What do you think is the number one problem facing the car wash industry today? Is it not enough revenue? Is it not enough customers? Or is it the increasing competition?
The answer is… Yes
All these problems are the same, if you solve one, you solve them all.
What if there is a way to increase revenue without increasing the number of unique customers and without stressing about the competition? Most people worry about things out of their control instead of focusing on what they are in control of, and what they can do to resolve the issue at hand.
THE BIGGEST ASSET OF ANY BUSINESS
A dry cleaner was going out of business, he had to sell his business or sell individual equipment to potential buyers within the next 30 days. His competitor who is located a block away visited him and asked how much he wanted for the business?
He replied, $100,000.
This was a lot of money that the competitor couldn’t afford to pay, then he asked, “I need a computer; how much do you want for this computer?”
“$200,” the dry cleaner replied.
The competitor purchased the computer, took it back to his store, turned it on and found the dry cleaner’s list of 10,000 active customers.
The question is: Did he buy the business for $200?
Yes, he did. The biggest asset of any business is their existing customers.
A business owner may not be in direct control of the surrounding competitors nor the number of new customers who patronize their facility. However, they are absolutely, positively in charge of increasing the revenue from existing clients who already like and trust their business.
FREQUENT FLYER MILES PROGRAMS
The market size of domestic airlines in the United States in 2022 is about $140 billion.
In May 1981, within a week of each other, American Airlines and United Airlines both launched their milage programs. It was a ground-breaking and an innovative guerrilla marketing strategy that gave them an advantage over their competitors. The world of travel has never been the same since.
Frequent flyer miles programs were straightforward: You take a few flights and earn a free flight. The frequent flyer miles program helped the airline industry to increase customer loyalty, retention, and the frequency of flight.
In the late 1990s, with the help of computer software, the car wash industry was a pioneer in launching another innovative guerilla marketing strategy: the unlimited wash plan. There is no doubt that the unlimited wash plan played a positive role in the survival of many car washes during the past years, especially during the pandemic.
Today, Alaska Airlines appears to be the most innovative airline company. They recently launched two different programs that the car wash industry has been promoting for more than 30 years:
• Alaska gift cards, buy a $500 card for $450. Who doesn’t like to save money? Gift cards are a great way to create loyalty and customer retention and to get paid up front for future service.
• Alaska Airlines is also the first airline to launch a subscription-based Flight Pass program starting at $49 per month. The Flight Pass allows members to fly up to 24 roundtrip flights a year to explore California and other West Coast destinations.
THE POWER OF UNLIMITED WASH PLANS
In 2021, Costco made $3.88 billion from membership fees, an increase of 9.6 percent over the previous year. Costco’s net income for 2021 fiscal year was $5 billion, or $11.27 per share, an increase of 25 percent.
Costco makes the vast majority of its profit from membership fees and not from selling their merchandise, according to data from Sifterfund.
Costco has such a different business model and customer base that other retailers find it hard to copy. As a car wash owner, wouldn‘t it be a nice feeling if your computer system renewed the membership for customers on the unlimited plan on the first of every month, and the total money collected and deposited in your bank were enough to pay all your monthly fixed expenses?
Per the Pareto Principle, roughly 80 percent of business revenue is generated by 20 percent of the customers. Members of an unlimited wash plan at a car wash are considered part of the top 20 percent who contribute to 80 percent of the income. Some people on the membership plans are willing to spend additional money on their cars and are more open to purchase detail services or detail maintenance, as long as they trust you and are happy with the existing services that you provide.
At a car wash I previously owned, we had a deal with one of the largest car dealership in the Unites States to offer a complimentary 30-day wash pass to every customer who purchased a new vehicle from them. Many of those customers who took advantage of the offer continued with the membership, and during the first year they paid extra for detail services to protect their major investment. Within the first year, many of those customers invested between $500 and $800 extra in their vehicle at the car wash.
A flood cannot be blamed on one drop of rain but all raindrops combined. It is the same in business; there is not one idea that can increase revenue or profit exponentially, but it is all the little marketing ideas combined. However, if there is one more noticeable drop of rain, it is the unlimited wash programs the company offers and promotes.
FEAR OF OVERUSE
Many operators still cannot get over the fact that some customers will take advantage of the unlimited plan and worry they lost money on that transaction. This is especially true today because many people are using their vehicles to drive for Uber and Lyft. In this case, the car wash may offer the unlimited plan for private-use vehicles only and create another plan for commercial vehicles with a limited use or offer them the same unlimited plan at a higher price.
However, let us assume a car wash offers their $20 wash as a monthly plan at $40 per month, and some customers on the plan take advantage and wash their vehicle 10 times per month.
First, business owners need to understand the difference between the three following numbers:
1. Fixed monthly expenses are expenses that are constant and need to be paid every month regardless of rain or shine or the number of cars that will be washed, i.e., mortgage payment, insurance, and labor needed on the premises to operate the business once the doors are open.
2. Beside the fixed expenses, there is the additional cost of washing a car. The true cost for washing a vehicle is the cost of water, power, and chemicals. In most locations the cost is less than $1.50 per vehicle.
3. The car wash package retail price or, from customer perspective, the perceived value.
The net profit per car washed is the wash package price minus the true cost — i.e., if the wash package is sold at $20, then $20 minus $1.50 equals $18.50 of net profit per each car washed. However, if a customer pays $40 per month to be on an unlimited plan and washes his car 10 times per month, the true cost is about $15, and the net profit is $25 per month from the same customer.
Understanding the following facts:
• Average customers not on a plan wash their car once every three to five months. Therefore, instead of collecting $60 from that customer every year, as a plan member you collect $480 per year. That is an 800 percent increase in revenue from the same customer.
• From the customer‘s perspective, as an unlimited plan member, this is an unbelievable deal, they are receiving $200 worth of car washes per month for a $40 monthly investment.
• From the business owner’s perspective, the $40 monthly plan produces $25 net profit per month.
• Once you enroll a regular customer into a wash plan you increase customer loyalty, retention, and net profit.
• The first members who join the club program are the people who see the value of it. That is why the average visit per month will be higher at the beginning. Then as more people join for the convenience of not paying per wash and for the ease of zipping through the wash fast, the average visit per month for all members will start dropping.
• Many operators worry that promoting the membership program lowers their dollar per transaction. The fact is that the dollar per transaction doesn‘t matter, as long as the revenue increases and fixed expenses remain the same.
• Every car wash has downtime and has the capacity to wash extra cars per day without increasing its labor cost.
• Today, there are some car washes where more than 70 percent of their daily customers are part of a membership program.
WASH PLAN AND PROFITABILITY
Hypothesis: If 5 percent of car wash customers join the unlimited wash plan, this directly increases revenue and net profit.
First, we need some facts about the car wash to calculate and conclude if a membership car wash model makes sense. Here is some information about a car wash that will be used as a model to explore the theory of a membership car wash being more profitable.
• Total cars washed per year is 60,000 cars
• Average wash ticket is $20
• Annual revenue is 60,000 x $20 = $1,200,000
• If a car wash washes 60,000 cars per year, then the car wash has 24,000 unique customers.
• 5 percent of unique customers join the wash plan = 1,200 members
• Wash plan price is $40 per month
• New total annual cars washed per year for non-club members = 55,000 cars
As you can see from the above chart, by having only 5 percent of customers join the unlimited wash plan, the total revenue increased from $1,200,000 to $1,676,000. That is a 40 percent increase in revenue because fixed cost does not change regardless of how many cars are washed. The money raised from the membership minus the cost of water, power, and chemical per wash equals net profit.
• If the 1,200 unlimited wash plan members wash their car four times per month that is equal to: 1,200 x 4 x 12 = 57,600 car washes per year.
• As discussed previously, the cost to wash each car is $1.50:57,600 x $1.50 = $86,400
• Net profit from unlimited wash plan is: $576,000 – $86,400 = $489,600
If only 5 percent of customersjoin a wash plan, it can produce almost half a million dollars in profit. What if the car wash managed to have 10 percent of their customers join the unlimited car wash plan?
FAMILY WASH PLAN
Another idea to help increase club members is the family plan. It is similar to the unlimited wash plan. Some customers may have multiple cars at home and only enroll one car into the wash plan. To encourage them to register the other cars they own, you may offer them the family plan. A good POS system has the flexibility to connect multiple cars to one account for the purpose of offering a discount to the second or third car.
Customers who spend money at your car wash are willing to spend even more money as long as you give them incentives to do so. This option is also great to use with fleet accounts. You may offer them a discount if they sign up their fleet of cars all at the same time.
Part II of this article, In next month’s issue of Auto Laundry News, will examine the rules you need to follow to ensure a successful unlimited wash plan. In addition, you will find a list of suggestions on how to promote the plan.
AJ Rassamni is an inventor, author, speaker, consultant, and entrepreneur. He has a proven record of increasing sales up to 214 percent in one day. He was featured in Forbes magazine and on the front cover of a national trade magazine for increasing profit 400 percent in one year and 1,000 percent in three years during the recent recession.