Let’s face it. We live in a dynamic time and because of that, running a successful business keeps getting more complicated. Technology, consumer spending patterns, work environments and changes in the labor market have all made operating any business more complicated than it used to be. And running a dry cleaner has become more complex than ever! When I think back on the early days of our business, it seemed simple – hang up our shingle, provide quality friendly service to our customers and make a profit that would lead to more growth in the future.
In fact, the only real performance indicator that was of a concern was, “Is there enough money in the checking account to meet payroll and our bills – and maybe eek out a little as profit?” And I don’t think I was alone in my way of thinking almost 30 years ago. The market for our services was stable, labor was more readily available, costs were not increasing rapidly and most folks were still going into the office to work. As a result, we used the power of observation or “management by walking around” to determine where and what changes needed to be made.
And back in those days, most of us in the dry cleaning or laundry business were still using pen and paper tickets to manage inventories and customer orders. Instead of high powered technologically advanced computer systems, most of were either using a manual tally or simple cash registers to account for daily transactions. If we were one of those who used a computerized dry cleaning system, they were quite primitive by today’s standards. I remember thinking we had hit the big time when we installed an early version of Compass-Max. We could create accurate client orders at an amazing rate of speed and we could actually read the invoices printed on a dot matrix printer (as opposed to trying to decipher my chicken scratch tickets we had been preparing manually.)
But as time marches on, the environments we operate in have obviously evolved as well. Those margins that were much more generous years ago, are now much more difficult to reach. Changes in our clients’ work and dress habits are certainly impacting the types of garments and textiles we process. The availability of labor and the related costs of cleaning and finishing garments is having a significant impact on how we process orders, and technology is continuing to evolve – including the use of artificial intelligence.
These factors and more have made it more challenging for us in the garment care industry to keep a close eye on everything impacting our companies’ performance and health. Processes that we formerly could monitor simply through observation and basic system reports may not be enough in today’s environments.
This is where KPI’s may come to the rescue! This recent entry into the alphabet soup of abbreviations, acronyms and government agency nicknames stands for Key Performance Indicators. (I know most of you are very much aware of what KPI’s stands for – however, I must admit the first time I heard the term I had absolutely no clue what was being described. So at the risk of being too elementary, I just wanted to make sure we’re on the same page.)
Key performance indicators are nothing more than reports or calculations that help you as the leader of your business, to focus on measuring your progress toward meeting defined goals and objectives. They can be personal targets set to help you and your staff meet individual goals. KPI’s may be established for individual departments to help facilitate productivity and quality. Indicators can also be established for the whole organization too.
Depending on your firm’s needs, KPI’s can be as complex or simple as you decide. For example, our company is relatively small. We have a single location and operate a route service as well. We have a handful of employees. Our needs are certainly not as complex as a large, multi-store, multi-route operation with a large plant that has ten times the staff we have.
However, both companies can benefit from the use of KPI’s to ensure they are on track, identify potential problem areas and take needed corrective actions. But a word of caution, although KPI’s may help you identify potential areas of concern or strength, please remember they are a tool and are themselves not a remedy to a problem or even an indicator that things are operating as they should. Results of your KPI’s should be analyzed to determine results leading to meaningful and appropriate actions.
So, with that in mind, here are some KPI’s that you may find useful:
Customer Churn: By calculating customer churn you can determine the percentage of clients who are no longer doing business with you over a selected period. By comparing fluctuations in the churn rate or percentage, you can determine if there is a potential problem regarding client retention. Although there are several ways to calculate churn here is the formula we use.
Lost customers over the period / total clients at the beginning of the period * 100 = Churn Percentage
Average Revenue per Client: This metric is an easy way to figure out if your clients are bringing in more revenue. Again, over a period of time, we simply divide the total revenue by the average number of clients to determine if our customers are spending more or less during the period being analyzed.
The formula we use is as follows: Total revenue / (Beginning number of clients + Ending number of clients) / 2
Average price per piece processed: As this metric suggests, the metric calculates the average piece we are charging clients for items we clean and press for them during the period. If it is trending higher we may learn that we are handing more higher end or household items.
E-mail or cell phone capture rates: E-mails and text messages are an essential element of our marketing strategies and a point of emphasis with our customer service representatives. By emphasizing the need to capture this data we have substantially increased our e-mail rates over 25% and our cell phone capture rate is almost 100%
Service quality indicators: To enhance our service quality and efficiency we have defined conditions that may be described as service failures. Shirts returned with broken or missing buttons, missed deadlines, redo items, damage or missing item claims and customer complaints are all tracked and entered to determine if defined quality standards are being adhered to. We simply add the number of defined service failure encounters by the total number of orders for a period under review to ensure they are within determined acceptable guidelines.
Other KPI’s: Key indicators can be developed for individual team members, departments and the company. The list in this article is only a small sampling of some of the indicators that may be used to help you discover hidden problems or opportunities in your business. The key to using them successfully is to develop them with your teams and communicate them effectively with your staff to ensure they buy in to the “why” they are important, both for them and the organization.
And don’t think you have to develop a whole bunch of KPI’s all at one time. They can be developed and modified as needed – remember they are a tool to help you run your business better. Design and use them in ways that help you become a better leader.
So, as a dry cleaner, we now have another little piece of alphabet soup to digest. But unlike most acronyms we have to deal with, like the EPA, IRS and the USPS, KPI’s are actually something that can really help us run our shops a little bit more efficiently and quite frankly, a little better. With some proper thought and communication, they may be just the tool to take you to the next level.
Steve Thompson Owner and Chief of Client Happiness, Sand Dollar Cleaners, Jacksonville, Florida