CHICAGO — Many dry cleaners learned in the past few years that, by offering additional services, they can sometimes attract new customers while better servicing their existing clients. Finding the right services, however, is the key, and this can be tricky.
In Part 1 of this series, we explored the value of understanding how to properly assess profitability and calculate a service’s true costs. Today, we’ll continue by looking at some of the traditional mindsets and why they might not apply well to today’s marketplace.
The Evolving Service Mix
Asked about the ideal service mix for today’s dry cleaners, Kermit Engh, managing partner of Methods for Management (MfM), pushes back on the idea that there’s a “one-size-fits-all” formula.
“I’m not sure that there is an ideal service mix. I really mean that,” he says. “It has to do with the demographics and psychographics of your client base, as well as the space you have available to you, or that you’re willing to add to what you have.”
He also has found that traditional assumptions about business composition no longer hold true for many operations.
“Traditionally, old-school shirts were 50% of your pieces, and I’m finding that, with rare exceptions, it’s nowhere near 50% of the pieces today,” he says. “Pants used to be 50% of the pieces for many, and I’m seeing that’s not the case in most operations.”
Rethinking Loss Leaders
A traditional strategy that some question is the use of shirt service as a loss leader to attract customers.
“I don’t believe in loss leaders,” Engh says. “I believe every service should either carry its weight, or certainly not have a detrimental impact on the bottom line. In the old days, it was conventional thought that shirts were your loss leader to get the drycleaning pieces. I’ve never believed in that. Shirts should be able to stand on their own.”
Brian Johnson, director of training for the Drycleaning & Laundry Institute (DLI), emphasizes the importance of analyzing actual customer behavior and service profitability, rather than following industry traditions without verification.
“No one has been able to justify to me that it actually works. Not one single person,” he says. “You offer a low price on a shirt. People then come to bring their shirts to you for a low price and take their other, more expensive things someplace else. That doesn’t drive additional revenue. Instead, you’re just losing money on every shirt you do.”
Regular Profitability Audits
When questioning the profitability of services offered, it’s important to conduct regular assessments, rather than waiting for obvious problems to emerge.
Johnson recommends reviewing profitability “at least once a year, or certainly when something changes — when wages go up or rent increases.”
Engh suggests even more frequent reviews.
“At least annually, if not quarterly,” he says, adding that MfM members are encouraged to do their reviews on a monthly basis “so that they can make adjustments quickly and not wait a full year of non-profitability of a service to make any adjustments.”
Engh believes in monitoring key performance indicators (KPIs) and comparing them to earlier data to uncover trends.
“For example, if I’m looking at my pieces per operator hour, and I see my trend has all of a sudden reversed and our PPOH is beginning to drop, I know exactly what I need to attack. I know exactly where in my business to make those corrections so that they don’t linger.”
Red Flags
Even without sophisticated tracking systems, cleaners should be alert to certain warning signs that a service may require reevaluation.
“The biggest red flag is your bottom line,” says Engh. “And if that is not where you want it to be, then you need to start researching back into your numbers to see what has changed.”
For those without advanced tracking capabilities, he suggests a simple approach.
“An easy way of doing that is looking at a particular line item and seeing what it did a year ago,” he says. “If you’re using QuickBooks, it’s easy to run a report of, say, a month’s P&L and compare it to the same time a year prior. That should give you at least the beginnings of seeing if something is dramatically different. Then you can figure out why that is.”
Johnson points to customer complaints as another important indicator to see if a service is worth offering, using drapery cleaning as an example.
“There are often a lot of complaints about draperies,” he says. “Just by nature, they shrink, they degrade and they don’t come clean. So, the complaints are high, and the margins might be low. You have to determine if that service is worth it. You might not be doing that many of them, and what few you do, the service is riddled with problems.”
Come back Thursday for our conclusion, where we’ll examine ways to determine the balance of new services and old, and how to find the proper mix to build for the future. If you missed Part 1, you can read it HERE.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
