Dryer times and customers

[Kitty]

Dry times has always been an issue with customers and a subject that can create a satisfied or dissatisfied customer according to where you set your times per quarter/ $ rate, but with gas pricing being where it is today educating customers with the economics of the costs of doing business today may be necessary if you store owners can't get market pricing for your equipment. Somehow someway!

If a store charges wash vend prices for 50's $4.00 35's $3.00 25's $1.75 and tops $1.50 and the establishment is giving 9 minutes on 50lb dryers for a .25 the profit has got to be sucked up in the utilities and all the other expenses doesn't it??? I understand some strategies that you charge more $ for washers to cover the extra in dry time you may extend to a customer but this is not the case in any of the vend pricing in this establishment.

The store is clean bright and has been adding new equipment little by little, good parking and has a good clientlelle, It is clear this store is the leader in the market, but yet the store has kept the market pricing so low, the vend pricing is too low, especially since they have added brand new 50lb dryers/ and 30 lb stacks and other additional upgrades. Ive heard this company owns the realestate.

When a company owns the real estate or pays less than market to a landlord they are kidding themselves that their establishment is making money or profitting a decent return. If the establishment does not take into account the money that would be spent to a lease/or ROI (back to themselves at market rate of the property if they own the property) in a line item in their accounting financials, they would clearly see that by vending amounts like the $ amounts above does not give a decent return.

Many of you guys are happy with the fact that as long as you make money at the end of the month you are happy, but if you consider the amount of money that can be left on a table, every month you may lose considerable year after year. It's crazy!

[Fred50]

I don't know where to start with this one.

- Dryer pricing. There are a lot of theories with regards to dryer pricing. Don't forget that there are folks out there that are still doing "FREE" dry. If you calculate the current cost of gas for new 50 lb dryers these folks are losing $$ on every turn. That doesn't even take into account the cost of electricity, rent (or imputed rent), employees, maintenance, etc.

- As far as washer pricing goes, it should at least make up for the losses on the dryers. I can't say if they are making $$ or not as you didn't provide enough data (e.g., other utility costs - water, sewer, payroll, etc.)

- If this mat is a market leader, it should be pricing over the competition to take advantage of that position. Most people don't go to a mat because of pricing, so if this store is clean, bright and in a superior location it should price itself as such.

- Now for a favorite subject of mine and others - owning the real estate. I would like to own the real estate that my mat is in, but if I could then I wouldn't need to be in this biz.

There are several advantages to owning the real estate: control over your "rent" for the long-term, control over building maintenance costs, flexibility to do whatever you want with the property within local guidelines, and building equity in the property over time. However, there are disadvantages as well. Such as tying up investment capital in a lower performing vehicle (in the long run), assuming the potential cost of re-tooling the building if the business goes sour, being tied to the property even if the area goes south.

Now for the interesting stuff. If you own the property that your business is in, you should be paying yourself a market-based rent or at least doing financials based on market-based rents.

If the business still provides a good return after taking into account all expenses including "rent", then you have a winner on your hands, otherwise you are fooling yourself into thinking all is well. If your business can't give you a good return on your $$$, then you should be renting the bldg to someone (with possibly another business) who can.

[Kitty]

Im sure this mat makes money, especially when you factor low lease/rent in relation to this mat. But I bet if the financials were analyzed, these people would take a hard look at how they are managing their business. The fact when a mat doesnt have to deal with market priced sqft rental rates skews the financials. When costs go up, you either find a way to increase business or at least your sales. If you cannot increase your revenue you'd better cut expenses. Absorbing costs and cutting your margins is foolish.

On the ouside looking in, it is fully attended with wdf services at less than 90 cents a lb. I think Looked like a decent amount running through maybe 700-1000lbs a week by the looks of what was there, by a guestimate? Payroll in these parts are probably average 7-8 bucks an hour and it looked like the owner was doing repair work.

But my point is, Do store owners who own their real estate believe it is the best strategy to vend at rates so low that this may be the key to keep competition at bay? I realize competition is feirce and protecting your market is essential but there are certainly other ways of protecting your slice of the pie. Vend Pricing is not the way to protect a market. Pricing your equipment for the best return is one of the smartest thing you do is it not?


Is everyone ready to raise your vend prices?

[Maywood2]

Hi all. I own the building that my soon-to-be mat will be located in, and wanted to add thoughts from that perspective --
Kitty, you're absolutely right that you need to take into account the fair-market value of the space you're renting -- if you don't, how will you know if you'd be better off just renting the space to someone else and not doing all the work associated with a laundrymat?

In my case, the fair market rent for my 1800-sq ft space is maybe $900 a month, but it's been vacant for about a year, since there's a depressed demand for retail space in the area. So although I'm working my laundry projections with $900 a month in "rent", I can also recognize that the space is currently not generating anything for me, so I'm better off putting it to some constructive (i.e. profitable) use. If it otherwise would remain vacant, in that sense it's almost "free rent" since I own it.

If you will run your laundry under a corporation, it is important to actually pay yourself the rent each month. Write a check each month or each quarter. It helps prove that the corporation is an independent entity, and if there's ever a claim against the corporation (e.g., for a slip and fall), that's one less way that the claimant can "pierce the corporate veil" and get at your personal assets. (Not respecting the difference between personal and corporate monies is one way that a piercing can be argued, and the result is *personal* liability where you might otherwise be able to shield yourself... most of the benefit of using a corporation is the liability protection, so treat the corporation as a real, arms-length entity.)

Just my two cents...
John

[Maywood2]

oops, and also execute a lease between the corporation and you as the landlord. The construct may seem silly sometimes, but the corporation is a separate entity from yourself as an individual. Yeah, you'll be signing both lines of the lease, but in different capacities (you as Landlord, and you as corporate Tenant).

[Kitty]

Maywood shouldn't you tie a fair market value to property for your return ? What you pay should be close to what other tennants in your general area is paying for lease amounts should it not? Even though you are not netting any revenue at the present does not mean you should not tie it to the market value, but if your market is 2 bucks a sqft?

[Maywood2]

Hi Kitty. Yes, Yes, and Yes. That's what I'm doing -- the fair rent for the space IS about $900 a month, and I am factoring that into my laundry equations.

But looking at it from a larger (i.e. my total income) perspective, if it's a choice of it remaining vacant (stores can be tough to rent in this town, which is why it's been vacant for a year), versus putting it into productive use, by putting it into use I'm "creating" $900 a month in revenue to me personally, but that money is coming out of the laundry's pocket, so it's a wash for me, overall. (pardon the pun!)

If it were space that was easily rented and I was denying it from someone who'd pay me $900/month for doing nothing more than cashing his checks, I couldn't consider the laundry's rent as anything other than a real expense. But since it's vacant and likely to remain so, I can be more forgiving of this line item when I do my analysis, since it's from one hand to the other, and there's no opportunity cost.

But you're right, for laundry purposes, it's a real expense. If it ever comes time to sell the business, the new owner would be paying that amount (with increases each year).

John

[rem]

i disagree.....if your fortunate enough to own your location, and can keep your vend lower to keep your competition at bay, or drive your revenue up by volume....more power to you....(ive been on both sides of this owning, and leasing).....seems smart to me to do what they are doing....

[Kitty]

Rem,

I'll take a shot at your pricing strategy.....you own the building and earn less than market value for the rent ~ you also house the laundromat in the same building and you vend at lower rates than the national average to keep competion at bay in hopes to drive revenue up by your volume?


I hope this pricing strategy works during this wonderful utility increase.

[rem]

im not saying cut your foot off....i am saying that at any location that i have owned, i have made more money with a laundromat than if i had rented the space out at market value.....by a wider margin, thus giving me room to charge less than competition...thus raising revenue....thus raising profit....

[Kitty]

Does your laundromat "pay" you what you would have charged someone else (market price )who would have rented that space?

If you tell me no you do not not then then this is my point with your pricing stategy.

IMHO, you are passing savings along to customers in hopes to attract the bulk of the cutomers by charging less than than your competitor. You believe you have a wider margin, look at that margin, it has dwindled overnight. You may have a compeitive advantage that you have more wiggle room than your compeitors but why would you not want to earn as much as you can when you can? With the rise in utlility rates and the increase in costs it is necessary that all operators make a move with increasing vend pricing and do so immediately. Your margin is decreasing daily....Why would you pass savings to your customers just because you own the building? Only the strong will survive this bout with the increase this time around!

[pete f]

oops, and also execute a lease between the corporation and you as the landlord. The construct may seem silly sometimes, but the corporation is a separate entity from yourself as an individual. Yeah, you'll be signing both lines of the lease, but in different capacities (you as Landlord, and you as corporate Tenant).


Some states ( like Florida) have sales tax on rent. By owning the real estate you are 7% ahead of the game not paying an addition 7% as part of occupency costs.. Also by owning personaly and renting to your corporation you must collect sales tax from your corporation and mail it to the state. So for me my corporation owns the real estate. If you can find a good location that has a good rent then that is Ok also. Still, I preffer to not have a landlord if possible.