As laundromat operators, we’re always looking for ways to grow our businesses. Historically, the most common way to do so was to purchase or build more stores. While there is nothing inherently wrong with a growth strategy built around opening additional laundromats, it’s not necessarily the most capital efficient way to improve your top line. In fact, opening more stores might actually be compounding a problem that you already have: poor asset utilization. It also presents two major challenges for many owners…
- It requires significant capital to implement
- It increases the time and resources needed to manage employees in multiple locations.
We all build out laundromats to satisfy the customer demand during the high-volume weekend periods. In fact, many successful stores generate 50% or more of their revenue on Saturdays and Sundays. Consequently, the majority of the time they are open – mainly weekdays – they’re not operating anywhere near capacity.
I experienced this first-hand ten years ago. Believing that the only way to make more money was to build or buy more locations, I opened my third and purchased my fourth store. Overall sales went up, and cash flow improved incrementally – which was good – but the additional debt I took on to make it all happen ate away at my margins. To make matters worse, the higher debt load increased the risk profile of my business. In the end, instead of just two stores with poor asset utilization, I now had four that were very busy on the weekends but slow during the week. I knew I had to find a way to squeeze more money out of each location rather than keep building and buying to drive profits.
Increasing Revenue Without Adding More Stores
My goal was to increase the number of turns on each machine at each location instead of adding more machines and more locations. To achieve this, I would need to get more laundry coming through the door during the slow mid-week periods without cannibalizing my high-margin weekend walk-in business. I decided that if I couldn’t get folks to bring their laundry to the store during the week, I would just have to go get it. And so, I introduced a pickup and delivery operation and promoted it to the suburbs within a 20-mile radius of our main store. Now, just over five years later, our pick-up and delivery business has grown to equal our “traditional” laundromat business all without adding a single washer or dryer. In essence, I was able to “build” an additional store while allocating almost no additional capital.
We all know the laundromat business is a high fixed-cost business and requires a large investment to get going. Adding a pickup and delivery operation to your existing store allows you to distribute your fixed operating costs (equipment lease payments and rents or mortgages) across two revenue streams.
Today, I own one store and because of our robust pickup and delivery business, our profit is greater at this one location than the combined cash flow that was generated by the three stores I sold. And with less debt and significantly greater, more diversified cash flow, my business’s risk profile has also decreased.
In the next article, I will discuss the growth of consumer services outsourcing and why laundromats are uniquely positioned to take advantage of this trend.