Rethinking the Hood Laundromat Model from Utility Model to Access Model

In order to create true economic empowerment in our hoods, African-Americans need to change the way we think about doing business in our community. A lot of business models in the hood we just accepted as-is without any critical thought and the Laundromat is just one of the examples we want to cover in this article. I have been working on the new Dream and Hustle stories and have been expanding the storyline with more depth. One of the stories that was originally published in the old version of this blog. In the story, the main character named Robert created a contactless/mobile transfer payment service on the West Side of Chicago and he got his start in the Laundromat changing the machines from coin-based to card-based. In the original story, Robert created a prepaid Laundromat service and as I re-wrote the story with what I learned over the years, I come to realize we have been wrong about how the Laundromat business service should operate. I did the math, look at the landscape and realize the Laundromat business model in the hood is extremely flawed and do not maximize their revenue potential. In this article, we are going to revisit the Laundromat business model and explain what is flawed and how to apply a solution that works for the hood. How Laundromats Currently Operate in the Hood The hood thinking of the Laundromat is a linear model where you purchase a machine, charge for use of that machine and over time, the money from that machine can pay for itself and start generating a profit. When you read these books on how to do a Laundromat operation, they have the same linear model described. So let’s break down how cats think of Laundromats today. Buy Upfront and Pay for Itself Over Time. This is where cats will buy a coin-operated washer and dryer for $700 each for a total of $1400 to accommodate a wash cycle. With a price of $2/wash and $2/dry for 30 minutes that means it is going to take 350 wash/dry cycles to pay for the cost of these machines. But you cannot just buy one machine – you got to buy at least 12 washers and 12 dryers x $1400 which is about $16,000 for the upfront cost and that is still a small number, without the impact fees of sewer/water connections. Then you look at your business hours of 7am to 10pm and a 90 minute wash/dry cycle means only 10 cycles can be done for one machine on a day or $40 in revenue maximum! Utilization Rate. Now, everybody is not going to use all of the available washing/dry machines at the same time at all times so you cannot have 100% utilization rate to get all of the machines to pay for itself in a short amount of time. Some machines are going to be used more than others and will crap out faster than others. Some machines will pay for itself but it has to pay for the under-utilized machines that still need another 300 wash/dry cycles. Some machines will go down and need maintenance/repair and that is an additional cost that need to be recoup with utilization. So the $40 max revenue per machine being fully utilize is probably not realistic. Revenue versus Expense. Our projections on the max revenue ceiling for a Laundromat is approximately $175,000 year in income – that is the max ceiling based on 12 washers and 12 dryers and you have a 100% utilization rate meaning those machines are running at all times with no downtime. But the first year, you paying off the machines that were purchased, and then you got water and sewer and electric to run those machines. So the income after all those expenses on your balance sheet is going to make you say “oh, it takes 5 years to get profitable” like they say in those business books. But those machines may not last 5 years, real talk. Cash Handling. This is where the whole Laundromat operation falls apart in my book. Coin operated vending machines uses coins most of the time and requires the use of a lot of quarters that have to be recycled. Cash handling not only cost money but you can lose coins in the process of being recycled, so you are losing money. Then you got the risk of slugs where someone used 90 minutes of your equipment and use slugs or they straight bust open the box and cats ain’t saying nothing around them. That $40 the police ain’t going to care and no charges will be pressed and the cat will be back out on the streets mad at you. Now, how you going to get that physical coins out of the Laundromat? Unsavory Characters. Now, because you have a Laundromat that allows anybody from the community to use, now you got the risk of dealing with cats lurking and stalking, registered sex offenders, thugs loitering and sexual harassment towards the female customers and in some cases neighborhood family feuds that get spilled into the Laundromat. People with mental problems or smelly bums show up asking cats if they got change or someone trying to sell drugs out of the Laundromat. Then some Laundromats are so stupid, they go put a pool table or video game arcade in there attracting all kinds of wrong people! I know people who owned Laundromats in the hood and you should not let some ignorant blog talking cat come around and tell you they are making money – I'm telling you no they are not making money! The cat running the Laundromat are working those 7am to 10pm by themselves or family members because they can’t trust anybody to handle the quarters and coin machines. They got a $50,000 SBA loan that they have to start paying back immediately and also have to make the machines profitable, so they paying their $50,000 loan with the loan money to stay alive. And they have to deal with ignorance that scaring away their good customers, losing revenue as their revenue is based on time and utilization. If no one use those wash/dry machines at 11:30am, they loss their revenue potential for that time. The most realistic scenario you see is the person who started it, ain’t made their money back and sell the whole business operation to a new buyer and get just a little cash to move on the next hustle. The new buyer will tend to reap the benefits of having machines paid for but again, they are only making steady income and they have to buy new machines and they get caught up and sell to the next guy after a while. So as you see, it is not wise to start a Laundromat using the utilization model but instead you have to buy an existing one to relieve the current burdened owner and stop their losses. That is the truth of the Laundromat business model in the hood. The New Laundromat Service Model We think using a monthly subscription access to the Laundromat is the more efficient and scalable revenue to deliver profits faster and enable expansion and growth. In the monthly subscription access model, the Laundromat is modeled after a gym membership where people pay a monthly fee to access the equipment. There is no charge to use the equipment or the washer/dryer and this business model has various benefits and advantages for the hood. High Density Hood. The average size hood in a big city like New York, Chicago, Houston, and Los Angeles has about 25,000 to 50,000 people or more per square mile. Instead of having a passive Laundromat that is sitting there waiting for those people to show up with their laundry and you have only 12 washers and 12 dryers, you instead look at how you can get a much as those 50,000 people paying you a $25/month subscription fee. So if you get 5,000 of that population paying you $20 a month then that is over $1.2 million a year in revenue, a lot more than the $175,000 max from the utilization model. So the strategy is signing up new members and servicing them, not waiting for people to drop in. Marketing Campaign. Because you focus on signing up new members to the Laundromat, you can now engaged in community marketing skills. For example, you can arrange partnerships with apartment complexes to outsource their Laundromat and make a profit sharing arrangement with the apartment complex to include the fee in their rent as an option for a discount for a guaranteed paying customer. This allow smaller apartment complexes in the hood to save money by outsourcing the laundry service. You market to apartment complexes, local churches, create signs to sign-up new members and you also have referral services for bonuses to sign up others in the community. Membership Monetization. Now that you have 1,000 members of the local community using your Laundromat, guess what you have? You have actually a hub station in the hood that rivals the Black church and you can now sell marketing services to your 1,000 to 5,000 paying members to your Laundromat. Now you can sell advertising space in your Laundromat, you can provide digital signage to promote local business in the community and you can be a hub for information and other data in the community. This is a new stream of revenue that can probably make more money than the utilization profit of the wash/dry cycles. Member-Only Access. Because you have paid subscription members, you remove the riff-raff drop in elements. You have a front desk that scan membership cards and you know who checked into the Laundromat at all time, creating a safer environment for everybody. So cats who can’t afford ish in the hood but like to start ish in the hood all the time is not there, just quality customers. Cats can’t sneak in to sell drugs or harass others as you can remove their membership so you control the in and out of the inside of your business. Better Laundromat Design. In the utilization model, the goal is to stack as many machines into a Laundromat to increase the revenue potential and this creates crowding and tensions and other social nonsense. However, with a membership model you can focus on better design elements such as having a washer and driver next to each other like a household laundry room and create private partitions for a family. You can even setup “VIP Rooms” or relaxation lounge areas for an extra fee to wash in a private setting for an extra fee. Less Cash Handling. Because you are doing membership billing through bank debit deductions or add-ons to rent payments, you do not have to worry about moving quarters around all the time. You have working capital in the bank instead of tied up physically at the Laundromat. Your handling of cash can be limited to a snack bar or washing supplies but the main money is coming from your members account and straight into the bank. Technology. This is the #1 best benefit of the membership Laundromat business model. You can create a web site that allow people in the community to reserve a washer/dryer at a certain time or check availability in real-time. You can allow members to reserve a VIP room for example over the web and pay an extra fee. Or if you are a software developer, you can create this service as a cloud-based service where Laundromats can use it and you charge them a fee. And guess what, your cloud streaming service to support Laundromats will work in New York, London, Tokyo, Cape town, Lagos, Brazil, Kula Lumpur, Beijing, Dubai, Seoul and so on – that’s how you brothas and sistas better start thinking!!! Scalable. Because you are using a membership model, you have cash coming in to expand to new locations in the community. So you can easily create a 4 washer/4 dryer machine next to a corner store and your customers don’t have to walk all the way to your current location. And you hire a person at that current location, creating local jobs for the people. By the way, you don’t need to buy those “coin operated machines” and just buy LG washing machines from the Black-owned appliance store in your community, homey. Summary The economic empowerment revolution in the Black community involves new economic models and business model to transform our high-density hood to be like high-density global cities that are similar and successful to us. We brothas and sistas need to take a second look at everything around us in our hoods and we have to make changes to make things work for us. We live in high-density populated communities and we cannot be listening to cats who orientation is living in a lily-White suburb with a Wal-Mart and little sprinkle of “diversity” or whatever. We have to look at our hoods on the same par at any other emerging economy which are new megacities appearing around the world in China, India, Africa and Latin America and align our mission with their mission. Brothas and sistas are talking about they cannot find jobs when we got all kind of opportunities in our own hood to rebuild and retool existing operations to be more scalable and more profitable and also incorporate circular economics. In addition, we can use our own virtual currency and mobile transactions to keep the money in the community and working for all of us. That is how I’m re-writing the story for the upcoming Dream and Hustle book with the end goal of our people understanding that we our biggest obstacle and our best opportunity and we need to start realizing that. Before I go, I hope you STEM cats caught a clue on how to think about using technology to support our hoods and also build out a global empire. If you build software that can run in the cloud and have a local cached copy as a backup and process membership signups and access and charge Laundromats a per month charge to change their business model, you will have a new industry. And like I said earlier, they have Laundromats in Tokyo homey..they have Laundromats in London homey, they have Laundromats in Nigeria homey..they have Laundromats in Hong Kong homey... I hope you realize what I’m trying to tell you here. What I’m trying to tell you is that your own hood is your starting ground to create technology solutions that you can expand around the world and build a global billion dollar empire instead of trying to kiss up to some VC bigots in Silicon Valley. That’s why you see me all about the hood and telling these VC bigots and the Black sellouts trying to be liked to go somewhere. The hood is where it is at for growth and opportunities – get that in your head.

11 thoughts on “Rethinking the Hood Laundromat Model from Utility Model to Access Model

  1. This is one of the first articles I’ve read on this site and it’s absolutely amazing! Why are there not more comments on this post?!

    This is a great idea. My question for you, Ed, is why make it so widely available for ANYONE to use? Also, did you come up with this idea yourself? My fear is that some white corporation w/ money to invest will take this idea and exploit black people further.

  2. This is a transformative blog post! I have read tons of books about opening a laundromat and this was the first thing that I read that really shook me up! Thank you for this eye-opening view towards business. My one thought about the membership model is the use of check cashing centers and lack of bank accounts that many people have in the hood. I guess if we add a sign saying, Rushcard accepted, we can get a lot more members.

  3. Man, this is a great article. I’m totally amazed by your ability to take MBA style thought processes and put them into the language of the common man, so as not only understand & digest the info, but to also then be able to put it it to action. Salute!!

  4. Great article. I was braining storming the exact same membership-based concept and ran across your blog. In my case, it would be in a small, rural community.

  5. The membership model is brilliant and could really solve most of the issues associated with an unattended shop, in addition to probably providing a more secure, stable revenue stream and better payment system for customers. The idea is worth exploring for sure! my question – how do you control access? An electronic fob or card access system would be abused by people handing it off to other non members, same with a key. short of biometrics I cant think of a way to do it.

    1. Should not be ran unattended as a standalone. For a apartment complex..use surveillance cameras and this can be a deterrent as well as audit

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