I came across an article written by an equipment manufacturer that discussed what traffic count is needed to assure a profitable location. To paraphrase: Enough cars are needed to pass by every day so even if only a tiny percentage stopped for a wash that would be enough to pay the bills and have a significant profit left over.
To determine how much traffic count is enough, the recommendation was to look at what car wash experts call the “capture rate.” The author described capture rate as simply the percentage of vehicles that actually stop and get a wash.
To determine the number of vehicles, average daily traffic flow and a capture rate the location is likely to achieve are needed. The article mentioned that many factors can affect capture rate including visibility, speed limit, traffic light or stop sign, ease of entry and exit, and presence of other businesses.
The approach is to multiply capture rate and average traffic. For example, capture rate of 0.00829 times traffic of 29,000 equals 240 cars a day. If the wash is expected to be open 312 days, annual sales volume would be 75,000.
According to the author, there’s even an easier way to do this: Give his company a physical address and the firm is willing to run the numbers free of charge. The firm’s model accounts for traffic, accessibility, demography, climate, competition, and other factors to rank and score properties compared to historical data from other car wash operations and how they performed.
However, experience has shown models based on the principle of similarity like analogue-based models and discriminate analysis can only forecast store turnover inside relatively wide intervals.
For example, during the first month of operation, the customer attraction rate for a new car wash site may be 100 percent. Here, some portion of the customers are random, as in they just “happened to be passing by,” and some are distinct, as in they received a direct mail coupon for a free wash to visit (shopping trip).
During the second month, the wash produces 2,000 vehicles. Of these vehicles, 1,000 represent new customers who washed their car only once. The other 1,000 represent 500 customers who came back and bought a second car wash that month. Thus, we can say the car wash has a customer attraction rate of 50 percent and a customer loyalty rate of 50 percent.
The next month, the car wash produces 3,000 cars. One thousand are new customers who washed their vehicle only once that month and the other 2,000 represent 1,000 customers who came back and bought a second car wash that month. The wash now has a customer attraction rate of 33 percent and loyalty rate of 67 percent.
Let’s move ahead several years and the business is producing 75,000 washes annually. Here, survey and panel data show 19,000 washes were unique visitors who washed their vehicle only once. The other 56,000 washes represent 1,000 loyal customers who washed their vehicle, on average, several times a month. The wash now has a customer attraction rate of 25 percent and loyalty rate of 75 percent whereas capture rate increased from 0.00344 (3,000 / 30 / 29,000) in month three to over 0.008 in year three.
However, it was not capture rate that led to higher sales volumes but rather a higher customer loyalty rate. In other words, our example wash doesn’t see 75,000 different individuals, it really sees 20,000.
For instance, if the wash added an unlimited program, and 1,000 customers buy-in and then visit on an average of four times a month, the customer loyalty rate would increase from 75 percent to 85 percent. The actual total number of cars washed would increase from 75,000 to 123,000 and some folks would calculate the daily capture rate as 0.01 (123,000 / 29,000 / 312).
However, this capture rate is misleading because the number of individuals visiting the car wash hasn’t changed from the number who visited when the car count was 75,000.
Consequently, it takes more than capture rate to determine how much traffic count is enough to ensure a profitable location.
Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com).
You can reach Bob via e-mail at email@example.com.