Feasibility study: is your vended laundry model profitable?

A basic issue for any business is to know whether it is economically viable. You can have very good ideas but you have to know how to adapt them so that in the end your vended laundry will be profitable. So let's see which aspects need to be emphasised in a feasibility study.

To conduct this study you need data and information about different areas. As well as the costs, you must consider your estimated revenue according to the prices set per wash cycle and for other services, the load capacity of your machinery and the number of potential clients who will use your business.

Let's take a more detailed look:

COSTS

Initial investment

Like all businesses and projects, to start running your vended laundry you'll have to  make an initial investment. This initial investment includes various things:

  • The machinery

This will be a major cost of key importance and may represent your biggest outlay at this stage. Moreover, when choosing it you should focus on features like consumption (of both water and electricity), load capacity, the programmes available and size. These and other variables will require an investment that can vary from 20 to 40,000 euros taking an average of about €5,000 per machine.

  • The payment station

The place where your clients are going to pay for the washing and drying services (this is not obligatory, but it is very useful). The payment station is a device that can control various machines (washing machines and dryers), which your clients use to pay for the service they choose to use. There are different types of payment station, to control different numbers of machines and allowing payment in cash (notes and coins) or by card.

  • The premises and fitting them out

You must also install the different machines and decide on the décor, signage and furniture in general. All this means spending on building work, furniture, installing the different machines, power points, water and so on. In short, everything involved in fitting out the premises for opening, the cost of which will depend on the needs of the premises.

  • Licences and legal aspects

These are needed not only to open the business but also right from the start of the preparation process. First of all you have to apply for the relevant licences (City Works Permit) and carry out the necessary projects to obtain this licence to obtain this licence without doing anything irregular, for example the electrical installation, gas (if necessary), whatever building or refurbishing work is needed and the business plan describing what business you will be doing, its location, facilities and floor space, among other things. While this cost is less than others, it should not be forgotten as it may come to €2,000 or more.

Variable monthly costs

Variable costs are those that can be different every month depending on the use and operation of the laundry and the machines.

The unit of measurement used is the cost per cycle, i.e. the cost per wash and dry. They include the electricity used, the water used, the gas (if you have machines that need it) and the detergent and softener used.

In this respect, machinery with lower consumption will mean a lower cost per cycle and therefore lower variable monthly costs.

Fixed monthly costs

Fixed costs, or overheads, are different as they do not depend on the number of clients a month or the number of cycles run. These costs will always be the same and are generally high.

They must be taken into account as they will always exist and you will always have to pay them. They cover a wide variety of costs. These include the rent or mortgage repayments on the premises, the cleaning service (if it is regular and outsourced) and personnel (if you have employees), as well as your self-employed social security contributions, insurance and administrative/accounting services if you use them.

Other overheads that should be borne in mind include the cost of wifi and telephone connections (if  installed), fixed electricity used (i.e. excluding that used by the machines) and advertising and marketing if a fixed regular fee is paid. There is also maintenance of machines and fire extinguishers, shared maintenance costs for the building and those of security cameras and/or alarms if you use services of this kind.

Estimating these costs depends very much on each vended laundry and will be a critical factor in its viability. Girbau can assess these costs as part of the full feasibility study we conduct. We have been doing this for our clients for many years and can offer the experience and professionalism the importance of the process warrants.

REVENUE

Revenue should be assessed in terms of the level of business expected: by estimating turnover according to the number of clients, price per cycle and other services offered.

This feasibility analysis is an essential step to take, leaving as little as possible to chance and realistically setting the targets you need to meet to make a profit, as well as establishing how long it will take for you to recoup your investment.

Knowing how long you expect to take to recoup the investment is essential to establish a timescale and know approximately when your business will start to make a profit. To do this you can take the total initial investment, the annual operating costs (annual variable costs + annual fixed costs) and the expected annual revenue, and using these figures calculate how long you will take to recoup your investment.

We have seen how to work out the costs and revenue for a vended laundry, but alongside this there is a series of fundamental points to take into account, which are discussed below.

Situation analysis

This concept can be very broad, so we are going to restrict it to the most useful part. When we talk about the situation we mean an assessment of the sector in terms of the services offered, the prices established, the machinery used and the size of premises, to see what business models work best.

The purpose of this analysis is to find out more about the environment in which you will be operating with your vended laundry, and it serves to draw up both business and marketing plans and the viability study.

The points or variables of which you should take the most notice are:

  • Profile of your target audience and its potential size:

Know which audience you want to aim at, to see what they look for and value, as well as determining the potential number of clients your vended laundry might have.

  • Price of services:

Inevitably, price is of key importance to the viability of a business. Not only does this determine the economic value of your services, but it is also a communication tool that serves to differentiate you from the competition and attract a particular group of consumers. Great care should be taken over setting prices because, as well as the above, they will be critical in achieving profitability. Setting a price that does not allow you to recoup your investment and costs means a loss of money that is not viable for the business and could even lead to bankruptcy.

  • Study of the sector and the competition:

Finding out how the sector works and how your competition works is essential to avoid mistakes, see what is working well and even to feed your creativity in order to offer competition-beating services. This study influences the feasibility study because the area where your vended laundry is located will affect its chances of being profitable through variables like the number of competitors, the services that work best and so on.

  • Return on investment:

This is certainly one of the keys to determining the viability of your project. You need an estimate of what return you will make on your investment and in how long. This is closely connected with viability because if a project cannot recoup the investment in it and cover its ongoing costs, it is not viable to launch it.

Key factors in investing

Finally, after gaining an overview of how everything works and what you need to focus on to conduct a feasibility study, you will have to decide whether or not to make the investment, and to do this there are a series of factors of great importance. These include the following:

  • The fixed costs you will have, obviously, plus the variable ones, and your estimated revenue, will be a basic factor.
  • The location and the premises. Aspects like the area, parking, whether the premises are on a ground floor and pedestrian and wheeled traffic will be very important in your investment decision.
  • Competition: whether there are other laundries in the area is one of the first things you should take into account to decide whether there is a gap in this market for you.
  • Investment term. If you are seeking to recoup your investment in a certain time, you must decide, on the basis of the return on investment shown in the feasibility study, whether the returns on the business meet your expectations.
  • Total amount of the investment. The investment necessary to achieve your aims must be an indicator you pay attention to, to decide whether your budget can stretch to this amount.

In short, as you have seen, a feasibility study is of key importance in deciding whether to set up a vended laundry business, as it provides the essential information to determine whether the business plan you have drawn up can be successful or not. Here at Girbau we have spent many years supporting our customers and drawing up their viability studies in the most complete, reliable way thanks to our wide experience in the sector. Do not hesitate to contact us if you would like us to give you a hand, with no strings attached.




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