Historically, car wash developers have relied on simple methods and tools to solve the problem of selecting a new site.
For example, screening tools such as checklists and consumer profiles were used to confirm that a market and specific site was suitable for the proposed type of economic development.
Whereas a sales forecast might have been developed by any number of methods including benchmarks, analogue models, opinion, and intuition.
Conversely, companies with networks of stores would confirm new sites with the help of a real estate agency and a formal approach such as using mathematical and statistical models to forecast sales.
However, the subscription economy has complicated things. For example, experience has shown a monthly unlimited wash option can represent 50 percent or more of a company’s total sales volume and total sales revenue. In other words, the traditional car wash business model has divided in two: brick and mortar and e-commerce.
With brick and mortar, the focus has been to acquire a portion of daily pass-by traffic and get customers to spend as much as possible. With e-commerce, the focus is to acquire as many monthly subscribers as possible and retain them for as long as possible.
Given this difference, forecasting subscription revenue should be considered when solving the location problem and preparing an accurate forecast of total sales.
To illustrate, let’s assume our new store is anticipated to attract 8,000 individual customers and generate 96,000 cars washed per year. What do we know about customer-to-member conversion rates?
Generally speaking, we find conversion rates vary considerably from between 5 percent and 20 percent and greater. Consequently, a program may average between several hundred and several thousand members per month depending on the situation.
If the average patronage is 2.5 or 3.0 times a month, the program will elevate the wash to an entirely different level in terms of hourly throughput as compared to baseline sales volumes.
To illustrate, we plotted how the per-hour requirement for the site at peak times would change for our business case based on customer-to-member conversion rates ranging from zero to 40 percent (see the chart, below).
The per-hour requirement is often used to size property, building, and equipment.
Matching supply and demand helps to keep development costs in line and avoid the situation where demand too often exceeds the capacity of the plant.
For example, at a conversion rate of zero, the wash might be sized for two points of sale, a 100’ conveyor, and 20 vacuum parking spaces. Whereas a 40 percent rate would call for three points of sale with at least one fast-pass lane, a 150’ conveyor, and 30 vacuum parking spaces.
At zero conversion, 2/3 acre of land and a 3,000-square-foot building would be required, whereas to accommodate a 40 percent conversion would require one acre of land and a 4,500-square-foot building.
Here, the tipping point, so to speak, would be a conversion rate of 20 percent or peak hourly demand of 120 cars. Consequently, sizing systems used in the past no longer work as well. Instead of individually tailoring, the question of size comes down to small, full-size, or jumbo.
Bob Roman is president of RJR Enterprises — Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com