Brainstorm: Building a coin-op laundry route empire (F&I X-post)

[spex x]

From personal experience, here is what I can tell you about the coin-op laundry business. First, your biggest expense by far is utilities. Gas and electric can eat up about 35% of gross or more depending on your equipment. The second biggest expense is maintanence, although on new machines, it will be negigible. For the sake of argument, let's call it 10% of gross per year.

You should buy more expensive machines. In the long run, they'll last longer, run more efficiently, and break less. Good Sqeed Queen machines cost about $1000 each plus installation. Sure, you could get the Whirlpool machines for $750 each. But they're crappy. Its not worth it in terms of time a headaches. Good Sqeed Queen machines can easily last 15 or 20 years. If you need 12 machines, I'd plan on spending about $14,000 total.

You vastly overestimated how much laundry people do. You're not going to get 2 loads per person per week. More like two loads per household per week. And I'd guess that only 70% of the households will use your service.

On the bright side, you can easily raise your price to $1.50 for washing, maybe even $1.75. Make them pay for the convenience. I doubt you'll lose many customers if you raise your price. Also, you overestimated the number of peoople that'll wash but not dry. I'd say about 93% will both wash and dry.

On the other hand, you didn't consider insurance expenses or utilities. So that is a bummer.

Alright, so lets do some financial analysis. We'll assume that the terms on your financing are $2000 down, $12000 note for 5 years at 10%. if you raise your price, your average sale is 2.98 and you'll get 2 loads per household per week, and you've got 56 households. We'll also assume that your rent will be, say, 20% of gross. I definitely wouldn't pay any more than this. This is a monthly analysis.

Gross profit = $1335
Rent = ($267)
Utilities ($467)
Maintenance = (133)
Insurance = ($70) guessing, prob less
NET PROFIT = $398 per month

Now, considering that you live in the complex, i'd guess that you'll spend maybe 2 hours per week dealing with the business. When you move out, add 2 more hours per week. So you'll be making maybe $50 per hour while you live there and $25 per hour after that. But in 5 years you'll own the machines outright, so you'll have fewer expenses at that time. Also, your net will be a bit higher b/c of tax advantages. For instance, you can write off depreciation and you can write off your commute home (travel from a first to a second job is deductible), plus all your normal expenses too.

Overall, I think that it looks like a decent way to own your first business with very little risk. There is a decent upside for someone who wants to devote the time.

Looks like a good deal, even if not as good a deal as you originally thought.

[wadea]

Thanks for the great feedback. It sounds like you know what you're talking about. Obviously, many of my estimates were uneducated guesses.

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First, your biggest expense by far is utilities. Gas and electric can eat up about 35% of gross or more depending on your equipment.

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The rental manager told me that all the current dryers are electric and the ultilities are all paid by the complex. In exchange, rather than rent, they receive a share in the profit. He didn't know the percents.

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You should buy more expensive machines. In the long run, they'll last longer, run more efficiently, and break less. Good Sqeed Queen machines cost about $1000 each plus installation. Sure, you could get the Whirlpool machines for $750 each. But they're crappy. Its not worth it in terms of time a headaches. Good Sqeed Queen machines can easily last 15 or 20 years. If you need 12 machines, I'd plan on spending about $14,000 total.

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This sounds like good advice. The $750 machines were the first ones I could find a price for without having to enter info to get an email quote. I don't really know the difference between good and bad machines...yet.

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You vastly overestimated how much laundry people do. You're not going to get 2 loads per person per week. More like two loads per household per week. And I'd guess that only 70% of the households will use your service.

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Based on other responses, this sounds more accurate than my original estimates. Excellent.

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On the bright side, you can easily raise your price to $1.50 for washing, maybe even $1.75. Make them pay for the convenience. I doubt you'll lose many customers if you raise your price. Also, you overestimated the number of peoople that'll wash but not dry. I'd say about 93% will both wash and dry.

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This is true. The nearest laundromat charges $2.00/wash. The dryers add time with each quarter, so I have no idea what that costs, but probably also >$1.50.

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Alright, so lets do some financial analysis. We'll assume that the terms on your financing are $2000 down, $12000 note for 5 years at 10%. if you raise your price, your average sale is 2.98 and you'll get 2 loads per household per week, and you've got 56 households. We'll also assume that your rent will be, say, 20% of gross. I definitely wouldn't pay any more than this. This is a monthly analysis.

Gross profit = $1335
Rent = ($267)
Utilities ($467)
Maintenance = (133)
Insurance = ($70) guessing, prob less
NET PROFIT = $398 per month

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So, here's another run of the numbers. By my math, $2.98/sale x 56 households x 2 loads/week = $333.76/week. Multiplied by 52 weeks/year and divided by 12 months/year = $1446/month. I'll assume profit sharing (in leiu of rent) is 50/50. Payments on the loan you describe should be $255/month according to the calculator at fool.com.

Gross profit = 1446
Rent = (723)
Utilities = included!
Loan pymts = (255)
Maintenance = (133)
Insurance = (70)
NET PROFIT = $265/month for first 5 years ($520/mo. for some time after)

Average over 10 years = $392.50/month

You're also right that plenty of deductions will be available to sweeten the bottom line. Also, if I can get a 40/60 split, that's another $145/month in my pocket.

[spex x]

[ QUOTE ]
So, here's another run of the numbers. By my math, $2.98/sale x 56 households x 2 loads/week = $333.76/week. Multiplied by 52 weeks/year and divided by 12 months/year = $1446/month. I'll assume profit sharing (in leiu of rent) is 50/50. Payments on the loan you describe should be $255/month according to the calculator at fool.com.

Gross profit = 1446
Rent = (723)
Utilities = included!
Loan pymts = (255)
Maintenance = (133)
Insurance = (70)
NET PROFIT = $265/month for first 5 years ($520/mo. for some time after)

Average over 10 years = $392.50/month

You're also right that plenty of deductions will be available to sweeten the bottom line. Also, if I can get a 40/60 split, that's another $145/month in my pocket.

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Yeah, I forgot to add debt service. And generally, my number were janky and wrong. Your numbers are right.

Also, if the local places in your immediate area charge $2 per wash, I'd charge probably 2.25. As for drying, typically, customers pay .25 for a set number of minutes. Usually its about .25 for 5 minutes. You can set those dryers to whatever you want - .25 for 4 minutes, whatever. IMO, it looks like you're making out better. Prob its a 15 or 20 min cycle for 1.50. Thats great. Keep the dryers the same price, but raise the washing to just over the market rate. After all, you're providing them with the convenience of not having to schlep all their dirty undies to the laundromat. They'll pay for the convenience.