While there are very formulaic equations that business owners use to set the prices of their products or services, most drycleaners will tell you that pricing is very much an inexact science, as much a function of feel as it is one of profits and losses.
“When you’re setting up the business, ideally in your business plan you take a very scientific formula to establish prices. You estimate your costs per unit [of clothing] as closely as you can and then determine what margin you want and then you make the price a factor of loss and profit,” says John-Claude Hallak, owner of Hallak Cleaners in New York City and Hackensack, New Jersey. “When you are a mature company, you really are beyond that because you’ve already had a history of prices. You can tell essentially if your price structure’s not doing the job if your sales are growing and your profits are falling.”
Price is a crucial cornerstone of any cleaner’s business. How a cleaner prices his or her services has subtle and not so subtle impacts on sales and volume. Price is also a component that can be changed rather easily and have a measurable impact; an increase or decrease can noticeably impact a cleaner’s bottom line, although whether it has a positive or negative impact depends on more than price alone. Quality and service are two other fundamental elements of a cleaner’s business. Often the repeat customers a cleaner desires continue to come back as much or more for the store’s quality and service than for its prices.
Indeed, cleaners may have more room than they think to charge prices that are fair and profitable for them, at least according to some plant operators. “The majority of cleaners don’t seem to charge enough, in my view,” says Gary Glover, President of Puritan Systems, Inc., which has 16 stores in the Richmond, Virginia, market and 28 stores total in Virginia and Maryland. Hallak adds, “There are a good number out there who could [raise prices], not only without consequence but with great benefit.”
Of course, each cleaner’s situation is different and must be viewed on its own merits. “It just really makes a difference where you are—where your cleaner is, how long you’ve been doing business, what the perception is by the customer that you’re dealing with as to how you can price,” says SEFA President Barry Morgan, an IFI District Committee Member and the owner of Morgan’s Cleaners in Brunswick, Georgia.
Pricing Philosophies
The first rule of pricing is to know your niche—whether you are a luxury, traditional or discount cleaner. There are many ways a cleaner can price within a niche, but cleaners should not stray far from the core of their business. Says Hallak, “You can’t just go overnight or over a month or over a quarter from a commodity cleaner who has been dominant doing a good average job at an average price and decide that you’re going to be a luxury cleaner the next day.”
Hallak is a luxury cleaner who charges a premium rate for very high quality and service. He has a high-end price structure at both his New York City store and his Hackensack plant where all of his orders are processed, although across the board prices are lower in New Jersey. The vast majority of Hallak’s business comes from Manhattan and 80 percent of that, he says, is pick-up and delivery.
Top-tier, luxury cleaners are a small niche with limited competition and a smaller number of clients, “but the average monthly cleaning bill for them is substantially higher.” Hallak says he can count on one hand the number of cleaners directly competing against him in New York City. In Manhattan, his base price for a suit is $19.80–roughly double the $10 average in New York–and with upcharges could cost a customer as much as $40. In New Jersey, Hallak also charges above the norm, a little more than $13 base versus an average base of $7.50 for a suit in his area. “We don’t have a moderate price structure. We don’t have discounts or coupons or sales,” he says. “We just have a general approach that we follow, which is we’re going to give you the best job we know how and we’re going to charge commensurately.”
But Hallak cautions that his philosophy may not translate well to middlemarket cleaners. “I had an experience with the middle market between June of 1997 and December of 1998. We opened up two middle-market stores in New Jersey, and we got clobbered,” he says. It wasn’t a perfect test because it was an absentee management situation, Hallak says, “but we couldn’t get people to come in at the slightly higher price structure that we were trying to put in….We lost a lot of money over the course of a year and a half, and we found that in the suburban environment it was just very difficult to compete with people who were couponing and discounting.”
Which isn’t to say that traditional cleaners can’t charge a higher price. Puritan Systems’ Puritan Cleaners brand, with 14 locations throughout Richmond, is a high-end traditional cleaner (Puritan Systems also operates luxury cleaners and discount cleaners under different names). “Our niche is for customers who want to pay a little more for a better product,” Glover says. “We try to deliver that and we’re not afraid to charge.”
As an added benefit to customers, Puritan stays open seven days a week, has hours from 6 a.m. until 8 p.m., and has drop-off windows in all of its stores so people can use express service 24 hours a day. All of these services justify the higher prices Puritan charges, Glover says, which are set at the top of the market ($8.50 base for a suit or dress, $1.59 for laundered shirts).
“I look at it like a triangle with price, quality, and service on the three corners,” he continues. “I think you can offer two. And in our Puritan operation in Richmond, Virginia, we offer service and quality so we can’t offer price. But if another cleaner is in a niche of offering price, then maybe they can offer price and service but their quality slips, or maybe they can offer price and quality but their service slips. I think you can only offer two and be fair for both the customer and the drycleaner.”
As for specific tips on pricing your services, the cleaners Fabricare spoke with offered the following advice: Charge More for Your Most Popular or Time-consuming Services SEFA’s Morgan says he likes to keep his prices near the level of other cleaners around him, but he also says, “I like to price for what amount of work that I’m putting into something.” Many cleaners price laundry differently, he says, “but for me, if I have a pair of laundered pants, and I know that it’s taken me seven to eight to 10 minutes to press that pair of pants, just because the norm is that you don’t charge as much for laundry as you do drycleaning, I don’t subscribe to that.”
In Jackson, Mississippi, Jamie McCollum operates Village Cleaners. He keeps his prices in line with the other cleaners in his area “except on what we’re going to do a lot of.” McCollum estimates that 60 to 75 percent of Village’s volume are blue jeans and pullovers, which are popular among the younger folks in Jackson. Village charges $4 per pair for starched blue jeans and khakis, and $2.50 for pullovers. “Our suits and our dress shirts are basically in line with the price of everybody else, but our blue jeans and khakis starched are more than anybody else in Jackson,” he says.
Upcharges
Upcharges are a great way to boost revenue. Many cleaners rely on their computer to apply upcharges depending on the fabric. “But that’s just one level,” Hallak says. He upcharges not only for certain fabrics, but for various designers as well. “We don’t hide the fact that a silk suit that someone brings in that’s made by Liz Claiborne or Ann Taylor is not going to be priced the same way that a silk suit coming in from Armani or Chanel is. We charge at least 50 percent more for those high-end garments.”
In order to maximize sales from upcharges, counter personnel must be very aware of fabrics and designers. Misclassifying an order could leave money on the table. For example, before Hallak instituted a 3-4 percent price increase last month, a two-piece wool suit cost $19 to clean. But if it was a crepe wool suit instead of a worsted wool suit, the cost became $28.90. And if the suit was a special-care garment, then the price jumped to $39, more than double the base price.
While upcharging “isn’t done as aggressively when you get out of the high end,” according to Hallak, it is nevertheless a popular method with many traditional cleaners.
Morgan charges a low base price for a suit—$6.50—but tacks on upcharges based on color, fabric, and the lining of the suit. “You’re adding to that base, but some people see that base as what you’re really paying for,” he says.
It’s a perception issue. The customer thinks he’s getting a low price even if upcharges are applied. Speaking of perception, Morgan has more to say on that subject.
Perception is Reality
“I’m not one who does this yet, and it’s something that I’ve been thinking about very seriously: perception is 80 percent of what’s going on out there,” he says. “If you’re charging more, people think they’re getting more.”
One cleaner told Morgan he was raising prices in order “ ‘to get rid of the rift raft.’ When they did, they acquired more business. Now whether that is coincidence or whether it is perception, I don’t know, but perception is a good bit of it.”
Of course, perception should be rooted in reality. The quality should truly be excellent. But as Morgan notes, “There have been some surveys done with discount cleaners against regular-priced cleaners, and unfortunately they’ve come up with the same cleaning for a $1.50 suit as they did for a $7 suit.”
A price increase for the sake of perception alone is probably a dangerous move. If you are not offering equal amounts of quality you will eventually suffer from customer backlash. “If you’re doing a bad job, going up [in price] is not the answer. The answer is doing a better job,” Morgan says.
But there are other viable reasons for a price increase, such as to match rising costs or, as Morgan mentioned, to shed some volume while maintaining or boosting your revenue. Or a cleaner may simply want to make more money.
Review the Price Structure
The cleaners Fabricare consulted suggested examining prices at least annually so that any adjustments in price are incremental. Putting your review off will only increase the blow to your customers since a bigger hike may be needed to make up for an overdue increase. “I’ve been in situations where I’ve had to increase my prices at one time 15 percent, which is a pretty big jump,” Hallak says. Hallak waited two and half years in that scenario and he says he typically revisited prices every two years. Now he says he’s “going to do it at least once a year, maybe twice, but smaller jumps.”
Puritan Cleaners reviews prices annually and most recently increased prices by 5 percent across the board. Occasionally, Puritan will hold prices—over the past five years it has instituted three price increases, according to Glover.
Some cleaners slide in price increases very incrementally. For instance, Morgan says that one SEFA member increases his prices by a few cents every few months. “And he says nobody knows….If you go up a little, tiny bit at a time, as long as you’re not reaching some certain plateau —a lot of times you don’t want to break that next dollar barrier. If you’ll go up just a little bit, I think people don’t notice it as much as they do if you wait too long and then take it past the next dollar.”
Another subtle technique: Hallak says that many of his prices are odd numbers, which don’t stick out as much as even numbers do.
Know Your Market
Ultimately, each cleaner has to do what’s best for him or her when it comes to setting prices, McCollum says.
After his mid-market experience, Hallak is much more cautious in his advice to traditional cleaners. “Would I tell any middle-market guy that he should be raising his prices? Well, I would say that with a lot of caution right now,” he says. “The only time that I would suggest to take that approach would be if there are other conditions that can be met— for example, some existing reputation, the ability to deliver a level of quality and service significantly different than your competitors. If those things are in place, then you at least have a chance.”
On the other hand, heavy competition may force an owner to keep his or her prices in line with other cleaners, or may even prompt a cleaner to lower prices.
“There’s a lot of room for pricing,” Morgan says. “I would prefer doing less clothes for more money, but if you’ve got a cleaner on the other two corners in your area, you may have to go to war with them [on price].”
In the end, Hallak cannot resist his natural urge to trumpet quality for a commensurate price. “It’s understandable to stay stable and steady with prices when you really don’t have a choice, but for those cleaners that could, if they only would, increase their revenue substantially by maintaining steady price increases and don’t because of unfounded fears, that’s really a sin,” he says.
To a man, each cleaner interviewed said that very few customers complain about the prices they charge. And for those who do ask, a reasonable explanation is often sufficient.
“I think a lot of cleaners underestimate the value that they provide to their clients,” Hallak says. “The better ones out there often don’t realize that the value perceived by their clients is greater than how they perceive their own service.”
This article is from Fabricare December 1999 issue.
