cat, and I think bodman's scheme is a good one. He seems to understand the utility cost per machine and price his machines accordingly. I actually like the way he stages his prices.

If he were my competition, that pricing would scare the crap out of me, as he would be getting all the smart people that know they can wash 40# for the same price as 16#. I want all the smart people in my 'mat and all the dumbasses in the other guys mat. :-)

[Super Clean]

tps 2.00,,,,, 18lb 1.25,,,, 27lb 1.50,,,,, 40s 2.00,,,, 80s 4.50 . dryer .25 for 5 min. @ 190 degree.

I just don't understand why anyone would want to price so low. Even our lowest priced Mats around here are

18lb $2.00
40lb $4.00

The places charging cheap are dives in my neck of the woods. The funny thing is the worst Mat in my area has $2.00 doubles but then charges $5.00 for it's 30lb and $7.00 for its 40lb machine. One guy I know in a couple towns over charges $6.00 on his 40's and $6.50 for hot, $3.00 on his doubles and he locks the washroom door, has no change machine, no TV, no.... no.....

[BMWHD3060]

tps 2.00,,,,, 18lb 1.25,,,, 27lb 1.50,,,,, 40s 2.00,,,, 80s 4.50 . dryer .25 for 5 min. @ 190 degree.

Bodman,
have you ever figured out how much profit you are making on your 18lb washers at $1.25 a spin?
When was the last time you raised prices at this Mat?
If you changed your price structure leaving the Top's alone, bringing up your prices from 18lb to $1.75 27lb to $2.25 40lb to 3.00 & your 80lb to at least $5.00 or $6.00, you might lose some business, but your profit would skyrocket, Utilities would be less & the wear & tear on your washers would be a lot less,
why not raise prices? Since the other stores around you are "DOUBLE" your prices.
You might also get rid of All those (Pain In The A**) customers you complain about. LOL

[thinkclean]

If one wanted a depreciation deduction for his income taxes, he could simply buy and lease back a few dozen railroad boxcars to get that with far less risk and aggravation.

I think there will be a lot of aggravation buying boxcars. There are about 440,000 rail cars sidelined in north america... about 25% of the market size. I don't think you can lease one to BNI, UNP, CSX, KSU in this lifetime. These sidelined cars don't even take into account the number of leased railcars coming off lease in the next few years. Just saying...

[epic02]

Bodman do your front loaders have the pre wash?

[Adamski]

[quote=Bluestreak;41986]... Tops are the most expensive washer to operate, as a portion of utilities, Bodman has his tops at the same price as his 40 lb. Yet I bet his 40 lb gets more profit per turn than his tops.... /quote]

Bob,

One way to set pricing is from a cost to operate perspective. I believe most 40 lb washers use more water and sewage than most top load washers. The 40 lb washers also require more square footage than a top loader. Repair costs are probably about equal. It costs about 4 times more to buy the 40 lb washer but it also lasts longer than a top loader. So setting a price based on a cost to operate - the 40 lb washer should be priced at 2 times the top load washer's price.

A second way to set pricing is from a customer benefit perspective. A customer can wash about 4 times more clothes in the 40 lb washer compared to the top load washer. Not only that, but the clothes will probably get cleaner too. So setting a price based on a customer benefit, the 40 lb washer should be priced at 4 times the top load washer's price.

A third way to set pricing is from a customer demand perspective. This simply means that one sets a premium price on washers that are in great demand or are limited in number and a discount price on washers whose physical numbers far exceed local demand. So setting a price based on customer demand, the 40 lb washer could be priced at 4 +/- 2 times the top load washer's price.

If one were to average out the first 2 methods of pricing since we don't know the customer demand situation in Dale's (Bodman's) case; you come up with 3 times the top load washer's price. So if the top load washer was priced at $2.00, the 40 lb washer could be priced as high as $6.00 without taking into account customer demand or the lack there of.

A fourth way to set pricing is to simply look at what the competitors charge and discount their prices as deeply as possible. This appears to be the method that Dale is currently using. With the top load washers and the 40 lb washers priced the same at $2.00, there appears to be more profit per turn in the top loaders than there is in the 40 lb washers so Dale should probably steer customers toward the top loaders.

[mmurra]

I support Bodman for making a decision on how to price his operation. All of us utilize various price-point services (McDonalds to a fine steakhouse). We each appreciate that we have many price point options. Bodman fulfills a market niche which works for him and works for his customers. I would not work for me, but that's OK! Mark

[James2011]

yes, there is no one standard, any body can and should decide his prices, free world...it all depends on local market and competiton...good luck

[rjwarner]

I think that price is only 1 component to bringing people into your store. I adhere to the philosophy of staying slightly higher than the competition, while providing other items that my customers may want/like. I try to keep the place spic and span. I understand that a number of my customers like and need interaction (they may be lonely...or just need someone to listen to them for a few minutes) which we try to provide. We strive to be friendly which I believe builds loyalty and we have a great location (priceless).

So, while pricing is a key component to profit, it is not the only one.

[pressandclean]

I think I figuered out why the pricing strategy works so well for Bodman. If a customer comes in and starts looking at the FL's, he and "Jesus" helps them find a suitable toploader.

[Adamski]

I think I figuered out why the pricing strategy works so well for Bodman. If a customer comes in and starts looking at the FL's, he and "Jesus" helps them find a suitable toploader.

Mike,

Good one. I'm sure Dale keeps those customers in line with "Jesus" at his side.

[bodman]

hello been staying 24hr at the hospital the last 3 days. my wife had her hip replaced. How I chose the prices I did ? I followed my distributor pricing suggestions I left out that those prices were m-f 6 to 6. so evening and weekends are double or .25 to .50 in some cases higher than double at non happy hour times. Three of my mats are unattended which saves me 3,500 a month in wages, I have never been greedy so with all my personal cost low The money I pull out is Hugh compared to what I started out teaching at $7,200yr and wow $1500yr more for coaching 3 sports. I got into the laundromat business to pay my health ins premium $1880 per month and pocket money my hobbies are work and attempting to catch fish on my lakes I go to in spare time and competing in chili contest 5 times a year.

[Adamski]

... I left out that those prices were m-f 6 to 6. so evening and weekends are double or .25 to .50 in some cases higher than double at non happy hour times...

Dale,

Well now, that's certainly a horse of a different color. So to summarize, your 40 lb front loaders are priced at $2.00 Monday thru Friday from 6 AM to 6 PM. They are at least $4.00 after 6 PM Monday thru Friday and all day Saturday and Sunday.

Do your top loaders stay at $2.00 all the time? Do your washers automatically change their prices or do you have to do it manually?

[bodman]

yes tops do not change . I JUST LIKE DOING HAPPY HOUR PRICING it brings in hoards of custy during slow times of week thus moving them away from weekends when those people have no other choice but to wash then . with 24 washers it would be difficult to turn more washes on the weekend, I have 7 tops at that store and hope to soon put in 2 more 80 in there place. On the occasion I have checked income per washer size it came out as 80lb $93.00 40lb 49.00 27lb @ 38.00 18 lb @ 27.00 tops 21.00 for those who care.

[Super Clean]

I use to do time of day pricing and didn't feal it brought in anyone else during the week from the weekend crowd. The weekend crowd continued to come on weekends and the regulars who came during the week, week in and week out just got cheap wash.

When our new Electricty rates go into effect, peak and off peak usage billing, I may bring back time of day pricing to combat this. I will have to figure out if my evening and weekend use will balance out my weekday use or if I have to change pricing.

[Adamski]

... On the occasion I have checked income per washer size it came out as 80lb $93.00 40lb 49.00 27lb @ 38.00 18 lb @ 27.00 tops 21.00 for those who care.

Dale,

Before investing huge dollars for the 80 lb washers, why not simply calculate your tpds on each washer you currently have? That's the best way to determine what machines are in short supply and which machines can be reduced in number.

[BMWHD3060]

hello been staying 24hr at the hospital the last 3 days. my wife had her hip replaced. How I chose the prices I did ? I followed my distributor pricing suggestions I left out that those prices were m-f 6 to 6. so evening and weekends are double or .25 to .50 in some cases higher than double at non happy hour times. Three of my mats are unattended which saves me 3,500 a month in wages, I have never been greedy so with all my personal cost low The money I pull out is Hugh compared to what I started out teaching at $7,200yr and wow $1500yr more for coaching 3 sports. I got into the laundromat business to pay my health ins premium $1880 per month and pocket money my hobbies are work and attempting to catch fish on my lakes I go to in spare time and competing in chili contest 5 times a year.

Dale, hope all went well with your wifes surgery & she will be running around collecting quarters again real soon.