Did you know a 20 cent price per pound increase can lead to a 52% increase in profit?  Raising your prices increase both your total revenue AND your profit margin, resulting in an exponential increase to your profit.  And the reverse, discounting zaps profits. 

Kent Wales of Happy Laundry describes how he made this financial discovery and how he incorporates this concept into his wash and fold business.   A price increase allows you to do less work and make more money.

 

Speaker 1: 0:00

We have a special episode of state of the laundry industry. This episode features Kent Wells and him and his brother-in-law discovered something brilliant, which is a small price increase, leads to an exponential increase to profit. So if you raise your price just by a little bit, your profit goes up. Expon, let's take an example. If you are charging a dollar 80 and you increase your price just by 20 cents per pound, you go from a dollar 80 to $2. Your profit will increase by over 50%. So this is big. And the reason for this is because when you increase your profit one, you make more money. Your gross revenue goes up. And the second thing is your profit margin goes up, which means you're making more money on more money. So without further ado , episode 25, a small price increase leads to an exponential increase to profit. So I'd like to welcome to the program, Kent Wells of how happy laundry I just wanted to thank you for you came up with the idea, a marginal increase to price , uh , leads to an exponential increase to profit. And I've just been thinking about that just since you mentioned it to me, and it's just, I haven't , you know, made this calculator based off that. I mean, it just , uh , just blew my mind because like a little 10 or three 15 cent increase makes a big difference to your profits. And you also mentioned the reverse is true with a discount mm-hmm <affirmative> and where if you discount your price, that leads to exponential, it just zaps away your profits mm-hmm <affirmative> and it really makes you rethink your business. It makes you rethink everything and like which customers to focus on. Uh , if you could share like where you came up with this idea and how it all works and how it's affected your business.

Speaker 2: 1:48

Well, thanks. Thanks, Matt. And thanks for having me on again. I , yeah, it was one of those things I've been thinking about for a long time. Uh, I actually, I need to credit my brother-in-law who's , uh , uh , in pharmaceutical sales, in the back of his car, I was helping him clean out five years ago, had a much , these cards spilled out of his briefcase and it was basically one side of it had a grid that was, you know, your gross margin on one side. And, and if you increased your sales by one and I'm like, oh, that's interesting. So then you flip it over and it's the , it's the reverse of that. And if you discount, what is that? You know, it took me a long time. It , it carried around the car to my wallet for pro probably four or five years before I really understood the effect on our business. Uh , you know, the laundry business is not generally a one and done . We are a repetition with customers over time and I've, you know, had heard lots of conversations about low pricing is a race to the bottom, but I didn't really get a grasp on it until I , I started looking card again and really started to digest the difference and , and what it does for our business.

Speaker 1: 2:48

Two things happen . And , and this took me some time, like just going over the numbers to figure out how is a marginal price increase, lead to exponential increase in profit, turns out it's two things going on. One is your gross revenue goes up. And then the second thing that happens is your profit margin goes up. So you're making more money on more money, higher profit margin on a higher revenue. I mean, it's just incredible.

Speaker 2: 3:13

Yeah. I think one of the things to keep in mind with our business is it's, it is since it is a repetition business and you're getting customers over and over, there is some maybe need in the very beginning to attract someone with a discount or a coupon. You know, one of the , one of the hardest things I had to learn and I've been been in this business for 16 years was I almost tried to race to the bottom and beat large lending company prices like in the commercial side. <affirmative> because that's people were coming to me, well, this is the unit price, or this is that. Well, that's not what we do. Well, we do customer service. Well, we do flexible schedules. Well, we do their own items. Well, and that should command a bit of a higher price. Cause if you set like a discounted price for someone that's just stripping away your profit over the law long term , especially with some of those larger volume customers, I think that's one of the thing . I think it's one kind of, one of the bigger things too to think about is, you know, there's one thing to start and fill volume. It's another thing to kind of get up to where you wanna be and have, and make enough and make enough profit to make it where, but that's definitely one side of it. And then you can think about it from the other side, which is your margin. So anything that you can do efficiency with your team efficiency, with delivery, something to get some of those fixed expenses or, or even the variable ones down can increase your margin. It

Speaker 1: 4:38

Also points the picture of what are your, and you're alluding to that. Is your goal just market share or is your goal to be profitable? I think a lot of times we measure success by, oh, more laundry better. It's not necessarily better. It's the goal is to make money. That's why we're all here. And then you start rethinking which , which customers, sometimes somebody may have a really good and by good, I mean high volume commercial account, but is it really good for your bottom line when it comes down to your commercial accounts? Are there like, what are your thoughts about that? Like regarding discounting or because people are always asking that question, what should I charge my commercial accounts?

Speaker 2: 5:13

Yeah, that's a really good one. The true answer to that question is as much as you think they'll pay. I , I think when I think about it, I think about it in a couple D for in a couple different ways. So we have a seasonal business over the summer with some vacation rental companies and owners and also table in and for wedding venues. So for us, unless they're a huge volume account, there is no discount because you're going to be not a customer that goes 12 months out of the year. So as we've matured in our model, we've looked at okay, the ones that are 12 months a year, that we're gonna pick up at least once a week, if not three to four times, those are the ones that are of the most value to us. When I look at the big customers like, and we do have one that, that we do a lot of sheets and towels for, they do a lot of their volume in about five months with us. And it is hard to kind of schedule for that and ramp up, you know, labor and things for that. So when I look at it, I'm like, okay, they have to be to high enough margin that I'm gonna , that we're gonna make up for the extra work work that it takes to , to do them. Now they're a sizable enough account in this one particular thing that we get , uh , that we do give them a discount, but we've worked them up. You know, when I didn't realize this, they were way down below, over time said to myself, you know, we're, we can't discount like this. Especially if those things are true, which is, they're not year round account, we've, they've come up in price as, as in all of our new customers get here's what our price is. So, and it , and for us, we're in Washington with the higher minimum wage. And I, I wanna pay my people better. So we're well over $2, I think we're in the two 50 range.

Speaker 1: 6:52

I think everybody in this business has to kind of review their commercial accounts, kind of do some house cleaning and figure out, Hey, are all of them profitable? Bring some up to speed. Some of them you're gonna have to drastically change and you just have to risk losing them because it's like, Hey, they're, we're losing money on that. And we need to go up to this. And when you go up by a significant amount, you run the risk of the customer going away and that's okay. They either pay what is fair and everybody makes money or they, they really do need to go somewhere else. And then the guys who are kind of on the cusp, it's better to raise those people incrementally on a regular basis to bring them up to speed rather than all at once. Mm-hmm <affirmative> , uh , when you do it all at once, you risk losing that customer mm-hmm <affirmative> , but sometimes it's necessary. We had this , uh , big ship come into Harbor to pour and they wanted everything done real quick. Mm-hmm <affirmative> because they're gonna be leaving soon. So the natural instinct was provide a discount because there was a lot of laundry. And then we're like, Hey, you know what? We're gonna have to do overtime. We're gonna have to do this. Mm-hmm <affirmative> and our costs are going up. So we charge above retail because of their special circumstances. And realistically, nobody else could have done it that quickly on the fly and just ramped up mm-hmm <affirmative> . So we charge extra. And now using the curbside calculator, the profit, I just realized was double

Speaker 2: 8:03

What are my goals? And I'll just speak from my perspective in this business was to get to a , to full production on a, on a regular basis, all of those kind of ad hoc things that come in or big opportunities that people think they have. We don't just have a whole staff of people sitting around, waiting for these things to get done. What my goal is in my business is to have a steady level of work come in and increasing every month coming in every month, that's predictable and repeatable because that's something that I can count on schedule to deal with. So yeah, I'm in the same way we in fact told my staff, if we get, if anybody asks for anything, that's kind of over a hundred pounds, we have to push about an extra day or so, because it's just not, it's not that we can't do it, but I don't want to jump to every one of those opportunities. Mm-hmm <affirmative> . And if there are large opportunities , uh , something breaks down like at a hotel or which we've done before or a nursing home or something like that, it is not a retail price. It's retail plus, because you're absolutely right. You gotta factor in the fact that you're going to have to pay over time . There's extra runs to get out there. It's outside of kind of what we normally do. So yeah, I think that's a really good, I think it's a really good point.

Speaker 1: 9:19

Yeah. There's a , there's a cost to when you stretch yourself, mm-hmm <affirmative> , every restaurant goes through that. You got your busy weekend, Friday, Saturday, and Sunday or so. And then Monday, it's a little bit of regrouping and like getting everything cleaned up. And , and so there is a cost after stretching you might have of called in that extra favor for that employee to come in to really help out because we need you. And now <laugh> , it might be a few more days till she comes back.

Speaker 2: 9:43

Yeah, no , absolutely. I , I think, I think for some, I think this is different too , for people in different stages of their business. So if you're in the very beginning stage and you, you know , maybe you're the one doing it and you got one or two other employees, you're just trying to keep them busy. And so, yeah, that, you know, if you got a coin , if you're doing this in a coin laundry, you know, you're offsetting their labor, this is great. But at some point you hit this, this point where, oh gosh, we gotta, we gotta be more stable. We have to have enough because we need to pay revenue over of those stuff that we already have. That's that's already there kind of helping our coin laundry customers out. There is a shift that happens when you're, when you're building your business. So you're saying yes to a lot of stuff in the beginning, you're figuring it out. You're trying to figure out how to make more profitable. Once you get kind of close to full. And then you think about adding a second shift. There's no reason to discount anymore. You know, you, hopefully you have a good marketing system that's bringing in the customers or you're out selling one of the two, but , or a combination of both. And you can fill all those things. But at no point, I think after that initial stage, you really gotta think about where, how , how can I get the most revenue for each one of these pounds that I'm doing?

Speaker 1: 10:59

Yeah. And one thing about commercial accounts is a lot of times they over, they do a lot of puffy. They say, Hey, we're gonna be sending over all the , all this clothes . And then what you , when you actually get it, it's something else. And it's like, well, why did I provide that discount? Mm-hmm <affirmative> in the first place, probably do a whole podcast just on pricing. <laugh> commercial, because there's a lot to that. But I , I think just the, you know, a lot of people are just, you know, hemming and hauling over raising their price over 10 cents per pound. Mm-hmm , <affirmative> worrying that they're gonna lose so many customers. Let's say you're a dollar 80 and you're raising your price to $2 . So 20 cent increase. So you could reduce production by 27% and still make the same amount of money. Mm-hmm, <affirmative> translating that into English. You could lose basically one out of four of your customers. Mm-hmm <affirmative> and still make the same amount of money. Now, realistically, if you, any laundry owner, who's watching this. If you raise your prices by 20 cents, are you really gonna lose over 21 fourth of all your customers? There's no way.

Speaker 2: 12:00

So, Matt, what's your experience? You guys, I mean, you guys have been in business a long time as well. So when you did your last price increase, do I mean, and you have regular customers, not just kind of residentials as well, but did you notice, or did you have any loss?

Speaker 1: 12:15

Our profits went up so there wasn't lost there in terms of actual customers, didn't really notice too many people leave. I could count on two fingers. One person was on fixed income and we made a special accommodation for her. You know, older lady, one person we just lost overall. We've got hundreds or thousands customers . Yeah . Our profit just went up significantly. I think we just fear failure sometimes where we fear rejection and that one person could make it where you lose sight of your entire business.

Speaker 2: 12:44

I will tell you that in January, I took our most drastic price increase ever. And it has to do with labor cost of materials , uh , fuel, you know, all those things. I mean, we, I was nervous, but I got to the point where I just said, I'm not going backwards. And I looked at the cost and I looked at the potential increases coming up this year. And I'm just like, we're either gonna lose some business or nothing's gonna change. Or my price increase was 15% across the board. It was. And it was, you know, we do, you have a few on tracks that are, that are fixed for periods of times, but, and they'll got , they'll have to go up when their next renewal comes up. I will say this it's, we , it was terrifying for me. And I've done this. I mean, we have program price increases twice a year and we do it so we can keep up with increased costs and make more profit. We might have lost, I, I know we got feedback. Same as you. We got one person on a fixed income that was just like, well , this went up. I can't afford that. And I'm like, well, sorry. You know, we're happy to cut you back to our legacy price. Cause we kind of have a couple for those situations like you, but other than that, I didn't , we didn't get like , we maybe got one other phone call. That was it.

Speaker 1: 13:50

Yeah. So it's, it's sometimes our fear of that as much greater than the rare . And I think that's genius what you're doing with a raising your price twice a year, just on a fixed schedule. So many business operators, I'd say probably over 90%. They wait until that pain point happens like gas going up or this happening . And they're responding instead of getting ahead of the curve. When we outsource to our dry cleaner, he told me upfront , he goes, once a year, the prices go up and I fought hard back on that, but he stuck to his guns. You know, he was like, we're , that's just the way it is . And that actually helped us because then it forced me to say, okay, you're gonna raise prices. Our wholesale costs . I'm gonna raise my retail price by the same percentage. And actually we wound up making more money. That concept of being on a regular schedule of price increase. I think it's really partner just for the health of the industry

Speaker 2: 14:38

In any business has to go up in price. I mean, they're just, that's, that's kind of how the market works and Starbucks doesn't when you go to get a coffee, doesn't hand you a notice too , that says, Hey, our price of our coffee just went up. I think one other, just thing that I'll wrap into this conversation is is you get vulnerable. If you have a customer or a small group of customers, that is a huge percentage of your total revenue. I know that I've been burned early on. I had customers that were 40% of our gross revenue and it looked and it looked, you know, shiny, you know, they, and that was a lesson I learned me and me and an owner kind of got into a tussle and an argument about how things were delivered. And he wanted things at a serious discount. And I didn't really understand my cost back then. You know, I did gave him a price increase, kind of midyear. And he in October just came and got the rest of his stuff and said, we're done. And I'm like, oh no, because that was, you know , there goes 40% of my gross revenue out. The door happened one other time with the hotel where they just, they sold the hotel overnight. Uh , it was an asset sale and the new person called me up in the morning and said, we bought the assets to the company and it does not include contracts. And so by <laugh> , that was frustrating. So I finally, also so long , too long stories to make one point, which is, I also very much try to keep our largest commercial customers to less than seven and a half percent of our total growth . So if we get one or two of those that, that get up to that level, I look at it and go, okay, I can't take any more big work on.

Speaker 1: 16:09

Yeah, that's a great point. So if you don't want one customer over 7%, there's a lot of laundry mats out there that do all their washing fold on behalf of somebody else mm-hmm <affirmative> . So somebody else may be picking up the laundry, just having you quote , do the laundry. And so I've seen laundromats where a hundred percent, we're not talking about 7% or 40%. We're talking about a hundred percent of their washing fold . They is all coming from one customer. And then that's just way the power structure in that is just not mm-hmm <affirmative> conducive for success because that one person could just change the rules overnight and you either comply or you lose everything. So it's, I'm a big believer in fragmented. <laugh> , you know, when you basically want that's one reason why I love residential pickup up in delivery is because if you lose one customer, you know, it's not a great thing that if that happens, but it will happen at some point, but if you lose one customer, it doesn't stop the train mm-hmm <affirmative> you're able to keep moving along.

Speaker 2: 17:04

Mm-hmm <affirmative> yeah, absolutely. I , we call it , uh , diversified streams of income. I'm sure I sold that from someone else somewhere along the way, but we even use it than our small nonprofit that I'm on the board for a youth center. And one of the things is we had about two huge streams of funding that we're funding our organization. And, you know, as a board over the last seven or eight years, we've just looked at what are the other things that we can do to bring in revenue. And along those exact same lines, not be beholden to just one or two either grants or know ways of doing business. So

Speaker 1: 17:35

Yeah, it's so important for the health and continuity of the organization to mm-hmm <affirmative> have diversified income and, and make money while you're doing it, which goes back to the washing fold , you know, the , the price calculator who knew, but that document was in , was in your pocket all that time. Yep . I mean, that is just such a brilliant concept, you know , marginal price increase, exponential different in profit. And it really, I think everybody's got some homework to number one, figure out what their profit margin is. Right . And then number two, figure out, well, what if I were to make a change to my price? What would that do to the bottom?

Speaker 2: 18:08

Absolutely.

Speaker 1: 18:09

So, yeah, just wanna thank you. I mean, you are such a friend of the industry. Yeah . Who've helped so many people and, and that concept will forever change the way do business at our laundromat. I think it's gonna help everybody. I mean, this is something that affects everybody. It's so pertinent and just wanna thank you for, for sharing it with us.

Speaker 2: 18:26

No problem. Great Matt. Well, thanks for having me all . And I enjoy our conversations and, and especially, you know, just back and forth with the , with the business ideas. Thanks a

Speaker 1: 18:36

Ton. Terrific. Thanks again. In the next episode, we're gonna share how to get your own free curbside wash and fold price calculator. If you like more information about the curbside laundry solution for in a point of sale or pick up and delivery, go to curbside laundries.com.