CHICAGO — On the surface, a laundry and linen service turning down new business might not make sense.
After all, doesn’t growth mean adding new business, especially after the past few years?
Not necessarily. Dig a little deeper, and there are times when an operator can and should turn away a new client.
American Laundry News heard from two experts in the field of business growth and productivity and resource optimization (PRO) on this subject.
Jason Pourakis is a partner at Mazars USA LLP, an international audit, tax and advisory firm committed to helping clients confidently build and grow their businesses.
Doug Story is a laundry industry veteran who recently opened MorgenBrooke LLC., a North Carolina-based group consultancy that provides PRO evaluation and decision-making that applies to any size laundry or institutional operation.
Let’s start big picture: Why would a laundry turn down new business?
POURAKIS: Three major reasons: Pricing constraints do not make the customer profitable, the delivery stop size is too small, or the plant is at capacity and needs to be more selective of the customers they onboard.
These are simply the economic metrics a company should start with. Of course, there are many other reasons such as industries/products a laundry does not currently service and also specific customer/ethical decisions will help decide if a new customer is the “right fit.”
STORY: In the context of growing your business, you shouldn’t. However, in this context, many companies have fallen into the death spiral of growing their business but not being able to pay their bills.
One of the most, if not the most, expensive thing a business can do is install new business. So, with every new installation, one must consider the expense of the installation versus the ability to recover the capital spent in a timely matter.
What should laundries be looking for when seeking new business?
POURAKIS: Become more niche specific. The more “similar type” customers you can service, the better you will get at servicing all of these customers.
In addition, similar products and similar workflow and processes through the plant lead to more efficiencies and, therefore, increased profitability.
STORY: A set of baseline considerations must be developed by management to include type of account, credit history, supplier history, delivery schedules, route density, and volumes that are part of the goals and objectives of your operation.
Type of account: A hospital wants to do business; you are a linen supply plant. Is this part of your goals and objectives? The answer is probably no.
Credit History: Are they calling you because they have exhausted the credit of other suppliers? They have not paid their bills, so they want to change. A sudden call for your company to supply service to them “out of the blue” should always trigger a credit check.
Supplier History: Do they change suppliers on a regular or maybe even sporadic basis? Changing every time, they receive a price discount, or they demand so much the supplier cannot satisfy the customer.
Delivery Schedules and Route Density: Is the account within your baseline delivery perimeter or the areas as defined by your goals and objectives? Is it an easy fit to your current system or does it stretch the ability to service the account reliably and efficiently?
Volumes: Is the account too small or too large based on your goals and abjectives?
Too small in that it would cost you more to set up the account, crank the truck and supply services to the account than it would ever yield in terms of revenue and profits.
Too large in that your resources and production capability are rated at X and this new account may drive your resources, personnel and production to an X squared where it would endanger your ability to supply service to your established customer base.
What are some of the obvious “red flags” for laundries to turn down new business?
POURAKIS: The biggest red flag is the “value equation.”
Does the customer have a track record of moving around to laundry providers just for the lowest price? Do they value your service (and in turn, will they respect the merchandise you service for them)? Are they abusive to your merchandise and will they be amenable to certain upcharges for abusiveness? Do they constantly seek special deliveries, or are they not aligned with your delivery schedule?
Due diligence goes a long way. If the provider is aware of the previous provider, will the same happen to them? Will the contracts signed by this customer be broken for the next provider?
We all want to make a sale but being able to identify your ideal customer and assessing whether or not this new customer fits into this framework is essential.
STORY: See my previous response and one other thing: How many new customers have you put on in the last few weeks or months?
Not any is a problem, but so many it outstrips your ability to adequately onboard and provide your usual amount of service to the customer is also an issue.
Scheduling and controlling the schedule of new account acceptances must be part of your considerations as new customers are being considered.
Talk about how laundry size, operation, market, business climate, etc., can affect whether or not an operation takes on a new account.
POURAKIS: From the laundry’s perspective, it truly depends on capacity remaining in the laundry. If there is little to no capacity, the laundry should be able to make the assessment to ensure that the new customer is profitable and contributes to margin while being able to counsel out less profitable customers.
If there is a lot of capacity in the plant and “filling it up” helps contribute to the overall gross margins, there is more flexibility in pricing and overall profitability.
New business is great, but a laundry owner should assess the overall microeconomic landscape whether or not to continue to grow in a shrinking niche or be able to look out for the health of a particular business.
Adding on new customers is an expensive endeavor and seeing profitability after initial investment in linens may not happen for several months. Longevity of the client and industry is key when adding new business or pricing new business.
STORY: Laundry size can be an inhibitor (too little or too much business), but it can also be a catalyst for the growth of business via new customers.
A new addition to a plant catalyzes growth in terms of a need for new customers to start filling up the additional production capabilities of an operation.
The addition of an additional shift (i.e., going from one shift per day to two shifts per day) to satisfy the organic growth of your current customers could be a building block for the addition of intense focus on gaining new accounts to fill the excess capacity the second shift addition has created.
There are many ways to classify operations. My method in the context of today’s laundry markets is to classify them as follows:
- Niche Operators—Party rentals, dust control, industrial uniforms, wipers, and towels, USDA, athletic, etc. Niche operators are very specialized in what they process thus they will be specific in what they take on as new customers. Do they fit their specific market and processing capabilities? Hospital work in a dust control plant … probably not.
- Controlled Operators—Linen supply, hospital/healthcare, etc. Controlled operators are not as specialized as the niche market, but they do have a relatively narrow target customer group and generally do not go outside that customer group (e.g., linen supply to restaurants, food service and processing facilities).
- Bulk Operators—Hospitality, etc. Bulk operators are focused on pushing the highest volume of linens through processing per day. All are delivered in large volumes and processed as such. They will turn down customers that do not meet their minimum volume requirements.
- Miscellaneous Operators—Anything they can get. These are start-ups or operations that are trying to diversify their mix of products in the plant. This is a growing number of operations in that many suffered from COVID shutdowns and now those that somehow survived are expanding their production abilities to anything that needs processing.
I cannot think of any better business climate in which the greatest amount of impact on our various operators occurred. The COVID shutdowns, no matter what your take on these shutdowns is or was, it is safe to say they had the most significant impact on our business climate since the Great Depression (I think even more actually), driving many operations to diversify their customer base and linen supplies.
Check back Tuesday to read more about analyzing new customers and amicably turning down business.
Evaluating Laundry Customer Contracts (Part 1), May 18, 2021
Have a question or comment? E-mail our editor Matt Poe at [email protected].