Discounting the discounters’ claims
everal articles have been published lately that
put a positive spin on discount cleaners. What has been missing
from these articles is an explanation of how discount cleaners
make money.
As we all know, to make money in this
labor intensive business you must manage the three key elements
that control labor costs. After all, labor is the most
expensive line item. The three keys are:
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• The wages you pay your employees.
• The productivity of your employees
(pieces produced per hour).
The most successful cleaners understand
the relationship between these elements and they know how to
manage them.
Over the past year I have spent several
days with three different discount cleaners in three regions of
the country. I saw what they were doing and how they did it.
More importantly, I had an opportunity to scrutinize their
financials.
My examination of their numbers made me
realize that the discount cleaners I reviewed are actually
deceiving themselves that they are making a profit. Remember,
these are real drycleaners and these are their real numbers.
Company A
• Owner works 65 to 80 hours per
week.
• Owner’s total weekly
compensation is the $400 to $500 he takes out of the cash
drawer.
• There are no profits.
Company B
• Owner works 65 to 70 hours per
week.
• The owner’s investor (a
family member) is not being repaid.
• Owner’s total weekly
compensation is $500 per week plus $3,000 to $4,000 per year in
cash.
• There are no profits.
Company C
• The owner works 70 to 80 hours per
week.
• Owner’s total weekly
compensation is $600 per week which includes a company car.
• The company is not making a
profit.
In order to stay in business the three
discount cleaners in this study are exploiting their employees,
the investors and/or themselves.
Why?
Because their prices are too low to make
a profit — there is NO getting around this fact. Discount
cleaners are not profitable regardless of what some may claim.
Cleaners who embrace the Wal-Mart
philosophy — low prices are the way to succeed — do
not understand the difference between retailing and
drycleaning.
In contrast to retailing, drycleaning is,
I repeat, labor intense. There is a direct relationship between
price and profits in all labor intense industries and there is
absolutely no comparison between Wal-Mart discounting and
cleaners discounting. Wal-Mart, the world’s largest
discount retailer, has a business model that has been extremely
successful for them but it is not relevant to the drycleaning
business.
Sales for the three discount cleaners
described here range from $780,000 per year to $1 million per
year. These cleaners are processing 350,000 to 500,000 garments
per year. If, instead of discounters, they were well run
full-service, full price cleaners, they would be generating a
20 percent profit annually ($160,000 to $200,000).
I have had owners of discount cleaners
tell me they are making a profit, but I have yet to have one
show me their numbers!
Anyone can say they’re making a
profit. A while ago, someone was on the internet drycleaners
forum bragging about their friend in Florida, a cleaner
who’s making a fortune as a discounter. Since I am
located in Florida, I contacted this cleaner and asked if he
would refer me to his friend so that I could see his successful
operation. Not surprisingly, he never responded to me!
To maximize profits in this industry, you
must excel at three things:
• Customer service.
• Quality of work.
• Management.
These are the functional areas of the
business that must be addressed on a daily basis.
Of these three, management is the most
challenging because it is part mechanical (calculating costs,
pricing based on costs, etc) and part people skills.
The mechanical skills are straightforward
and fairly easy to teach and learn, whereas the people skills
are more complex.
The people skills become easier to learn
when managers have mastered the mechanical skills. Mechanical
skills give you the information and knowledge you need to
evaluate the performance of your employees.
The owners of most small, privately owned
companies are excellent technicians who have not had the time
to learn the management skills needed to increase their
profits. As a result, I have developed a comprehensive
management seminar for the owners of drycleaning businesses.
What follows is a preview of my new
seminar; The ABCs of Drycleaning — What every owner needs
to know!
Finance
We begin with a review of the financial
performance of a typical drycleaner. This review includes a
detailed segment on “management accounting” for
owners who are not accountants. Everyone learns how to read
their income statement and their balance sheet — both
vital skills for successful decision-making.
Production standards
Once there is a clear understanding of
the relationship between sales dollars and expenses (as in,
where did my depreciation dollars go?), we cover production
standards. Production standards refer to the number of pieces
that can and should be processed at every operation. There are
standards for every operation in a drycleaning business.
When talking about production standards,
there are several issues that must be addressed, including:
• The quality of the work.
• Workflow management or scheduling.
• How to increase productivity.
• What effect increased productivity
has on the bottom line.
• Designing and installing incentive
programs.
On the subject of production standards,
the most important thing for everyone to remember is that the
standards must be realistic, achievable and produce excellent
quality.
Personnel management
The financial and statistical areas of
this industry are mechanical in nature whereas good management
is more of an art form. The drycleaning business is a people
business. It is employee intense and customer intense.
To successfully manage people you must
develop good communication skills. This requires knowing what
you expect from your people and when you expect it. More
importantly, and more difficult, is conveying this information
to your employees. To ensure that tasks are completed in an
accurate and timely manner you need to schedule the tasks that
must be performed.
Functional Organization
Another subject we cover in our seminar
is Functional Organization. As your company grows, it must be
organized around the functional needs of the business, not the
personal needs of your people.
When people know exactly what they are
responsible for accomplishing in a business environment, they
can also be held accountable.
We review a sample of Company rules and
regulations. All companies should develop a set of Rules and
Regulations.
Once the rules and regulations are
spelled out, your job becomes much easier. You will have a set
of guidelines to administer consistently with each employee.
More than eighty percent of your employees want to make a
positive contribution to the overall well-being of your
company.
Our goal at Biz Builder Services is to
develop educational seminars that will teach owners the
essential management skills they need to succeed. These skills
are:
• Decision-making based on pertinent
financial information.
• Increasing productivity by
establishing standards and installing incentives.
• Delegating tasks and
responsibilities to others.
Biz Builder Services will sponsor the
first of these management seminars in Orlando, FL, on Saturday,
March 19, and another in Los Angeles, CA, on Saturday, April 2.
Check my website (www.bizbuilderonline.com) for more
information and to register.
I look forward to meeting you this spring
at one of these seminars!
In the game of business the more you know
the better you can play the game.
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