About pieces, pounds and dollars
I am often puzzled when I hear drycleaners say things like: “My sales are up, but my piece-count is down. Sales are only up because I raised
my prices.”
 | ||
And I never once had a goal of “How many pounds could I clean?”
To me, poundage was only relevant to the capacity of the drycleaning machine. It
had noting to do with my goals as a business owner and entrepreneur. As we all
know, different garments have different weights and those weights are not a
good indication of how much we charge for that particular article. A silk
blouse is very lightweight, but can easily bring in twice the revenue of a pair
of wool slacks weighing twice as much as the blouse. Pounds cleaned is not a
good measurement of sales volume for drycleaners.
Let’s go back to the original statement: “My sales are up, but my piece-count is down. Sales are only up because I raised
my prices.”
This shows a basic misunderstanding of the factors that control and affect our
sales. Sales are not up only because you raised your prices. Your sales are up
because you raised your prices and that price increase did not deter enough
customers to cause an overall drop in your sales.
That was the effect it was supposed to have. Any substantial (five percent or
more) price increase will cause some customers to both find another cleaner for
some or all of their clothes and cause some others to bring in fewer clothes
for cleaning.
As long as the net result is not a decrease in your sales, you win.
Here are two tables I put together to determine the net result of a price
increase, and they have nothing to do with how many pieces you’re cleaning.
Table #1 shows how much your sales would have to decrease as a result of your
price increase for you to continue to make the same net profit as before the
increase.
The base sales of $500,000 is, of course, a hypothetical round figure to make
the math easy to understand.
The fixed costs are determined to be 40 percent of sales.
The variable costs are also estimated at 40 percent of sales. This is based on
labor being the most variable factor within the variable costs category and
usually amounts to about 35 percent of sales by itself.
Total costs are fixed costs and variable costs combined.
A net profit of 20 percent is what the average drycleaner makes.
OK, there’s no question that everyone’s cost and profit margins differ. That’s life! We all operate differently. However, these figures are based on my 38
years of experience in this business and many years of running cost groups and
consulting with member drycleaners about their costs and profits.
In Table 1 you see that your sales would have to drop by two percent for you to
make the same net profit as before a five percent increase was instituted.
 |
A four percent decrease in sales would give the same net profit after a ten percent increase in sales; six percent decrease after a 15 percent price increase; an eight percent decrease after a 20 percent price increase; and a ten percent sales decrease would leave you with the same net profit after a 25 percent price increase.
Table 2 demonstrates what would happen to your net profits if your sales only
remain equal to what they were prior to any price increase.
 |
Here you see that a five percent price increase could result in a ten percent increase in net profits; a ten percent increase could give you a 20 percent increase in profits; 15 percent increase results in a 30 percent increase in profits; 20 percent gives you a 40 percent increase; and a 25 percent increase in prices would result in a whopping 50 percent increase in net profits!
If you’re in business to make more money, forget about pieces; and the only pounds you
need to be concerned with are how many you’ll be adding to your weight as you grow rich.
