The dry cleaning business model is an effective lesson in the rules of supply and demand. Because people need their personal and professional clothing regularly cleaned, this business type is one of the most successful in the United States. If there is clothing sold that requires special care, the local dry cleaners are the best possible option. Scarcity rules the day. It is something the average consumer can’t perform at home, yet is needed for clean clothing.
The failure rate for the dry cleaning business model is estimated to be about 5%. Here are the lessons that every business can learn so that a better chance of success can be obtained.
1. Make Sure The Margins Are Reflective Of The Scarcity.
The average margin in the dry cleaning industry is 150%. It is not uncommon for a dry cleaner to make $1 or more in profit from each garment that they clean. This allows capital requirements for the business model to be lower. Owners can typically begin to draw a salary right away because of the margins as well, which creates less stress on the business itself.
Look at it this way: on a hamburger in the QSR business model, a business might make $0.04 profit. Being able to make $1 or more profit on each item is much more lucrative. Most customers aren’t going to bring in just one garment either, which means more profit per customer as well.
2. Operating Expenses Are Kept To a Minimum.
There isn’t usually any delivery options or other service needs that are offered in the dry cleaning business model. Customers come to the shop to drop off their laundry that needs to be cleaned. When it is ready, they come back to pick it up. The secret to this is that most dry cleaners actually ship off dry cleaning items to a commercial laundry plant, so no cleaning is actually done on the site. This means less liability to the business because they aren’t cleaning the clothes themselves, nor is there the cost of commercial cleaning equipment.
3. It’s a Word-Of-Mouth Business.
Many businesses are considered “destination businesses,” which means people will seek them out and then visit them. The dry cleaning business model is the epitome of this because people will actively seek out a shop. If any advertising is necessary, it can be in the form of low-cost mailers, print advertising, or geographically targeted online advertising. This reduces the marketing budget that is necessary and allows the business to funnel more of its revenues toward profitability.
4. Repetitive Customers Are Naturally Attracted To The Service.
True profitability comes not from first-time customers, but from repetitive customers who frequently purchase goods or services from a business. The dry cleaning business model has a natural place for repeat business because clothing often needs to be cleaned after it has been worn. Many customers will stop by a dry cleaning facility once per week to have their clothes cleaned. Once a customer trusts a business, they won’t look for competitive services. This enhances the profits that come into the business.
5. A Diverse Customer Base Creates Stability.
The dry cleaning business model proves that a diverse customer base can create a stable set of revenues. People from virtually every local population demographic will have the need to use a dry cleaner at some point in time. Some customers might be in 2x per week and others might be there 2x per month. Either way, the lesson learned here is that if a B2C and a B2B presence can be run simultaneously, the chances for overall success can be very high indeed.
6. An Established Set Of Services Creates Trust.
People know what a dry cleaner does. There is a certain expectation of the results that will be achieved. There aren’t many surprises that can happen in the dry cleaning business model. The only two issues tend to be lost or damaged clothing or ineffective cleaning that has happened. It’s a simple business that most people understand, so proof is provided every time clothing is delivered as to whether or not the promise of value is being met.
The lessons learned from the dry cleaning business model bring us all back to the basics. Offer a service, provide consistent results, and focus on the margins. When this happens, profits can come rolling in and that makes being in business a fun experience.