Simple guidelines can be just the thing to obtain a memorable snapshot of your laundry business. Such guidelines could point out patterns or problems that you might not ordinarily catch. After all, you’re swamped with work, immersed in the details, running around putting out fires or helping to solve customer problems.
Whether a one-store operation or a multi-store chain, you are tunnel-visioned. That is, you are focused on those matters that concern you. Sure you receive reports, monthly P&Ls and the like, but often you just shuffle through them, knowing in advance what you will find. You need something more accessible, more visible to keep you on track.
RATIOS: THE WAY TO GO
I suggest you create several ratios, which illuminate your operation in a quick-hand fashion. Let me start at the beginning, so we are all on the same page. What is a ratio? A ratio compares the relationship between two factors. Take labor to executive salaries. If weekly labor is $2,000 and executive salaries are $1,000, then the labor/executive ratio is 66.6% labor and 33.3% management. Simply, labor is 67% of total payroll.
Keep these ratios weekly or monthly in a little notebook that’s always handy. Periodically take out the notebook and study the figures. You might even set up graphs or charts.
Why the effort? These ratios will show you where you need to spend more time, alert you to emerging problems, and enable you to see what’s happening on the floor. In the ratio of labor to executive pay, it could alert you to the fact that you’re taking more than you should.
All Laundromat businesses are unique, so one owner’s ratios will not work for another. You must create your own, which depend on the structure of your business. For example, if you have a drycleaning plant to go along with a coin laundry, you might want to monitor relative volume of each operation. This will allow you to assign expenses correctly, which in turn will illuminate profit centers as well as loss sectors.
Let’s look at a simpler example. If your drycleaning drops to less than 50%, you might need to do more marketing (give out coupons) and come up with some other ways to pump up the Laundromat business to redress the balance.
What other ratios might be valuable? Area population to revenue could be a good way to assess market penetration. Say you establish that the population five miles around your store is 30,000, and your volume is $200,000. That’s $6.67 per individual. You find that $10 is a statistical average. That means more work is required to bump up that figure. Maybe you could insert bargain circulars in car windshields at senior centers to encourage them to give you a try.
Another pivotal ratio could be utilities to revenue. Perhaps utilities are $3,500 and monthly volume is $20,000. Then the utilities ratio is 17.5%. This states that utilities are 17.5% of volume. You can use this ratio on a month-to-month basis to see that figures are in line. If the ratio goes up to 20%, you should investigate why. What skewed the results?
One important ratio is always type-of-sales breakdown. Keep track of your wash/dry revenue, drop-off service revenue and other revenue (vending, commercial accounts, etc.). Maybe the ratio will be 80/10/10. Every month, you can assess what is changing in your operation by putting the 80/10/10 template against actual sales. It could be that the sales are lagging in one area, and you might not know it until you check the ratio. Possibly commercial volume is slipping, and you don’t know it because wash/dry revenue has been particularly brisk. But identifying the decline will get you to go after more commercial accounts.
Another interesting ratio might be average customer spending. Here you will have to count the number of customers who come in for several days, add the daily revenue and divide by the number of customers. You might break it down by morning, afternoon, evening and weekend. You might find some surprises. For instance, what if you discover that the typical night customer spends a third more? An investigation into the reasons might lead you to discover that this customer has larger loads. Could you use this discovery in any way to generate more revenue? Perhaps approach these people and let them know about drop-off service. Maybe you should bring in high-end snacks at night and earn extra money.
If you have multiple stores, you would be interested in sales per square foot. Take the sales and do the math. If you have a $300,000 volume in a 2,500-square-foot Laundromat, that’s $120 per square foot. How does this compare with a $150,000 volume operation in a 1,100-square-foot store? That’s $136 per square foot. Even though the larger store does more volume, the smaller store has a higher space utilization. That might tell you to search for smaller locations instead of larger locations. Maybe you want to open another store in the same area. Retail strip malls might also be the way to go.
You could do the same ratio with occupancy costs (rental plus extras) to sales, and see if this backs up the space utilization findings. If you have attendants, you can play with the numbers to see if business is up or down when the attendant is on duty. Does having someone around to keep your laundry clean boost business?
Again, ratio analysis doesn’t take the place of analyzing P&L statements. But knowing the shorthand answers to a variety of business questions will quicken your management response time. It’s also important to not just sit on the material. When a ratio gets out of whack, you know you must take quick action, and not wait for the next report.
Secondly, knowing these ratios would be useful if you got together periodically with other laundry owners to discuss and evaluate your businesses. Each of you could lay out the ratios and compare. I bet this would lead to some interesting discussions.
Consider quick ratios as shorthand tools to better manage your laundry.