SAN FRANCISCO — Sales, revenue, income … whatever you want to call it, it’s the one thing you always want more of. It’s an easy thing to want but a hard thing to get, particularly these days. How do you close the gap?
The only way to get something so big is to break it down into its components. Even drycleaning is more diversified than you would first expect.
On one level, revenue has two components—piece count and price. Multiply the number of total pieces by the average revenue per piece to get total revenue. On another level, there are a variety of product lines, each with its own number of pieces and unique pricing strategy. On still another level, there are various distribution methods—including dry stores, activated plants, retail or commercial routes—used to receive the revenues.
Each perspective has the ability to generate sales and must be independently and jointly reviewed in the hopes of building total, company-wide sales.
Pieces and prices
Calculating drycleaning sales is simply a function of multiplying total pieces by the average revenue per piece. Your point-of-sale systems often report this information, so they are easy numbers to obtain for tracking the progress that you’ve made in each category. Pricing, in particular, is an area in which you have a great deal of control.
You can always raise prices, although many fear a respective drop in piece count. You can lower prices directly or offer discounts in hopes of an increase in pieces. This strategy must result in a piece-count increase greater than the price decrease to more than offset the processing costs that increase when pieces increase. You can easily test your assumptions, such as the direction of prices inversely correlating to the direction of piece counts, by tracking results from point-of-sale system reports. This is extremely worthwhile, as the assumptions we make are often vastly different from reality.
It is generally assumed that if you raise your prices, pieces will fall. This is a fear that leads many to avoid increasing prices even as labor costs increase, energy costs skyrocket, rent rises and profits fall. Sometimes, the action occurs too late to make up for the losses. Others have consistently increased prices and, although piece counts have fallen, found that they are still better off. Still others have raised prices and found that piece counts have risen. It is always worthwhile to track results, learn from them and form an ongoing plan.
Targeting specific product-line sales and their related pieces and prices is a more focused method of achieving higher revenues. Some product lines, depending on your production capacities, can be highly profitable. Household sales, wedding-gown cleaning, specialty-item preservation and a premium product line can be selectively targeted to existing customers or an expanded customer base. Price sensitivity may be lower, therefore not only can volume increase, but price points can be moved up. This results in the best of all scenarios, with higher volume and higher sales.
The third way to look for sales growth is by adding profitable points of distribution. These new areas can include dry stores, plants with front counters, retail routes, or commercial routes. Adding a distribution point will increase sales at existing price points and generally in a similar range of existing product-line percentages, so piece counts will increase and the average revenue per piece will remain consistent with the rest of the operation. Start-up discounts and grand-opening specials may reduce these results in the short term, of course, but they will be similar over the long term.
There is always the business risk of opening a new distribution point, particularly when it is a new physical location where the sales volume fails to cover the incremental fixed costs. This, of course, is the worst strategy, and often the reason the route business has grown. Picking the wrong neighborhood has no long-term costs. You can always move the route to a different neighborhood to build sales, or just sell the van and stop the route rather than being tied down with a five-year lease on a store.
Choosing a Strategy
The hope of many is that all you have to do is choose one of the three strategies presented, work it successfully, and life will be good. I wish it were so easy. The reality, in today’s economy, is that all three strategies need to be worked over time and often at the same time.
Sitting back and doing nothing has, of course, its advantages. Less work, less thought, and the justification that nothing you do today will make any difference. At the same time, however, costs are rising: rents, utilities, vehicle expenses and labor. Sitting back will result in shrinking profits and a loss of value. Just not an option if you’re in this business for the long haul.
Choosing what to do and when becomes an art rather than a science. Make a decision, track your results, learn from it and move on.
Have a question or comment? E-mail our editor Dave Davis at [email protected].