If you are planning to open a laundromat and/or you’re preparing a business plan, you may want to know how much profits you can make with this business. In other words, you must know how much revenue you must generate to reach break-even and make profits.
With a market size of $5 billion and over 35,000 laundromats in the US, the average laundromat has an annual turnover of $142,000..!
What does this mean for your business? How much revenues can you expect to generate? More importantly: how much profits can you realistically make with a laundromat?
In this article we’ll look into the average revenues and profit margins of laundromats in the US. We’ll also look into how you can accurately forecast your turnover and break-even point. Let’s dive in!
What is the average turnover for a laundromat?
According to Coin Laundry Association, the annual turnover for a laundry shop can vary significantly and can range between $30,000 and $1 million.
However, based on the total market value and the total number of laundromats in the US, the average annual turnover of laundromats is $142,857.
It is difficult to say the average salary of a laundromat owner. However, assuming the laundromat owner is also the manager of the business, the annual average salary is $42,599 as per salary.com.
How much does it cost to run a laundry shop?
There are certain recurring costs involved in running a laundry shop and they include:
- Cost of Goods Sold: the utility bills (water and electricity) as well as payment processing fees
- Rent: You need to pay rent for the commercial space you will use for running your laundromat
- Staff salary: You need to pay salaries and benefits to your employees
- Marketing: You must spend a certain amount every month to advertise and market your laundromat to attract new customers
- Operations: this includes all other operating costs (insurance, bookkeeping, etc.) as well as repair & maintenance costs
For example, it costs between $16,900 and $22,400 per month to run a 2,000 sq. ft. laundromat with 2 employees (15 front-leaders, 10 dryers).
How to forecast profits for a laundromat?
In order to calculate profits for a laundromat company, you must first forecast revenues and expenses.
Profits = Revenue – Expenses
Forecasting revenue for laundromats
Forecasting sales for such a business requires a few assumptions:
- the number of machines you have
- the average price per wash (or dry)
- the utilization rate (how often a machine is rented)
Revenue (per day) =
Machines x Utilization rate x total washes per day per machine x Average price per wash
For example, if you have 20 machines, used 50% of the time (18 hours a day) and at an average rate of $5.00 per wash (30min per wash), daily revenue is ~$1,080.
Revenue per day = 15 x 40% x 36 x $5 = $1,080
Now, assuming your laundromat is open 7 days a week, monthly revenue is $32,400.
Forecasting expenses for laundromats
There are 2 types of expenses for a laundromat:
- Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
- Fixed expenses: salaries, rent, debt interest (or leasing) costs to acquire the machines, marketing and all the other operating costs listed above
Calculating profits for laundromats
When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.
In order to get to EBITDA, we use the following formula:
EBITDA = Revenue – COGS – Operating Expenses
We’ve included below the illustrative profit-and-loss of a laundromat (from our financial model template for laundry shops).
Whilst EBITDA margin can reach 15-20% at scale depending on the business, Net Profit margin can go up to 10% for the most profitable businesses.
How to calculate break-even for a laundromat?
Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.
Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.
Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs.
As we just saw, laundromat businesses typically have a ~80% gross margins (excl. rental costs). Indeed, most expenses actually are fixed costs (salaries, rent, D&A, marketing, debt interest expense, etc.).
The break-even point can easily be obtained by using the following formula:
Break-even point = Fixed costs / Gross margin
Using the same example earlier, let’s assume your laudromat company makes $32,400 in turnover per month and has the following cost structure:
|Operating cost||Variable vs. fixed cost||Amount (per month)|
|Operations, other||Fixed cost||$2,000|
|Interest & taxes||Fixed cost||$2,000|
The break-even point would then be:
Break-even point = Fixed costs / Gross margin %
= $20,000 / 80% = ~$25,000
In other words, you need to make at least $25,000 in sales per month to turn a profit. Assuming the average price per wash is $5, your break-even is ~5,000 washes per month (or 167 washes per day).
How to increase profits for a laundry shop?
There are various strategies to increase the profits of a laundromat such as:
- New services: Introduce new services like folding, ironing, washing & drying, dry cleaning, pickup & drop, etc. These services can open new revenue streams
- Vending machines: Introduce vending machines for food that they can purchase while waiting. Also, add vending machines for laundry products like detergents, fabric softener, etc., so that they can purchase those items in case they forget to bring their own supplies
- Entertainment: Add different entertainment services such as TVs, board games, Wi-Fi, etc. to keep patrons entertained. They can help to bring in new customers
- Modernized equipment: User modern equipment that uses less energy and offers increased efficiency. Also, you can choose options like a Dexter laundry machine with cloud connections that give complete information on sales, hardware integration, inventory monitoring, etc.
- Lower utility costs: Install energy and water-efficient and coin-operated commercial laundry equipment that can significantly reduce utility bills and hence, increase profits
- Add ATM machines: Adding ATM machines can be profitable because you will keep the fee paid by the customers. However, you need to keep the machines stocked with cash
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