Laundry Service Programs...Be An "Informed" Shopper!

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By Sharon Provo, MacGray

Most Laundry Service Providers ("LSP") offer a wide variety of services and terms for running laundry service programs for their customers.  Here is a summary of the three most common programs:

1.    The most common program is the laundry room lease. Here you and the LSP sign a lease agreement, the LSP installs their own equipment, maintains that equipment, collects the coin or currency and pays a portion of the revenue collected as rent.  In addition, the LSP may offer to pay you an incentive bonus or decorating allowance as an enticement for you to sign the lease.  Don’t be too eager to jump at these types of enticements.  Remember, the LSP needs a return on all capital invested, not just the equipment investment.  Choosing the higher monthly percentage will generate you a higher overall NOI over the course of the agreement and ultimately will provide you a higher valuation on your property.

2.    Another program to consider is the rental program. In this scenario, you and the LSP sign a rental agreement, the LSP installs and maintains their equipment and invoices you a negotiated fixed rental fee per month. You agree to collect the money.  You have total control over the revenue from the laundry room while deducting the fixed rental fee as an operating expense.

3.    Lastly, you might consider purchasing your own equipment from the LSP and signing a "service" agreement for a monthly fixed fee with the LSP. That service agreement could include the collection of the money and/or providing service repairs to the machines.  The LSP will invoice you a monthly fixed fee for this type of service.

Regardless of the laundry service program you choose, be sure the program includes some form of card-based system and avoid coin-operated equipment.  Here’s why:

·      Card based systems generate more revenue than coin-operated. The number one reason why residents leave your building to do their laundry is they don’t have enough coins.

·      Price increases can be done more often and in smaller increments with a card system.  Residents are more satisfied with smaller increases.

·      Most card systems have audit features and will account for all of the revenue.

Once you’ve determined the best type of laundry service program for you, there are things you should be aware of before signing a lease agreement.

1.    Look for Accountability from your LSP:  If you are not collecting the money, does the LSP offer you easy access to the collection and commission payment information? For that matter, will you have easy access to your service history as well?  Does the LSP audit revenue collected?  If not, why not? Remember, part of this revenue is yours.

2.    Look for Energy Efficient Equipment: Is the LSP installing the most energy efficient equipment? Since you pay the utilities, you can reduce your laundry room utility costs by as much as 50%.

3.    Look for a Financially Stable & Reputable Company.  Is this a company with a proven track record in your market place?  Will this company be around in 5 years?

4.    Look out for undisclosed "Minimum Guarantees".  Sometimes it is necessary for the LSP to retain a minimum amount guaranteed each month in order to recoup their investment and guarantee a certain level of service.  This is fine, so long as the LSP made you aware of this during the proposal process and not when they presented you with the lease.   If the LSP doesn’t disclose this up front, then buyer-beware.

5.    Look out for "Auto Renewals"?  If the renewal is at the discretion of "Lessee" (the LSP), you are likely signing a contract that actually represents a much longer term than you think!  Make sure renewal language is removed, but include month-to-month language once the original term expires.

6.    Look out for "First Right Of Refusal".  This contract language gives the LSP the right to match an offer from a competing vendor.  As a result, this could restrict your ability to change your LSP if you are unhappy with their service.

Laundry service programs do have a direct impact on your resident retention and satisfaction, as well as monthly income and NOI.  Shortsighted decisions can have long term effects so be an informed decision-maker.