Profit Centers - If It’s Not Making Money, It’s a Loss Center

By Robert Roman

09/01/15

Articles on car wash profit center analysis usually start by suggesting that if profits are running stagnate or stale, it may be time to add a new revenue generator. This is typically followed by summaries of profit centers in terms of the initial start-up expense, potential returns, technical and maintenance requirements, and tips for success.

Profit centers most often discussed are pet wash, ice/water vending, mat cleaning machine, auto detailing, in-bay automatic, food service, convenience store, motorcycle wash, and coin-operated laundry.

What is often not discussed is the commitment needed to do it correctly and ensure the right people are put in place to operate it.

For example, experience shows gasoline, convenience store, and car wash can be a very good mix. However, industry participants (c-store owners) are often described as the biggest problem when it doesn’t.

Pundits claim the car wash is often ignored or neglected because no one takes ownership, managers can’t do the work themselves (and let it go), and cashiers are challenged and not marketing the wash.

Thus, instead of operating the wash as a strategic business unit including promotion, marketing, and management, wash revenue is often lumped in with in-store sales in a subcategory that includes merchandise under a category manager.

Some profit centers are relatively easy to implement while others require looking at the big picture and more extensive planning.

BOLT-ON SERVICE

Consider a car wash owner who is beginning to focus on an exit strategy and may want to fatten up the business before retiring. Here, most owners would focus on profit centers that can generate a high margin and require only a modest investment (short-term).

For example, there are “bolt-on” items that can be easily added to an existing car wash system to complement the business. Hot wax and total body protection are good examples.

Systems can be installed for $7,000 or so. On average, about 20 percent of customers will purchase these services at a price of around $4. So if the margin is $3, the payback requires only 2,333 cars ($7,000/$3) to use the service. Wash 60,000 cars and net operating income increases by $36,000 (60,000 X 0.2 X $3).

The point here is valuation: book value plus three to five years of profits.

CO-LOCATION

Other profit centers require co-location. This means having enough property or floor area to accommodate the new profit center.

For example, the demand for coffee drinks inherent in a stream of traffic is considered fairly high. Statistically, 50 percent of commuters in the United States are coffee drinkers. One way to tap this potential revenue stream is an express coffee drive-through business.

A 300-square-foot building on a 2,500-square-foot pad site can process 200 to 500 cups a day. Average cost of building, equipment, inventory, and other start-up expenses is $180,000.

The express coffee business has a gross margin of 45 percent and average net profit after tax of 15 percent. Typical lease payment for the building is $2,000.

If the average per-cup price is $4, 300 to 400 cups per day would generate net profit of between $56,000 and $75,000. If the cash investment is $25,000 (lease), risk reward would be between 2.2 and 3.0.

An express coffee drive-thru requires adequate visibility from the roadway, easy entry, 30,000 traffic count, and established retail stores nearby. It also requires hiring the right people because direct labor for this operation is about $100,000.

Coffee as well as ice machine and pet wash can be drop shipped. This means the supplier takes a deposit and transports a prefabricated building (including equipment) directly to the buyer’s site from the supplier’s manufacturing facility.

A modular pet wash and ice machine each require 100 square feet of space and cost about $40,000 and $60,000, respectively. The average price of dog wash is $10. Expenses for chemicals and utilities are about 20 percent of sales. The average price for ice is $1.50 a bag and expenses are around $0.42 per bag.

MOBILE SERVICE

An alternative to co-location is a mobile profit center. This includes detailing and hand wash, factory paint restoration, paint-less dent removal, or windshield repair service.

The typical start-up expense to launch a mobile detail business is about $50,000 including vehicle, equipment, tools, and supplies. The business has a gross margin of 70 percent. Typical labor expense or owner’s draw is 38 percent of sales revenue or net operating income of 32 percent of sales.

Based on the average number of cars detailed annually by mobile operations, a car wash operator might expect a mobile unit to generate gross sales of $100,000 or pre-tax profit of $30,000 to $40,000. If the cash investment is $10,000 (lease), risk reward would be 3.0.

Making this work requires hiring the right person because the operation occurs out in the field without direct supervision.

DIFFERENTIATION 

Profit centers can also be used to differentiate a car wash.

For example, over 60 percent of self-service locations are in suburban or urban areas with middle incomes capable of generating some level of demand for assisted-services like interior cleaning, hand wax, and shampoo.

One way to capture this demand would be to convert a wand-bay into an express detail shop. The goal would be to increase capture rate and get a large percentage of the business coming over from the in-bay automatic to the detail shop.

Start-up expense for an express detail bay capable of producing three to four cars per hour including wall paneling, lights, equipment, tools and supplies, and inventory is about $30,000.

Express detail has a gross margin of 75 percent. Labor expense is 30 percent of sales or net operating income of 45 percent. Success requires cross-marketing strategies and building and maintaining customer relations.

Small sandwich shops or food concession stands can provide a taste of the food service business with minimal overhead. Start-up expense for food ranges from $5,000 to $10,000 for a simple counter top unit to $25,000 for a kiosk. Further up the chain are quick serve restaurant (QSR), coin laundry, and convenience store. Here, the requirements are greater.

The average cost to put in a laundry is between $175 and $225 per square foot including equipment, installation, and improvements. Start-up expense for a 300-square-foot, limited-service QSR is about $250,000. A convenience store of 1,500 square feet runs about $400,000.

Moreover, these businesses also need to be staffed and managed efficiently as well as comply with health and licensing regulations. Consequently, an additional profit center must be a good fit with the organization. For example, let’s revisit the car-wash-at-gas-sites scenario.

CAR WASH/GAS SITE

Today, there is still plenty of room for expansion of car washing within the convenience store industry. One way to tap the potential revenue stream is through the design objective.

For example, the car wash must be convenient. Implicit is at least 125,000 gallons per month in gasoline sales and excellent visibility and accessibility to traffic.

The car wash must project a good image. This means creating a brand, creating a bright, modern building, and providing excellent customer service.

The car wash must provide exceptional value. The offer of a high-quality wash, done in 3-minutes, for $5.00 is a significant value. Experience shows that car washes meeting these design criteria will attract customers.

Success requires self-pay terminal, state-of-the art car wash equipment, cross marketing, training, and technical support.

AUTOMATED POLISHING

Automated vehicle polishing is another profit center that can provide competitive advantage by means of cost, differentiation, or niche market.

Shown above is a “roll-over” polisher. It requires a 560-square-foot service bay (35’ X 16’), air supply (80 PSI), and electricity (3-phase, 208V).

Polishing is a two-step process. First, specially formulated polish is applied to clean and smooth the paint, leaving a high-gloss. Second, an application of sealant is chemically bonded to protect against the elements and extend the time needed between reapplications.

According to manufacturers, one person can process up to 25 cars per day. Thus, a roller-over polisher could be a good fit with lower volume sites like self-service locations and auto dealerships.

For conveyor sites, a fully automated polishing “tunnel” would be more appropriate. Shown above is 65’ system that would require a pad site of roughly 3,000 square feet.

Like the rollover, polishing is a two-step process. First, the vehicle is cleaned in the car wash tunnel and a special wax is applied online. The vehicle is then driven to a separate conveyor system where an attendant applies a “dry” wax and the paint is gently buffed with a multi-stage buffing system.

According to manufacturers, an automated polishing tunnel can process between 30 to 50 cars an hour.

PROFIT OR LOSS

In the final analysis, a profit center is any area of the business that makes more money than it costs to operate. If a profit center isn’t making money, it’s a loss center. Of course, losses should be avoided to ensure the financial health of a car wash business.

Consequently, when evaluating the viability of adding a new profit center, attention should be given to identify current profit centers that are loss centers and close them out.

Likewise, it’s important to look closely at each staff position. Are attendants, in-store staff, and part-time help really contributing to the profit equation?

For example, express-exterior attendants are responsible for opening, daily, and closing duties. Part of their daily duties includes helping customers onto the conveyor and preparing vehicles for tunnel entry. Since staff ushers each vehicle, labor is readily available at the conveyor entrance to both sell and perform assisted-services like manual bug prep or wheel detail at $3 to $4 a pop.

Thus, through more meaningful interaction with the sales function, staff can help increase profitability for the store.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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