Oops. My Prices Were Too Low
Although I’m pleasantly surprised with gross sales so far, I actually lost money on my biggest transaction, and it taught me a valuable lesson.
When I launched this company last month, I didn’t want too much complexity in the pricing. Most dry cleaners have menus where items are priced really close to each other but not the same. Since I outsource the dry cleaning, my costs are very high and my margins very low.
In order to simplify it for my customers I had set up a simple menu —
Laundry (Wash . Dry . Fold) $1.99 per pound
Laundered Shirts (Pressed . Starch) $2.99 each
Dry Cleaning (All clothing items) $5.99 each
For dry cleaning I’m just charging $6 per item no matter what it is. This gives me approximately a 30% margin on most items, and since my only other cost is the delivery the margin is sufficient. But notice how I said most items. Some items will actually cost me more, but I assumed the margins would cover those items because they are rare. I was wrong.
The other day I get an order with 44 dry cleaning items. The lady used my 20% off promo code. Let’s do the math — 44 items x $6 per item = $266 -$53 (20% discount) = $213. That was her total before tax.
I took her stuff to the cleaners and the bill was $230. I ended up losing about $20 plus the cost of labor and delivery on this transaction. The funny part is this was my highest gross receipt since launching last month.
Obviously, something needed to be done.
Adding a Menu Item
I still want my menu to be clean, simple, and easy to understand.
From the receipt of that order, I realized that the dry cleaner was adding a surcharge for items that require special care such as beads, sequence, and fancy cocktail dresses. I did the exact same thing. Now I no longer pay for my customers extra fees and my menu looks like this —
Laundry (Wash . Dry . Fold) $1.99 per pound
Laundered Shirts (Pressed . Starch) $2.99 each
Dry Cleaning (All clothing items) $5.99 each
Special Care (Silk . Velvet . Beads . Any Dress) $2 extra
Edit: Since originally publishing this blog I reworded the prices and added a new category. They now read like this:
Laundry
Wash . Dry . Fold — $1.99 per pound
(appx. $20 per load)
Laundered Shirts (Pressed . Starch) — $2.99 each
Dry Cleaning
Blouses . Dress Shirts . Pants . Sweaters . Ties — $5.99 each
Jackets . Dresses . Silk . Velvet . Beaded — $7.99 each
3/4 Coat . Overcoat — $19.99 each
But this still didn’t feel like enough. If my margin with these prices is about 30% and I’m offering a 20% discount, I still lose money on the delivery costs.
Reducing the Discount
My new customer discount of 20% was really eating into my margins. One thing I’ve started to notice is that most people don’t even use the promo codes. The question was simple — Are there customers who would place an order with a 20% discount, but wouldn’t place that same order with a 10% discount? I decided that the chance of it happening was highly unlikely.
Even if the likelihood was higher, that 10% is so crucial to my cash flow right now, there was no doubt in my mind I had to adjust it.
I removed all the 20% discount offers. Unfortunately I had printed about $100 worth of cards and flyers with this offer and those are going to waste.
The bottom line is: always mind the margins! Lesson learned.
This story is part of a series documenting the journey of a 2016 Dallas startup called Feather. For your reference here is the Table of Contents for the series.
Previous Story: March 2016 Report
Next Story: Coming Out of a Slump
Follow me more closely on Snapchat!
Thanks for reading!
