CHICAGO — In today’s competitive marketplace, many dry cleaners face continuous pressure to expand their service offerings to attract and retain customers. But as they add new services, they may struggle to maintain a clear picture of which offerings actually contribute to their bottom line — and which might be quietly draining profits.
The Evaluation Gap
The first challenge to evaluation is knowing how to properly assess profitability.
“The biggest mistake for many is they don’t know their actual costs,” says Brian Johnson, director of training for the Drycleaning & Laundry Institute (DLI). “It’s difficult to calculate profitability if you don’t know what your total expenses are.”
This knowledge gap leads many cleaners to make decisions based on what they believe are industry trends or competitor behavior rather than solid financial analysis.
“A lot of times, they don’t have a system to evaluate,” says Kermit Engh, managing partner of Methods for Management (MfM). “It’s just shoot from the hip. They heard somebody else was doing this, so they decide to get into it. There’s not a strategic decision being made.”
Without reliable metrics and a systematic approach to evaluating services, cleaners may continue to offer unprofitable services simply because it has “always been done that way” or because they believe customers expect it, rather than because the service contributes to overall business success.
Calculating True Costs
Many cleaners underestimate the true cost of providing services, Engh believes, because they are focused only on direct costs, such as supplies and labor.
“Sometimes they forget the cost of their own overhead, indirect labor, marketing and advertising, as well as the equipment and space needed,” he says. “Some of these ancillary services require a lot of space.”
Johnson agrees, adding that proper cost calculation means “factoring in all of your labor costs — including counter, route drivers, cleaners, pressers, inspection and bagging — and then all of your non-labor costs, such as building and equipment depreciation, insurance and other factors.”
These indirect costs can significantly impact whether a service is truly profitable. A service that seems to generate decent margins when considering only direct costs may actually be operating at a loss when all costs are factored in.
The available space in a store or plant must also be taken into account when considering new options.
“We’ve had Methods members over the years who have wanted to get into a new service, but they physically can’t do it,” Engh says.
The space requirements for services like rug cleaning, wedding gown preservation or cleaning of large household items can be substantial, he says, and that space has a cost attached to it that must be considered in profitability calculations.
High-Margin Services
While the specific service mix will vary based on local market conditions, both Engh and Johnson say there are certain specialty services that typically offer stronger profit potential.
“The larger-ticket items are where the profit can be best obtained,” Engh says, “and that’s in things such as patio cushions and household items, including area rugs. Wedding gowns are also a high-ticket item. All these areas require training and could require some special expertise, but it’s the higher-price-point items cleaners can do that will have the best profit margins.”
Johnson notes that “things like comforters have huge margins because people tend to charge a lot of money and their actual cost to do the work is very low. There tends to be a fairly large profit margin on wedding gowns, as well.”
Some items with simpler processing requirements can offer good margins, he says: “Items like sweaters are easy, quick to produce, and have very little cost compared to other pieces.”
Alterations and tailoring as services also have great potential, according to Johnson, although finding skilled workers can be challenging.
“People are struggling to find trained tailors and seamstresses today,” he says. “They’re hard to find. It’s a service that everybody would love to have if they could find somebody skilled enough to do it.”
Come back Tuesday for Part 2 of this series, when we’ll look at some traditional mindsets when it comes to new services, and why they might not apply to today’s marketplace.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
