Charge the right price

1 May 2005



Sensible periodic price rises allow cleaners to make a decent living and to re-invest in the business, argues Chris Tebbs


The complaint from drycleaners around the world is that it is increasingly difficult to survive in an industry where the volume of work is reducing and costs are rising.

Yet why should this be the case? The garment retailing industry has grown tenfold over the last twenty years, while people in developed countries have become very much cash-rich but time-poor.

You would expect them to outsource more of the household chores, not fewer, especially when there is greater awareness of the need for cleanliness.

The response from the industry points to the threats from home laundering, the garment manufacturing industry producing more washable garments, the economic situation, high sales tax – in fact anything that lays the blame on others when, in fact, we should be looking at our own operations.

In our changing environment, cleaners will need to continuously research their local market to see what services existing and potential customers want and why they don’t use current services more.

Raising prices could have a significant and immediate impact on profitability if cleaners have the confidence to do so.

Generally, cleaners charge too little. At the Saskatchewan Professional Drycleaners Association convention which I recently attended, the association president produced figures on price changes over the last 30 years. Gas (petrol) had increased five times; a pint of beer had gone up eight times; the cost of a car 10 times; natural gas and electricity 10 times and even a loaf of bread eight times. Yet the cost of drycleaning a pair of pants (trousers) in the same period increased by just 2.5 times.

Yet costs will certainly have gone up. Employment costs continue to increase, not just the direct wages, which in many countries have been affected by the implementation of minimum rates, but also the ever increasing social insurance costs.

Businesses have had to invest in new equipment either because the old machines kept breaking down or because environmental or health and safety regulations demanded it. Conforming to further business regulations may require registration fees and/or the need for professional advice.

Prices cannot be kept down whilst costs are going up without a business suffering. So just how much should drycleaners charge for their services?

Do not just pick a price out of the air. Setting a price can be a delicate balancing act – charge too much and you run the risk of your customers going down the road to a competitor; but charge too little and you end up reducing your profits further. This is a critical decision, which should be based on a number of factors, which will have an influence on pricing.

Before working out a pricing policy, information on the following is required.

How much does it really cost to clean and finish garments?

It should not be too difficult to determine the fixed costs of the business – costs that are incurred regardless of the level of business activity, such as rent, rates, indirect salaries (management and counter staff) and capital.

Work out the variable costs, which rise and fall according to the level of production. These will include overheads such as hangers, polywrap, solvent, machine maintenance charge and waste disposal as well as the time spent on the cleaning and finishing of each type of garment. This last cost is extremely important if a business is to achieve cost-effective variable pricing according to the degree of difficulty of the task.

Don’t forget return on investment. To set up a business will run into several thousands of pounds or dollars. To invest this money in a bank without any risk whatsoever would achieve a return of between 3 - 5% and with a little risk, between 5 - 8%. Factor this into costs before determining prices.

Finally, as well as generating enough cash to cover overheads and repay loans, living costs must be deducted. The price charged must be sufficient for the cleaner to draw the salary required to meet commitments whilst still allowing the business to survive.

Know your customers

In considering a pricing policy, a business requires in-depth knowledge of its customers.

What do they really value – is it a quality finish or a quick service, and what influences their actual choice of cleaner? Determine what type of work the business is likely to receive, and in what volumes.

It is important to identify what motivates customers to choose your outlet over a rival around the corner. There is often more than one person involved in the decision, so you must know specifically whom you are targeting.

The competition

Determine who your competitors are, how much they charge, what services they offer and what discounts or loyalty schemes they have in place. Try to find out what your target market thinks of rival cleaners, particularly identifying their weaknesses and strengths. This is important, as you need to be able to exploit any shortcomings and to be aware of whether you are in a position to compete head-to-head against their strengths.

Selling points

List the unique selling points and strengths of the services you supply, and work out how much customers will value them.

Offer what your customers require, value and expect. For example, customers may be willing to pay you more for cleaning a suit if you have a reputation for reliability and a high quality.

Business objectives

This will also influence pricing. Determine in which direction the business should develop and how quickly. It may be part of a strategy to simply sell cheaper than competitors or to charge a higher price for a high quality result to position your product as of even higher quality.

Setting prices

How prices are set is a matter of choice. Consider one of the following techniques:

Mark-up pricing, where profit is determined as a percentage of the cost price

Margin pricing, where it is determined as a percentage of the sale price.

Pricing by competition, otherwise known as going-rate pricing, is where a business matches the prices of its competitors. This type of pricing is common where there is a lot of competition but it is not the most desirable as margins are usually tight and the customers are especially price-sensitive.

Breakeven pricing is calculating the breakeven point of a business – the point at which sales income and fixed and variable costs are equal – and setting prices by adding profit margin onto your unit price.

Perception pricing is where the price is determined by what a target market perceives to be its value – in other words, how much they would pay for it. This technique is likely to require a significant amount of market research.

Whatever method is chosen, cleaners should invest a little to stand out from the competition.

Smarten up the business. Give the shop a fresh coat of paint, put customer service representatives into a “uniform” of a blouse or shirt with the business logo on it, or improve packaging to help to create a fresh look.

Returning to the comments of the Saskatchewan Association president, he noted that 16,393 pairs of pants cleaned at C$6.10 each would generate sales of C$100,000. If the costs were C$95,000, this would produce a profit of C$5,000.

If the same number of pants were charged at C$8, still only three times the price of 30 years ago, the costs would remain the same but the sales would increase to C$131,144, producing a profit of C$36,144. Even if 10% of business was lost as a result of the price increase, the cleaner would realise an income of C$118,030 and a profit of C$23,030.

Just think – a small increase in price and yet, even with a potential loss of business, the profit increases almost 500%.

Cleaners should ensure prices are set at a level that not only allows them a decent living but also provides sufficient funds to re-invest in the business.

Above all, don’t let prices fall behind again – consider small but frequent increases at least in line with inflation.




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