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Writing for low-price and high-volume

February 22, 2007
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Writing for low-price and high-volume
Earl Weiss

When it comes to the conveyor carwash business there are no absolutes. Whether you should jump on the low-price, high-volume bandwagon is no exception. There are many who have found it helps the bottom line. You need to consider the factors before jumping on, though. These include your expense breakdown, potential market and competition.

Expenses categories

Inescapable and inflexible components are overhead costs. These include the rent and/or debt service, real estate taxes, waste disposal contracts, insurance, security, and minimum labor levels. Include any costs of owning and maintaining the property which vary little if you wash 20,000 cars, or 100,000 cars per year.

Next are the direct variable costs for a basic exterior wash. These consist of utilities (water, natural gas, electricity), solutions (pre soak, soap, wheel / tire cleaner if applicable, and drying agent), and a maintenance factor. Include anything that varies with volume.

It may or may not be simple to determine what these are. Using a computer accounting program such as Quickbooks, you can categorize these expenses by type. At the end of the year, divide by total number of cars washed. For extra services such as high pressure wheel cleaning it will be difficult to break out the extra water and electricity cost from the basic wash, so you will have to attribute a small percentage to such extra revenue generating services.

Similarly, some overhead costs such as building lighting and heat may be difficult to break out from utility costs directly related to washing. An educated guess should suffice.

Geography and markets will cause huge variations in both fixed and variable expenses. In some areas the cost of water my be much higher, heating costs may range from zero to tens of thousands of dollars, and real estate costs may vary by huge amounts as well. So, when I provide examples (with rounded figures for ease of use) you will need to make adjustments for your particular situation.

Look carefully

Once you look at your financials you may likely find the overhead costs are much larger than the variable costs. Overhead costs may be $200,000 per year or more. With the exception of minimum labor costs, these vary little if you are open eight hours a day or 16 hours a day.

Variable per car costs for the basic (gentle touch) wash run about 25-cents for solutions, 25-cents for maintenance, and 35-cents for utilities, or 85-cents total. (At higher volumes you may achieve some cost per car savings due to less frequent equipment starts and closer vehicle spacing.)

Now, consider what you're pricing can be in light of these costs. If your basic wash price is $3, then you have a gross profit of $2.15 per car. With overhead costs of $200,000 per year, your annual break even point is about 93,000 basic washes.

However, as we know the goal is not break even! There are three variables under this scenario;

  1. Charge a higher basic rate;

  2. Generate more revenue per car than the basic rate; or

  3. Wash more than then break-even volume.

Case study

A recent new investor in this area opened a new express exterior with a basic wash priced at $5. Not being happy with the volume he reduced it to $4 and then $3. The last reduction was July 1, which is typically not a great Chicago area carwash volume month.

He reported to me that his volume increased, reaching 7000 cars in a recent month (which, being fall in Chicago is not a great car washing month), but that his average ticket was $4.50. Due to the cost of extra services (high pressure wheel cleaning, sealer wax, rust inhibitor, chassis bath etc.) let's attribute a very generous 25 cents per car in extra variable costs. His gross profit is $3.40 per car and he will need to wash fewer than 59,000 cars to pay his $200,000.00 overhead. At a volume of 90,000 cars his net profit is over $105,000.00 (90,000-59,000= 31,000 cars at a gross profit of $3.40 per car on a $4.50 average.)

Set your sights on attainable goals

This 50 percent increase for the average ticket versus your basic wash may or may not be a realistic expectation. We do not come anywhere close to those percentages.

One reason is similar to what was highlighted in some recent articles about a wash in California that experienced fewer package upgrades than anticipated. The reason was that they attracted a large number of commercial drivers who may not upgrade. We are in a similar situation, washing a large number of Taxicabs. The spotlighted wash in recent magazine articles also had its volume exceed expectations.

One way we bump up revenue is a pricing holdover from our full service days when weekends, holidays, and day before holidays was 25 cents extra. Since these days account for 50% or so of our volume for 50,000 cars this pricing results in $12,500.00 that falls to the bottom line.

Determine profit source

While commercial drivers may not upgrade, they may wash with a lot more frequency. You will need to analyze your demographics to determine whether you will generate a profit based on pricing, volume, extra services or a combination of those factors.

Additional volume will result from other factors. These include:

  • People who no longer wish to use a self-serve bay when they can do it economically and faster at your location;

  • Driveway washers who no longer wish to take the time and energy to wash the car themselves when they are no longer saving $9 or $10 but are only saving $3 or $4;

  • In-bay automatic users will also be faced with a real choice, not only in terms of money, but time as well. If you are five cars back in line at an in bay automatic, it may easily be 25 minutes before your wash is completed. If you are five cars back at a tunnel, you should be done with the wash process in less than five minutes;

  • Increased frequency from existing customers who are no longer so concerned with the weather or, because it is convenient and inexpensive to keep the car clean;

  • Increased volume due to expanded hours of operation;

  • Increased bulk sales due to a lower price point. People are more willing to buy a $20 - $25 package of seven washes then at $45 - $50. At this level one or more wash coupons make great gifts; and

  • Defections from competing high end washes. I would not consider this to be a major factor since any noticeable loss of business by a competitor may likely cause them to provide a low cost option for their customers as well.

Multi-profit offerings

With a low price high volume location, other profit opportunities present themselves. You have additional traffic which may buy offline extra car services including hand drying, interior cleaning, and detailing.

Revenue from self-serve vacuums, shampooers, air freshener machines, and product vendors are items with nominal overhead that generate profit as well.

Quite simply, if 10 percent of 100,000 customers vacuum their car at $1 self serve vacuums an estimated $9,500 falls to the bottom line.

Reduced labor costs

An additional benefit to the low cost model is a reduction of management headaches. Over time, along with other costs, we have seen the cost of labor rise dramatically making it increasingly difficult to supply services requiring manual labor at a marketable price.

This cost coupled with huge demand swings caused by weather makes scheduling labor in a profitable manner more difficult. With a low cost wash you operate with one or two employees at a time. (A typical crew of three to four people is sufficient to operate a tunnel 94 hours a week.) Off line extra service offerings requiring more labor will require a separate cost analysis.

You do not need much volume to justify staying open with this labor cost. This allows you to expand your hours of operation with little incremental cost.

If you are in an area where the daily commute starts at 7:00 a.m., and local retail stores are open until 9:00 p.m., then why not be open those same hours? With a gross profit of $2.15 per car you need to wash five cars an hour to pay one employee. If you are open an extra four hours and can average 10 cars an hour those extra five cars an hour above your labor costs generate an extra profit of $40 per day or over $14,000 annual profit that falls to the bottom line. (Naturally, you would hope to do much better than a 10 car per hour average.)

Considerations before jumping

Critical considerations when it comes to jumping on this bandwagon:

  • Make sure the wagon is not already full! If you have a huge number of low price conveyor washes in your area, being just one more may do little to increase your volume or sustain a new business.

  • Be certain there are enough potential customers to jump on the wagon with you once you weigh the financial concerns.

America has a demographic that supports Wal-Mart as well as Bloomingdales, however not every local area will support either or both. The low cost high volume model is the Wal-Mart of the car wash industry. When it comes to transaction volume per location the Wal-Mart model wins hands down. Make sure your area has the demographics to support it.

Earl Weiss is the owner/operator of four exterior carwashes in Chicago.