CHICAGO — While the idea of raising prices makes many dry cleaners uncomfortable for different reasons, the fact is that the cost of doing business has been on a sharp rise because of the pandemic, supply chain issues and other factors.
Cleaners who refuse to increase their rates — deciding to just absorb the expense — could face dwindling profits and risk the future of their companies.
In Part 1 of this installment of our series where we examine some tightly held beliefs that keep cleaners from raising their rates, we started our examination of Myth No. 2: “I Don’t NEED to Raise My Prices.” Today, we’ll look at the truemath of the calculation.
Count the (Real) Cost
Randy Parham, CEO of Acme Cleaners, based in Orlando, Florida, believes the trap many cleaners fall into is worrying too much about what the competition is doing to price their services correctly — to the point that they fail to take into account their own overhead.
“Your pricing is your own,” he says. “Your competitors’ prices may be drastically different than what yours are. They could be higher than yours unnecessarily, or they could be significantly lower. I don’t think a lot of cleaners put much thought into what their actual costs are. You’ve got to look at costs such as rent, labor, electricity, telephone, supplies for both the counter and in production, repairs, maintenance and insurance. A lot of these are commonly overlooked.”
Once these factors are accounted for, only then can a dry cleaner see the full scope of their business.
“You’ve got to figure out what your costs are, and then figure out what your production is capable of doing,” Parham says. “If you say, ‘I’m going to be at this price, but I need 60,000 pieces a week to make it profitable,’ chances are you’re going to be pretty short of that production goal. Once you factor in your labor, fixed costs and everything else, you’ll have the information necessary to say, ‘Here’s the number that I need to make every month to be profitable.’”
Kermit Engh, managing partner of the drycleaning consulting group Methods for Management and the owner of Fashion Cleaners in Omaha, Nebraska, cautions that dry cleaners shouldn’t let their account balance be the only barometer they use for the health of their business.
“It’s a sad thing, and I’ve heard this comment too many times to believe that it’s an isolated incident,” he says. “Some cleaners, who don’t know their costs, feel that if they have money in the bank, they are profitable. The first time I heard that from an operator, I said, ‘You know, I can play that game, too, by just not paying my bills. That doesn’t mean I’m making any money.’ They didn’t quite comprehend what I was saying, but that’s how they had always run their business. And so that was all that they knew.”
Do the Math
Before factoring in price increases, David Dawson, a longtime industry veteran and principal of the Clean Expertise consulting group, says that cleaners should first make sure that they are running their business as cost-effectively as possible to get the true accounting of their situation.
“Reducing production costs are an option worth considering,” he says. “Not everyone has tapped into all of the efficiency options available to them. Dry cleaners can’t avail themselves of some of the strategies other businesses employ. You can’t put less ice cream in the tub or make the candy bar smaller to avoid raising the price. But in times like these, you might try to develop creative ways to work around the temporary shortage and availability issues that are causing supply cost increases.”
Once this process is complete, Engh says, it’s time to get down to business and do the math.
“A substantial number of cleaners really have no idea what their costs are to produce the work that they’re putting out,” he says, “so they don’t have a process and a system in place for determining their pricing. They need to understand what it actually costs them to produce a shirt. What are their costs, and what is their overhead? What’s their desired profit margin? Rarely do the operators know these costs.”
Come back Tuesday for the conclusion of this installment of our three-part series, where we’ll look at how much attention cleaners should pay to their competition when it comes to pricing. For Part 1, click HERE.