Pricing for Maximum Profit

By Larry Adamski | Oct 24, 2011

Can your laundry produce a better profit with a higher vend price and lower turns, or is it better to have more turns at a lower overall price? Every laundry owner has asked himself this question at some point in his career. Some begin by establishing a high vend price structure and then working to grow their turns. Others will try to maximize their turns with a low price structure. What works best for one laundry may not work well for another. This article will explore these and other vend price methodologies to help you understand the consequences, risks and psychologies that go into choosing the best one for your particular laundry.

Dollars vs. Turns

If you raise the price, the turns will tend to decrease. Conversely, increasing your turns often requires lowering the price. This is the battle that owners have waged for more than half a century in an attempt to maximize their stores’ profits. Owners generally use one of four vend price systems to strike the best balance between price and turns. These four methodologies are: high price/low turn, high turn/low price, loss leader and price follower.

High Price/Low Turn

Often, one or more of the existing laundries within a market will use the high price/low turn approach to maximizing profits. The theory here is that the laundromat is providing the highest level of service and convenience, so the higher vend price is justified. These stores are typically well established, fully attended, reasonably clean and well maintained. The higher vend price is often tempered by reduced turns. As a consequence, utility and maintenance costs are kept to a minimum and a good profit is often produced. A healthy profit provides incentive for the owner to continue to maintain the high standards and good value that his customers have come to expect. If turns drop too low, they can often be increased by a small reduction in vend prices. The high price/low turn methodology is often used by operators who are confident risk-takers or who are progressive, dynamic, business-minded professionals.

High Turn/Low Price

Newly built stores often use the high turn/low price technique. This approach is taken because a new laundry has added several washers and dryers to an existing market. The low price is an attempt to get those new machines turning by luring customers over from the existing laundromats. After all, tons of dirty laundry doesn’t suddenly materialize simply because a new store opens its doors. There is no independent source from which to obtain new laundry customers, so they must be enticed over from the other laundromats within the market.

The immediate goal is to get the turns up. Invariably, many owners attempt to do this by setting the lowest market price. Consequently, this laundromat may have higher-than-average utility costs as a percentage of gross sales. Still, if enough turns can be obtained, a good profit can result. Such laundries tend to age more quickly, and their owners often tend to become a bit cynical after years of dealing with price-conscience customers. The risk that turns remain too low cannot be fixed by further price reductions and often results in the failure of the laundromat.

Loss Leader

Some laundry owners believe in the loss leader approach to vend pricing. These owners incorporate both high and low pricing over the range of their machines in an attempt to be all things to all customers. Success depends on the ability to increase turns on the higher-priced equipment while using the lower-priced equipment as a loss leader to keep customers coming back. An example of the loss leader methodology is special event pricing, which is available on most of today’s washers and dryers.

This feature allows operators to offer a discount price during specific days of the week as a loss leader. Another example of loss leader pricing is the giveaway. This can be anything from free soap on specific days to a free wash after a certain number of visits. Free dry is an example of extreme loss leader pricing. The free dry laundromat will charge a high price on the washers and allow the dryers to start free of charge. The risk is that customers may take advantage of the low-priced equipment and ignore the high-priced equipment.

Remember that gifts, discounts and freebies that exceed 90 days can become ingrained into your store’s price structure, and customers may react strongly when these “specials” are later discontinued. The loss leader methodology is often used by owners who are independent thinkers.

Price Follower

Some laundromat owners may decide to simply duplicate the pricing of one of the other laundries within the marketplace. They may set prices within a quarter of the market’s high price if they have a clean, attended laundromat. Others may set prices very close to the market’s low price, assuming they’ll get a bigger share of the market pie. Some may even offer free dry simply because other stores in the market have it. The risk is that copying the pricing strategy of another laundromat may not result in the best possible profit for the price follower store. The price follower methodology is often used by operators who are new owners of existing laundromats, owners who want to minimize risk or absentee owners.

Choosing a Methodology

When choosing your pricing methodology, there are several factors to be considered. If your laundry has limited parking or is less than 3,000 square feet, it may not be a good candidate for the high turn/low price methodology. If your store has high fixed costs, it may not do well using the loss leader methodology. If your laundromat is unattended and the equipment is older, the high price/low turn methodology may not be a good fit.

You must first look at how your laundromat compares to the other stores in your market. How does your laundromat rate based on its location, condition, appearance, convenience, visibility, security and comfort? Is it fully attended or unattended? Does the equipment look almost new or is it quite dated? Is the laundry located in a major business district or along a neighborhood street? Does the store feel safe after dark?

Choose a pricing methodology that best fits the type of customers that are attracted to your particular laundromat and you’ll have the best chance to maximize your profitability.