As carwash owners we face many challenges in running our businesses. I often speak to other carwash operators who struggle with pricing their wash services. They ask, “When do I raise prices and how do I raise them and not anger my customers?” The task may seem complex, but with a proper plan you can effectively increase your prices, keep your customers happy, and remain profitable.
Information is the key to help you unlock the pricing mystery. You want your carwash to be competitive, but you also need to be profitable to stay in business. So, do you base your decision to increase prices on your competitor’s prices? Do you base it on your costs? Or, do you base it on what your customers are willing to pay?
The answer is ”yes” to all three questions. You need to know how your competitors are pricing their services, know your costs and understand your customers’ buying habits. Here are six questions to help you evaluate your pricing structure:
1. What are the direct costs of your wash packages or services? This will include your electric, water, sewer, natural gas, and chemical costs. Simply add these costs together and divide by the number of wash cycles per month.
Example – $990 cost per month ÷ 1,000 cars washed = $0.99 per car. In this example, your direct cost per car washed is $0.99.
You can break this down even further and calculate the cost per car for each of your individual wash packages.
2. What are the indirect costs or overhead of your carwash? These costs include your mortgage or lease, labor, payroll taxes, insurance, property tax, business license, telephone, internet, security, repair and maintenance costs, supplies, trash, merchant service fees, bank fees, advertising, etc.
Example – $4,000 in monthly overhead costs ÷ 1,000 cars washed = $4.00 per car. In this example, your indirect costs or overhead per carwashed is $4.00.
3. What is your breakeven point? Breakeven is where your expenses match your income and there is no profit. It is important to know what your breakeven point is per month so you know how many cars per day you have to wash in order to be profitable.
Using the examples above, the site has a breakeven point of $4,990 per month. (Direct costs of $990 + indirect costs of $4,000).
4. What is your average revenue per car? To calculate your average revenue per car, divide your total revenue by the number of cars washed.
Example – $7,500 in total revenue ÷ 1,000 cars washed = $7.50 per car average. In this example, the site is averaging $7.50 per car.
To calculate the average number of carwashes needed monthly to breakeven, divide your breakeven point by your average revenue per car.
Example — $4,990 breakeven point ÷ $7.50 average revenue per car = 665 cars per month to breakeven. In this example, the site has to wash 665 cars each month before it becomes profitable.
5. How is your competition pricing their wash services? Complete a SWOT (strength, weakness, opportunities, threats) analysis of each of your competitors.
Focus on areas where you can improve and provide added value to your customers. Added value allows you to promote features and unique aspects to your customers and price your services more profitably.
6. What are the buying trends of your customers? People’s lives are constantly changing. You need to be aware of any change in the buying patterns of your customers and plan new product offerings or services accordingly.
Structure and implement your pricing plan
After you have gathered all of the necessary information from the questions above, it is time to structure and implement your pricing plan. (Check out the sidebar, “Ten ideas to make your pricing plan a success.”)
Price increases are never pleasant, but they are often the only way to stay profitable when your expenses go up. Your customers are living in the same economy as you and have probably seen quite a few price increases. Your price increases will not be a shock to them.
However, it is a good idea to offer unique services and add additional features which make you stand out from the competition. Ease your customers into your new pricing structure to help make the changes more palatable. Good luck and happy washing.