To increase vend prices or not? That is the question. Before we answer it, let me ask you some questions.
What happens every year with your rent? Doesn’t it go up? What happens with your utility bills? Don’t they go up? What’s happened with inflation over the last 10 years? Hasn’t the cost of living gone up? Then why can’t we, as an industry, raise our prices to a fair level?
If strong competition is your excuse for not raising prices, ask yourself one more question: How can you make money when your store’s vend prices are determined by the stupidest coin laundry owner in your market? You need to see what your competition is doing, perhaps by visiting them every quarter (90 days), so that you can determine if your pricing is too high or low. However, once you have this information, start to look at your operational costs.
For a coin laundry to make money, certain numbers need to be kept in balance. For example, one month’s total rent (triple net rent) should be equal to or less than one week’s gross revenue. I use total utility costs as a basis for determining my vending price structure. The total monthly utilities shouldn’t be more than 20-25% of your gross self-service revenue. If these numbers start to go above these baselines, then the money is coming directly out of your pocket. You’re paying your customers to do their wash.
In today’s economic reality, you need to be flexible and in it for the long run, so you need to realistically look at your marketplace and set your target pricing. Can you be $1 higher than the competition next door? Probably not. But you might be able to be a quarter or 50 cents higher and still make a decent return on your investment.
I own and manage five stores, some in very competitive areas. After visiting my competitors and recording all of the vend prices, including variable prices, I look at my own numbers. With static utility prices, what gross-income number do I need to reach to achieve 20-25%? What is the difference between where I am and where I want to be? What percentage increase across the board will achieve my target percentage?
If I can increase my vend prices and be within 50 cents of my competitors’ prices, then I will raise my prices and track revenue closely for the next two months, which is about how long it takes for the market to balance itself out. After a couple of weeks of losing customers and a couple more for most of them to return, you should see a trend in the last few weeks.
When changing vend prices, do three things:
1. Make sure the store is in the best possible condition before the price increase. Don’t give customers an excuse to leave for the competition. A dirty, dingy store with out-of-order equipment will scare away more customers than a price change ever will.
2. Let customers know that there is a price increase and why you need to increase the prices. Remember, customers know exactly which dryers run the longest and which ones are the hottest — don’t you think that they would notice an increase in prices? Don’t insult your customers, let them know right up front that you have to raise prices and why. I place laminated signs in English and Spanish on my bill changers. I start by saying “Dear Valued Customers...”
3. Post a laminated, color newspaper article about natural gas prices jumping more than 50% or something similar to help justify the increase. Sometimes you have to go back a few months to find the right article on the Internet, but our timing isn’t always perfect anyway. Most people will take this in stride, just like the when gasoline prices shot up.
Another tip for raising prices — I’ve changed all of my digital coin mechanisms to read “Number of Quarters to Start.” This is honestly a little smoke and mirrors, but quickly, how much money is 21 quarters? How about 19 quarters? Increasing the number of quarters from 17 to 19 to start the washers is only two more quarters. That kind of change in our pocket isn’t “real money,” it’s what we drop in the Dunkin Donuts tip jar. When the coin mech uses dollar amounts, customers suddenly realize how much money they’re spending.
It’s all about the mentality. Please e-mail me and let me know how you’ve made out with vend price increases. I would love to hear any other winning pricing strategies.