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Be Bold, Think Fresh (Conclusion)

Spend a lower ‘percentage of revenue,’ to see profit

DALLAS — The drycleaning and laundry industry has been around a long time.

Over the decades, owners of dry cleaners have gained tremendous wisdom concerning how to run a great drycleaning and laundry business. Most of the conventional wisdom is truly valuable and too rarely followed.

I remember one of the first pieces of advice I received was from a cleaner who said, “Never forget about quality. You can have all the bells and whistles, but if the clothes come back with stains, wrinkles, or broken buttons, your customers won’t come back.”

That was great advice that should be followed every day.

While most of the conventional wisdom in the industry is spot on (no pun intended), there are a couple of pieces of advice you’re likely to hear which can lead you astray. Here’s the second of two quotes you’ll hear in the industry that you might want to reconsider before following.

The second quote to reconsider is: “You have to keep your store rent and build-out costs low.”

If you are opening a new store and ask for advice, you will often hear that the most important thing you can do is to keep your rent and your construction costs as low as possible.

As a result, many drycleaning owners tend to find inexpensive locations in the middle of strip malls and build the store out with a couple of counters and a conveyor.

While this strategy certainly keeps rent and build-out costs low, it also can keep revenue and profits low because it fails to provide a pleasant experience for your customers. It’s a classic example of penny wise, pound foolish.

Instead of keeping your rent and construction costs low in dollar terms, you should think of keeping them low in percentage of profit. The Starbucks approach is a perfect example of this mindset.

As you can see from driving down any major street in America, Starbucks has incredible (and expensive) locations. The vast majority of their stores are on the corner of Main and Main, have drive-thru locations, and are easily visible.

The rent at Starbucks stores averages over $60 per square foot. Not only that, their average store build-out cost averages $380,000.

So, how is Starbucks so successful if it isn’t keeping its rent and build-out costs low? The answer is that it is, in fact, keeping its costs low, just in profit percentage terms instead of dollar terms.

Because Starbucks leases great spaces, its stores attract many more customers than your average coffee shop. In addition, because the company spends so much on building beautiful stores, its customers spend more time and money per visit.

As a result, the average Starbucks store makes $1.3 million per year in revenue. Contrast that with the average coffee shop that makes $215,000 in revenue, or about the same as an average dry cleaner.

This huge gap in revenue between Starbucks and the typical coffee shop far out-weighs the additional rent it pays for its space. Counter-intuitively, with all that it does, Starbucks is spending a lower percentage of its revenue and profits on rent and construction than the typical coffee shop.

The same lesson applies to your drycleaning store.

If you spend $30,000 per year on rent and spend $30,000 to build your store out, you’re keeping your store costs low, right? Wrong. Because chances are, your store is doing around $200,000 and you’re breaking even after paying yourself a salary.

That means that your return on your build-out cost is 0% and your rent is gobbling up all of your profit.

But what if you spent $60,000 per year on rent at a better location, spent $60,000 on the build-out of your store, and made $400,000 in revenue?

Your profit would probably be at least $60,000 after paying yourself, so your return on your build-out cost would be 100% and your rent as a percentage of your profit would be 100%.

Now, that’s what I call keeping your costs low.

To read Part 1, go HERE.

Have a question or comment? E-mail our editor Dave Davis at [email protected].