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Risk And Return

Over the last few years, America, sadly, has become a nation of hangers-on — a country full of people whose main goal is to “just hang on.” “If I can only hang on until quitting time,” some people say. “If I can just hang on another month, I can keep my house,” or “If I can hang on long enough, I’ll be able to keep my doors open.”
We’re waiting for things to change — when we’ll no longer have to hang on. What’s the magical change everyone is waiting for? What will be the sign that it’s time to pull your head out of the sand? How will you know when it’s safe to let go?
The idea that you can pull yourself up by the bootstraps or get back up after you’ve been knocked down seems to have disappeared — at least among the established generations. Those who are just starting out have all the enthusiasm and devil-may-care attitude we all had early in our careers. No odds were too long; no risk was too great. What happened to that can-do attitude?
While the hangers-on have been hanging on, waiting for things to change, things have changed. The last two years have seen more changes than the whole decade. And times of change are times of great opportunity.
Just as the world has changed, so has the look of opportunity. The new consumerism is based in thrift and ecology. It’s now chic to recycle — and to brag about how long you can survive with the old, or refurbish something and give it a new or extended life.
Younger generations are now watching parents and friends lose their homes and learning the lessons of the Depression all over again. They see older people flipping burgers and working two jobs. 
What were once proven paths to success are being replaced by new strategies. Trailblazers who took chances in the new economy are hiring former business owners as managers and employees.
A competitive system has become more competitive still. Free enterprise still works, but it may not be working for you, if you’re following the old methods. GM was the corporate ideal 50 years ago; Microsoft was on top 20 years ago. Today, it’s Google, and other companies you’ve never heard of are working to replace it in another decade.
Following industry averages and containing costs used to be enough. Now, you can cut costs until you’re out of business. You can cut so much that you can’t compete like you did when demand was strong.
I don’t need to point out that demand for drycleaning services was sliding for a decade before it suddenly dropped off with the recession of 2008. Fewer people get their cleaning done, and those who do are cleaning less. That’s the new reality.
Either you can become more competitive within this reality, or hang on to the illusion that somehow, you will be saved. And what should you do if you want to survive? Adapt the stricter practices of other businesses, and admit that the old ways no longer work.MARKET FOR PROFIT
To grow, you must shift your focus dramatically to marketing for profit. And the biggest component of profit is revenue, and the only way to generate revenue is through customers. Managing costs is important, of course, but cutting costs alone always leads to zero.
To understand what marketing for profit means, let’s revisit the concept of return-on-investment, or ROI. You should always invest your limited resources in whatever provides you with the greatest return.
A common thought among many poorly managed businesses is the “Fallacy of Free.” That’s the assumption that because you already own something or no longer have to make payments on it, it is “free.” We often think that whatever is “free” makes the best financial sense, when that’s often the worst assumption you can make.
For example, let’s say you own two presses that process 20 shirts an hour. Labor is $10 per hour. (These numbers are not based on any industry standard, but included only to illustrate the concept.) So, you can press 40 shirts with two operators for $20, or a cost of $0.50 per shirt for pressing.
Now let’s say that a new, $18,000 piece of tensioning equipment can process 50 shirts per hour with a single operator. You finance it for five years with monthly payments of $360. If you run the production floor five days a week for six hours per day, it costs $3.00 per hour to run.
What you have now — two presses and two operators — is “free,” but delivers a cost of $0.50 per shirt. If you invest in the new (not-free) piece of equipment, you will have one operator and $3.00 in equipment costs, or a total of $13.00 to process 50 shirts — a cost of $0.26 per shirt! And that’s before tax benefits, depreciation, and cost savings on power and steam use. Which of the two options is the cheaper, better way to go?
This is a simple example of how spending money on new technology is not an expense, but an investment that helps you compete in the marketplace. There are probably hundreds of new technologies that can improve your profit potential, from presses to tagging systems to computer upgrades.
In a shrinking market, some new, lower-capacity cleaning equipment may actually be better for your operation. If you’re running half-loads now, you could change to a more efficient machine or new process and rebrand yourself as a “true-green” cleaner.
New technology gives you an opportunity to lower costs and win revenues from the competition. There is no longer enough demand to support everyone in the business. If you don’t start to outcompete now, your competitors are going to outcompete you, while you try to just hang on.KNOW WHO'S ACTIVE
Marketing and maximizing your ROI should go hand in hand. Just because a customer has been coming in for two solid years, there’s no guarantee that they will come in again. Maybe they will, but are you prepared if they don’t?
This is where you can put your point-of-sale (POS) computers and databases to work for you. Most systems store some customer information you can use to help you know your customers and their purchasing habits. And nothing can deliver positive ROI like knowing your customers.
Knowing your customers is more important than ever before, and that importance will only continue to grow. You need to realize why they use any cleaner, and why they do business with you specifically.
The old strategy — mailing a coupon and waiting for the register to ring — is useless. You get these things at home. Do you read every one? Nobody does. Why would yours be any better? You can buy targeted mailing lists and have the most attractive postcards. But the cleaner next door may be doing the same thing. Direct mail is expensive and often has very limited results.
Results should be the yardstick for everything you attempt in your business. It’s easy to understand production numbers, but results represent ROI — and marketing and advertising have real results.
The first step is to have tools in place to measure results. It may be as simple as counting postcards or running reports on customer retention and longevity; those are results. Compare them to what you spend.
ROI can be measured before you spend the first penny. You do it for rent, making estimates of revenues for a new location; you do it for equipment, based on energy savings or the potential increase in throughput. You can do it for marketing.
The future began yesterday. Are you ready to face the new challenges, or is it time to salvage whatever you can and find another way to make a living? If you are up to the challenge, the answer lies in new technologies and new attitudes. Every decision should be to make a profit. And to maximize profit, you should get familiar with ROI.Howard Kaschyk has designed an Excel spreadsheet to help measure ROI for marketing and advertising initiatives for readers of American Drycleaner and AmericanDrycleaner.com. To request a copy, e-mail mktshop@comcast.net, or call 317-387-9277 and mention American Drycleaner.

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