Is Now the Time to Increase your Vend Prices?
Whether to raise your vend prices or not should be considered like any other business decision. To raise your Laundromat's vend prices needs careful consideration and some analytical methodology. In following articles, I will explain how I determine to raise my prices (or not). Business 101 says that the profitability of any business is the gross income minus your expenses equals your profit (or loss). Let's look at the income and expense side of operating a Laundromat. Gross income is the amount of money that ends up in your money boxes. Currently with high un-employment rates, a portion of our immigrant population has a choice of being un-employed in the US or un-employed in their home country. Many illegals have decided to go home which has reduced our pool of Laundromat customers and consequently reduced our store income. This loss may be slightly tempered by the increase in customers who own their own washers & dryers and have decided not to repair or replace their broken home appliances. Undeniably, Laundromat income has dropped during this recession, so the question is how do I keep the same financial returns?
Laundromat expenses are increasing all the time. The four largest expenses in operating a Laundromat are; Labor, Lease, Note and Utilities. Labor expenses have been pretty stable and probable equal to or have fallen behind when compared to inflation. Lease expenses are composed of base rent, property taxes and the common area charges. Lease expenses are compounded expenses where the increases are on top of last years increases. Lease expenses (especially if they include property taxes) Never go down. Note payments, on the other hand, are the cost of equipment loans (or acquiring the business) and are usually the same month to month.
The last major expense is the Utility expenses. Utility expenses have 4 components being the cost of electricity, gas, water and sewer. The cost of Electricity is pretty stable and does not vary that much in the market place. The cost of electricity is somewhat regulated by the local public service commission. Electricity rates are stable but they are also tied to the cost of energy. More and more electricity power plants are using natural gas to generate electricity. With electricity being generated from natural gas, there is an increased the demand for natural gas. More demand equals higher prices.
Natural Gas is typically the largest component of a Laundromat's utility bill. Natural Gas is widely de-regulated and a large number of Laundromat owners have been burned by locking in at a high rate with energy companies. Some of us have been purchasing de-regulated gas as a price above an industry standard (such as Henry Hub or City Gate pricing). Right now we have some historic lower cost for Natural Gas. Gas prices spiked in price during 2005 and 2006, but have been historically high since 2001. We all know that once the economy turns around, the cost of all energies will go up, especially Natural Gas. Again, it is simple supply & demand.
Water & Sewer rates have increased dramatically over recent years and show no signs of leveling off. It is more and more common for a gallon of water to be more expensive to get rid of then to actually purchase. Sewer plants and increasing demands for improved water quality have been raising sewer costs to un-presentenced rates. All Laundromat expenses (including utilities) are increasing every year, year after year.
With this as background, I wanted to know if Laundromat vend prices were keeping up with the cost of inflation. If you built you store 10 years ago (in 2000), the cost of doing business is now 25% higher than it was 10 years ago. If you built your store 20 years ago (1990) the cost of doing business is 65% higher and if you built your store 30 years ago (in 1980), it now costs 160% higher than when you originally opened your Laundromat. Let's look at the increased costs associated with inflation. A $150,000 store in 1980 would now cost over $240,000 in present dollars.
(Article to be continued Next Week)
Chart Showing Historic Vend $ vs. Inflation
(Avg Vend Prices as reported by the CLA)
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