My $3 wash opinion*
My first piece of advice for anyone considering doing this is to of course, price your wash according to your market. I have heard stories of operators with $10 base prices and selling Rain X for $7. If you can, you should. For the rest of us that can't, here's my logic on pricing from my experience. First, consider the following when trying to determine price points:
Look at the gross margins
Last year I was listening to an association's conference call where they were discussing the utility costs increasing. Along with utilities, chemicals were continuing to increase. Minimum wage here in Michigan has also jumped in the last year. So I thought it would be a good time to go back and analyze what our numbers were and compare to what I had heard on the conference call. Similar to the numbers discussed on the call, we were right in line, at about a $2.75 cost for a basic wash.
Let's assume on average it costs $2.75 total cost to wash a car. Pretty typical, but do your own math and be honest with yourself. At $3 base price that's $.25 in gross margin per car. If you were to increase your base price to $4 the costs are the same and your gross margin would become $1.25. Therefore, only a 25 percent price increase to the consumer equals a 500 percent increase in your gross profit in your pocket.
To me, that looks like a no brainer and therefore I have to ask the question why not $4? Putting a big $4 sign in front of your wash is sure to drive attention as well. It's still cheap and it's still going to make a customer open their wallet.
When you try to gauge the increase in volume at your site by dropping to $3, consider that it would require five times the traffic at $3 to make your gross margin the same. Not an increase of 30 percent like most would think!
|Price Point||Gross Margin / car||Cars required to reach $250,000 gross margin|
There are other variables that affect the pricing structure that are often overlooked.
Debt and development cost
I can think of a few $3 wash models that are better established and have a much lower debt load than your typical new investor. Hand in hand with the debt ratio is also the total cost of development. Some successful $3 model washes and larger chains that have better buying power for equipment, chemicals, and supplies, and also lower construction costs.
Brand recognition (area development)
Having multiple sites in a single community drives strong brand recognition and greatly increases the volumes of all sites in your development. Brand area development needs to be factored into the equation when comparing successful $3 multi-site chains.
Cost per car
The equipment package and the scale of clean, shiny and dry plays a big part in the feasibility of the price structure. It simply costs money to clean, shine, and dry cars to the highest level; therefore with a $3 price structure you need to make sacrifices.
Shorter tunnels and less equipment
You're going to have to reduce your quality to make the numbers work and if you go thru many $3 washes, the reduced quality is usually obvious. This requires reducing components like wheel cleaning chemistry, less blowers, less soap, etc. This move will go against the findings of a study the International Carwash Association did that clearly showed that customers care more about the quality of the job than they do the price!
Some successful $3 models incorporate multiple profit centers that make the numbers work. We believe in our gas/c-store/washes that incorporating gas can increase the wash by as much as 30 percent and likewise the wash will increase gas volume by 30 percent simply by having more traffic on the site and more profit centers. Driving traffic on a site with a $3 price point and then also gaining gas, c-store, and lube sales from that customer can make the numbers work nicely. When attempted as a single standalone express wash it can be catastrophic because of the multi-profit center variable. Also, with a larger multi-profit center facility, the land typically costs less when divided among each of the profit centers versus a freestanding express.
It's all fun and games when playing with cash flow, bank financing, and the excitement of a new business, but, the truth is that depreciation is not a perk on your taxes, it's a REAL COST! Most people think this nice little deduction on your income statement saves you tax dollars that equal free money. Unfortunately, for every car that drives on your property you are paying a price that is typically not recognized by new operators. Having toured hundreds of carwashes and studied operators around the world, I have come to realize that in 25 years without reinvesting and uplifting your place, they can quickly become worthless. Take for example what McDonald's has done in the last six months. They go to their good stores, flatten them, and in four months they'll have a brand new facility with a better layout, better processing, a new look, less labor, smoother flow, and therefore a better bottom line per location. THIS IS EXACTLY WHAT WE SHOULD BE DOING! Carwashes aren't oversaturated; the problem is most of them have been robbed of their cash, let their image go, and have been left for dead on corners around the country. If they're good sites, tear them down and build new, fresh, washes that have better processing, lower labor, and can produce four times the bottom line on that site.
I believe whatever you write off in depreciation on your income statement should be put aside into a savings account. You will need that money someday to reimage, reequip, rebuild, etc. Unfortunately, today most have to go to the bank and borrow just to reequip. Take whatever you expense for depreciation and put it in a CD or investment account. Secondly, come up with a cost per car for your real depreciation expense. Consider bearing wear, cloth, pumps, asphalt, garage doors, all equipment and most importantly, be honest with yourself.
Maybe it looks something like this:
|Equipment depreciated:||Cost to replace:||Car count to replace at:||Cost per car:|
|Total:||$.24 / car|
Add this "real" cost to your pro forma and cost per car analysis before diving into a $3 price point. Consider how hotels budget for an overhaul, typically every five years, to get up to date with the latest furniture, colors, and trends. Put yourself in your shoes 25 years from now when you need to spend $300,000 per location to get your places up to par. Tie this depreciation concept in with the package sales breakdown. Sure, you might be averaging $6 but is it really worth the depreciation on your facility for the half of the customers that you're washing for.
Cost per car analysis
Now, I understand the idea of $3 is to up sell, but still that's the point of any higher wash package: To up sell from the base price. Still, most people see 30-50 percent of customers buying the base wash. Therefore, your only option would be to greatly reduce costs and reduce quality which will make customers one-time visitors.
Below is actual data shown from a multiple carwashes averaged together over a few years. Consider when looking at this data, this is high end larger scale washes, not a $3 wash with auto cashiers. These are also longer tunnels which factor into chemicals, water, claims, gas (hot water and heated drying), and repair and maintenance costs. Chemicals include many tire shine and Rain X sales. I would love for anyone to respond with a cost per car breakdown for a $3 wash it would be very interesting to see.
Arguably, the most successful carwash chain in the country on a per store basis, and also happens to be a freestanding express model is Mike's Express Car Wash out of Indianapolis. Their secret to their success, I believe, has been the fact that they produce the absolute cleanest, shiniest, driest car you can imagine. Spare no expense and produce top notch quality using hot water, heated drying, and lots of soap. Right inline with the ICA's study of consumer habits stating that customers care more about quality than they do price. It's not a hunch, it's a fact.
*This document is for informational purposes only; it is not intended to alter your concepts on carwash pricing. We recommend you use your best judgment in your marketplace and seek local consultants that understand your market.
Comments are very welcome, please send to firstname.lastname@example.org
Ryan Essenburg is the co-owner of Tommy Car Wash Systems. For more information, visit www.tommycarwash.com or call (616) 494-0771.