Laundromats are a strong and steady industry, supported by a growing US population and more people living in apartments and condos where in-home laundry facilities are becoming rarer. The fact is, people need clean clothes and if they can’t do them at home, laundromats are the only game in town.
However, opening a successful laundromat is no slam dunk. On average it costs $200,000 to $500,000 to launch a mid-size laundromat – and that’s one without all the bells and whistles, such as pay-by-card machines, wash/dry/fold/press services, vending machines and TV facilities to keep your customers entertained. On top of this are your day-to-day running costs, wages to employees, essentials like insurance and the constant need to maintain the machines that produce your income.
All in all, launching a laundromat is not something you can do for a few thousand dollars – especially in the early days of your startup. But where does all the money go? Let’s dig into the facts to find out what it costs to open a laundromat.
How much you spend will be influenced by what type of laundromat you wish to operate. Do you start from scratch in a new location, buy or rent an existing laundry business, or go the franchise route?
If you start from scratch, you can create a laundromat exactly as you want it depending on your budget, but you’ll have to build your customer base from zero. If you buy or rent an existing laundry business – and there are more than 35,000 of them in the US – you’ll get the benefit of loyal customers, but you’ll also need to pay a premium for ‘business goodwill’ and may still need to renovate the operation and upgrade the machinery.
Buying into a laundromat franchise can immediately give you brand name recognition, support with finding the right location, buying equipment and gaining access to local and national marketing campaigns that drive customers to your door. However, joining a laundromat franchise does not come cheap. You will usually have to pay a hefty franchise fee and have an additional $100,000 to $300,000 in liquid cash available – requirements that may be beyond many budding laundromat-business owners.
You will also need to decide what kind of service your laundry business will provide. Will you operate a self-service, automated store, a full-service laundry that offers wash/dry/fold/press services, or a pick up and drop off service where you don’t need a consumer-facing location? Each option has its own pros and cons. Self-service laundromats are cheaper to set up and run than full-service, but they also generate less revenues and cannot gain premium sales. Full-service laundries can generate higher revenues, but they also have higher costs such as bigger wage bills. Pick up and drop off laundries can be based in an industrial unit that will be much cheaper to buy, lease and operate than a store, but you will also need a vehicle, drivers, and more marketing and advertising to promote your services.
No matter which launch route you take, you’ll need a base of operation. Getting the right location – one where there are plenty of potential customers within short distance – is critical to the success of your laundromat. Ideally you want a location close to apartments and condos as those residents are most likely to need your laundry services. You should also consider passing traffic – do you need a unit with a parking lot – and things like security and safety if your business is going to operate 24 hours a day.
Conduct your own market research to find a neighborhood that can support your business. Look for schools, as that signifies families and more clothes to clean. Find out who your competitors are – how many laundromats are already close by? Calculate the affluence of the area – check out the types of cars that park nearby, do the apartment blocks have door attendants, how upscale are the stores, cafes and restaurants near your location? If it looks like the locals have higher incomes, ask yourself if they are more likely to want a self-service or full-service laundromat, or will they prefer a pick up and drop off service that comes to their door?
Lastly, keep in mind the old saw about real estate – it’s all about location, location, location. If you want to open your store in a more affluent neighborhood, you’ll pay more to rent or buy your business premises – maybe more than you can offset by charging higher prices. Also, opening your laundromat in a major city like LA or Miami is going to cost a lot more than operating in a smaller town. Do the math and balance it out – based on the prices you think you can charge, how many customers a day do you need to cover your costs and produce a profit? Can the location support that kind of traffic? If the answer’s no, then look elsewhere.
Once you’ve found the ideal neighborhood, you’ll need to find a place to operate. Do you buy, build or rent?
Laundromats use a lot of electricity and water – especially if you operate 24/7. Expect to pay a few thousand dollars per month to your utility suppliers – or around 25% to 35% of your gross receipts. (Also factor in broadband costs if your machines are pay-by-card and you provide free wi-fi to your customers).
Laundromats are just big rooms full of busy machines, but customer expectations can run high. If your machines are old, inefficient and battered, you will have a tough time building a customer base. If you buy an existing laundry, chances are the equipment will need upgrading. If you are starting from scratch, put in the best machinery you can afford. Either way, research equipment loans to help you pay for these essential assets instead of paying for them out of working capital.
Key equipment and average costs:
You’ll need liability insurance to cover accidents, vandalism, theft, fire and flooding at minimum. If you employ anyone, you’ll need employer’s insurance. You may also want to consider equipment insurance that covers the cost of breakdowns and repairs. Expect to pay anywhere from $50 to $100 a month depending on your level of cover.
It pays to advertise. You’ll need to build and retain a loyal customer base which will require marketing and advertising – flyers, ads, promotions, social media presence, events etc. The US Small Business Administration suggests allocating 7%-8% of your gross revenues to your marketing budget, but newer laundry businesses will probably need to spend closer to 20% in their first year of operation.
Laundromats make good money and are recession resistant – typically delivering a 95% success rate, profit margins of 20% – 35%, and generating cashflow of $15,000 to $30,000 per month. However, it’s not all about the cash. Laundromats are also a good bet for a number of other reasons:
People will always need clean clothes. If they can’t wash them at home, visiting the laundromat is their only option.
There are no seasonal ebbs and flows with laundromats. Clothes need cleaning all the time. A well-situated laundromat can sure of a consistent flow of customers throughout the year.
Americans are working longer hours and many households need two incomes to cover all the bills. This leaves less time for doing other stuff – such as washing clothes at home. With bigger machines, faster dryers and wash/dry/fold/press services available at many laundromats, it’s just easier and more efficient to use a laundry than it is to clean clothes at home.
There’s no app to get your clothes washed. It’s a physical chore that has to be done in person – which takes us back to the point above. Laundromats are faster and more efficient than washing clothes at home. They also have little to fear from new technology – most laundromats are already automated.
People don’t hump their laundry across town to get it cleaned. They go local. If you can set your store in a location where there’s little competition, you may have a near monopoly on local laundry services.
Yes, they are – profit margins are typically 20% to 35%.
Laundromats – especially self-service – can almost run themselves. With the right security systems and support equipment, such as soap dispensers, ATM and change machines, there may be little need for you to visit your store. Apart from collecting notes and coins, overseeing maintenance issues, and checking on quality control, you can just sit back and collect a mostly passive income.
As well as the basic washing/drying services, laundromats can house multiple revenue streams:
Because so much of a laundromat is automated, you don’t need expert technical skills or even any experience in the laundry business to operate a laundromat. If you can handle the finances, manage your staff, and schedule machine technicians, you have all the necessary skills it takes to run a laundromat.
Laundromats are great for owners who like to work with their hands – especially those who know their way around machinery. Instead of sitting at a desk staring at a screen all day, you can involve yourself in the physical operation of your laundromat.
People have a lot of time on their hands at the laundromat. If you like meeting people and have good communication skills, this gives you ample opportunity to build a customer network and excellent word of mouth.
It’s not cheap to start a laundromat – anywhere from $200,000 to a $1 million or more – an upfront cost that can deter many other entrepreneurs from starting a competing business.
You’ll need deep pockets to open a laundromat, but that doesn’t mean you have to come up with all the cash. There are many ways to finance your laundry business – from the start and when you’re established:
The most common type of business loan. Borrow up to $5 million. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Collateral may be required.
This is a business loan that functions like a high-value credit card. Withdraw as much as you want when you want from a loan facility up to the limit of your borrowing. You only pay interest on the sum you withdraw, not the whole line – which can significantly reduce your borrowing costs. Collateral may be required.
Equipment loans use the asset you’re financing as security – so no added collateral is required. You use the equipment as you pay for it while the lender maintains a lien on the machinery. Buy washers, dryers, furniture, vending machines, technology and more. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.
Franchise finance can cover your joining fees, location expenses, build-out costs, initial marketing, even salaries and supplies until your laundry business is home and dry. Borrow up to $5 million. Collateral may be required.
Commercial real estate loans (also known as commercial mortgages) are used to buy properties that have a business function. This includes laundromats. Be aware that although commercial real estate loans are similar to residential mortgages used to buy homes, they differ in some key areas:
| Commercial | Residential | |
|---|---|---|
| Primary borrower | Business entity | Private individual |
| Type of property | Commercial property | Private residence |
| Loan repayment period | 10 to 25 years | 15, 20 or 30 years |
| Maximum loan to value (LTV) | 65% to 85% LTV | 95% LTV |
| Interest rates | Higher than residential | Lower than commercial |
| Fees | Higher than residential | Lower than commercial |
| Pre-payment penalties | Common | Rare |
| Minimum FICO score | Usually 600+ | Can be as low as 500 |
Commercial construction loans can be used to pay for building a new laundromat or the expansion, refurbishment or conversion of existing laundry premises. Use this type of loan to construct or improve the building where your laundry business is located, or to cover the build-out costs to make your new store shine. Note that construction loans typically pay out in instalments as each phase of the work is completed rather than all at once. The loan is typically paid back when construction is complete, often by converting the debt to a less expensive commercial real estate loan.
Backed by the US Government’s Small Business Administration, SBA loans can come with some of the lowest financing costs, but they can also be slow and sometimes difficult to obtain. Depending on your financial situation and how fast you wish to move, you can choose from a variety of SBA loans:
SBA 7a business loans can provide up to $5million to qualifying borrowers, with repayment terms as long as 25 years, but meeting the SBA’s strict rules of eligibility can be tough. Business owners will typically need to have been in operation for at least four years and have annual revenue over $180,000. Your personal credit score must be at least 680. Collateral may be required.
SBA express loans are a faster alternative to the standard 7a loan program, providing up to $500,000 to support your laundry business. You will usually get a ‘yes/no’ indication within 36 hours of making your application. Note that interest rates and fees are typically higher with express loans than their 7a counterparts. Collateral may be required.
Nonprofit and community-based lenders can provide SBA Microloans to entrepreneurs that may struggle to secure standard business financing. Available up to $50,000, SBA microloans also come with more relaxed qualifying rules and can usually be secured with FICO scores as low as 500, or even with no credit score at all. Be aware that this even type of SBA loan will still require a personal guarantee that makes you personally responsible for the debt.
Once your laundromat is up and running, you can look for new ways to increase your income – vending machines, game machines, a dry-cleaning franchise and more. If your business takes payment from customers by credit or debit card, you can use a merchant cash advance to cover the set-up costs of these lucrative extras. Borrow against the value of your card sales. As they increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. No added collateral is required.
Working with business finance experts can make all the difference when you’re seeking cash to fund your new laundromat. Contact Swoop to discuss your borrowing needs, get help with your application and compare high-quality business loans from a choice of lenders. Get the cash you need to make your laundry business sparkle. Register with Swoop today.
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Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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