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Should I Take on a New Customer? (Conclusion)

“What do I need to take into account when considering new business?”

Commercial Laundry: Rick Rone, Laundry Plus, Bradenton, Fla.

A wise person once told me, “Not all business is good business!” And the old adage of “Lose a little on every sale and make it up in volume” just doesn’t work.

I think that most companies have a firm grasp on their costs and can say that they are, or are not, making money each month. The query should be, “Am I making an acceptable ROI on every account that I have, or am I doing well on some and poorly on others?” 

As an example, it costs more to properly launder and finish sheets that are 300 thread count and 100% cotton than it does to do the same work on 180-thread-count cotton/poly blend. The same holds true for higher-weight terry. Time and production analysis should be carried out on each new account and taken into consideration when bidding.

We all know that certain items appear on the fixed overhead side of the page. Things like rent, insurance and executive compensation might not need to be covered over and over. With that in mind, as you look to take on additional business, those items do not necessarily need to be allocated again.

A company needs to review its laundry facility. How much volume was it designed for? How much can it do efficiently? Does the company have the necessary logistical equipment, as well as time on the equipment, and drivers?

If you take the time to review each potential new account, on its own merits, I believe that you will make the correct decision.

Textiles: Cecil B. Lee, Standard Textile, Cincinnati, Ohio

Fit and profit are major considerations when thinking about taking on new business. This is one of the reasons there is a line drawn between healthcare and hospitality laundries. Generally, a plant is built to do one or the other.

Consider these factors:

  • If your laundry is only processing one customer or is standardized by linen, taking on a customer that owns its linen would affect how you handle, separate and wash linen. It could become a drag on your productivity. It could negatively affect efficiencies in gas, water and electricity usage if load size or batches are not maximized.
  • Delivery considerations: Is the customer on or near a current route? Are your current vehicles big enough or small enough? Do you have enough carts in your current system, or is there a purchase requirement?
  • Is the new customer committed for a term that is sufficient to cover all of your startup costs?  
  • Does your plant provide a service level that is sufficient to satisfy the new customer? We all have customers on which we measure quality. However, we don’t necessarily want the new customer to be the standard.
  • When it comes to spending dollars, it is about the best use of those dollars. Thus, when considering taking on new business and having to invest in linen to take on that business, which is a better return on the dollar, linen or equipment? The new customer or efficiency improvement?
  • Does the new customer fit in with your current weekly operating schedule? Does it require production outside of current working hours?
  • What is the new customer’s payment history?
  • Why do you want to take on new business? You don’t necessarily want to fill the plant up totally. You want to be able to continue to service all of your customers in the event of a plant/production emergency. For large additions, you also want to consider wear and tear on your equipment and how it might affect the timing of your capital replacement schedule. The additional volume may positively affect you by way of volume discounts from vendors.
  • What does it cost you now, and what will it cost you, to produce this customer’s poundage?

All of these are critical questions that need to be assessed and fully answered. Addressing them will enable you to make a proper decision. Sometimes it is all about overhead and depreciation contribution. It can sometimes also be about survival.

Don’t get me wrong, new business is like manna from heaven, but make sure you assess it correctly.     

Missed Part 1? Click HERE to read it!

Have a question or comment? E-mail our editor Matt Poe at [email protected].