Railroad Cleaners, Pittsburg
Railroad Cleaners started their business in September 2009 with little knowledge of the dry cleaning and laundry industry. They began serving individuals and commercial clients offering free pick-up and delivery service utilizing two, limited part-time employees.
Several months after the business started, Tom and Svonne came to the Contra Costa SBDC through a referral from the Contra Costa County Workforce Development Board. They had invested $35,000 from their 401K and signed a lease for a 2,000 sq.ft. facility. Both Tom and Svonne had college educations and felt confident that there was need for their business but wanted specifics of how to grow and to learn business management techniques.
Tom and Svonne were spending about six percent of sales on marketing, but clearly needed more sales. After Senior Business Advisor, Gerald Sullivan, reviewed their financial statements, he felt that an analysis of direct costs and prices were required.
Sullivan recommended the additional target market of senior centers, and the continuation of selling to high schools (band uniform cleaning) and police departments for uniform cleaning. Tom and Svonne were also charged to explore the hiring of an outside sales person and develop multiple marketing tactics, e.g., coupons, door hangers, start a website, investigate Yelp and You Tube, as well as, radio spot ad campaigns. As Sullivan counseled Tom and Svonne, it was revealed that same day service was in high demand from their clients, a demand they couldn’t fill.
From a financial statement point-of-view, it was determined that gross profit margins were barely adequate to provide a breakeven point to support overhead expenses. Further, net operating profit for the past year was extremely low without providing a Sub-Chapter S salary to the owners.
By the end of 2011, Tom and Svonne hired an outside sales person, combined services of part-time employees, implemented their new marketing plan, and purchased a new garment pressing machine to offer same day service. These efforts increased monthly sales 38%. Through continuous evaluation of new products and margins, average gross profit margins increased 24%.
Business Owner(s): Thomas & Svonne Underwood, Owners