per Car Crucial Information
for Process, Pricing, and Profit
How many of you know your cost per car? You would be surprised
to know that many detailers do not know this important piece of
information. This month we will consider the cost of chemicals per
CALCULATING COST PER CAR
One of the easiest calculations is to divide expenditures for chemicals
(car wash soap, dressings, cleaners, waxes, compounds, pads, etc.)
by the number of vehicles treated with those chemicals. For example,
if you spent $2000 to clean 1000 vehicles, your cost of chemicals
to clean those 1000 vehicles would be $2.00 per vehicle.
Knowing your cost per vehicle is extremely useful, because you
can use this information as a means of comparing your costs to other
detailers, charging customers appropriately, and determining the
value of the items you purchase.
Comparing your performance to that of others doing similar work
is benchmarking. For example, if your cost per car in chemicals
was $5.00 in Ohio and a similar operator in Pennsylvania had a cost
per car of $1.00, you would do well to wonder why your cost per
vehicle was so high. If you could resolve the
difference in costs, you could retain a higher portion of your earnings.
In the above example, if you did 2000 vehicles per year, you could
"keep" the $8,000 in savings! Similarly, if you know how
to keep your material costs low, others might be interested in how
you manage to produce quality results without the expense.
Well, here it comes: The ideal place to share information like
this is within an organization, like (you guessed it!) the ICA.
Benchmarking is a legitimate activity, and an organization like
the ICA is a great forum for the exchange of experiences and observations.
However, to take advantage of the many benefits possible within
the ICA you really ought to join. Remember an organization's responsiveness
is directly proportional to the number of members of a particular
persuasion. If you believe that the ICA is not responsive to the
needs of detailers, then do not blame the ICA if you are not a member.
Join, recruit and be counted!
Really, benchmarking is a useful tool to determine how you compare
with others. Knowing the average cost pervehicle is useful, but
an even more useful number would be the cost per vehicle for each
class of business: retail, wholesale, etc. These numbers are much
more difficult to capture because very few
detailers track chemicals for the type of jobs, but if you could
track usage, the data could be very useful.
Chemicals should be a relatively small portion of the costs of
detailing a vehicle, but if you do not know how much the chemical
component of cost is, then you may be losing an opportunity for
profit. Many shops have a very simplistic view of their business.
If their income at the end of the day exceeds expenses, then everything
is okay. However, if you have a good grasp of your costs, you can
plan more effectively. Admittedly, this can be difficult. In previous
articles about determining value, I discussed the
importance of determining the impact of labor reductions (and increases)
on profitability. Labor is the most important component of vehicle
detailing cost. Unfortunately, it is often the most elusive component
Labor tracking is difficult because the number of jobs varies per
week. For example, if you processed 50 vehicles per week and one
week you committed to doing 60, what would you do? Most shops would
try to work faster and longer to do all 60. Similarly, if there
were only 40 cars, there would be more time available. The amount
of chemicals used per vehicle would probably remain the same, but
the labor input would vary. Consequently, you do need to consider
a gross average labor cost per vehicle or consider some kind of
individual job costing program to determine labor cost per vehicle.
Getting a basic cost per vehicle for labor is similar to obtaining
a cost per vehicle for chemicals. You know your payroll and you
know the number of vehicles you process. Divide payroll hours to
obtain labor hours per vehicle. You can also divide payroll dollars
by the number of vehicles.
Then, once you know chemical and labor costs per vehicle you can
tackle determining overhead (rent, taxes, advertising, marketing
expenses, etc.) per vehicle. Once you understand your total cost
per vehicle you can determine how much you should be charging per
HOW MUCH SHOULD YOU CHARGE?
No, I am not going to answer this one. If you understand
your costs, then you can determine whether you can afford the level
of profits you desire. For example, if you received $80 from a wholesale
account, your costs were $70, and you want to make $20 profit per
vehicle, then you have to do some thinking. You do have several
choices, and they all have a degree of risk:
Raise wholesale price to $90 to maintain the $20 profit.
Unfortunately, you might lose a portion of your wholesale business
to others who can do the same job for $80.
Improve labor productivity to reduce cost to $60, thus
ensuring the $20 profit. This sounds good, but how do you get
$10 out of labor? Work faster, use
less expensive labor, reduce quality, or whatever. It is not as
easy as it looks.
Reduce the chemical cost per vehicle. Well, there is not
$10 in chemicals, so you might trim some cost, but you will not
do it all with chemicals.
Reduce overhead per vehicle. This could be a way. Remember
that if you
process more vehicles, the cost per vehicle drops, but if you
increase the number of vehicles you must also increase staff and
evaluate your location's ability to accommodate the increase in
number of vehicles.
If this does not make the case for understanding the cost per
vehicle and its crucial importance to your business, then I am not
sure what will. Knowing the cost per vehicle will provide you with
the tools to build better plans and a better business. In addition,
by knowing costs, you can evaluate the efficiency of the processes
you employ to detail vehicles. Yes, you guessed it: It is time to
VALUE AND COST PER VEHICLE
In previous articles, I have stressed the personal nature of value.
When you consider your cost per vehicle, it does not get more personal
than this. Whatever product you use has an impact on your cost per
vehicle. As a result, when you consider a product or service, you
must consider its effect on your cost per vehicle. Knowing that
a product saves time and increases quality is nice, but you need
to know how you will benefit.
I imagine this is why many shops view manufacturers and their distributors
with a degree of skepticism. After all, we have all heard the promises,
but how often have we seen the benefit? There is, I
believe, a communication problem. The shop does not understand the
impact a product does, or can, have on costs, and the salesperson
only works in generalities ("This stuff will make the vehicle
better in less time"). This gap between the salesperson and
the shop results in lost opportunity. If the product does not provide
a meaningful benefit to the shop, then why bother?
The key word is "meaningful." If value cannot be expressed
in terms of satisfying an individual shop's needs, then there is
an opportunity for dis-service. Quite often, I have wondered why
manufacturers offer such a wide variety of products. If each product
is the best, how can that be? The answer is often "people's
tastes vary" or "you can't get some people to change."
Well, that may be true, but I suspect that the real reason is that
the benefits offered by a product are not well understood by the
shop, salesperson, or manufacturer. It is all a fog, and each person
tries to grope their way through the haze hoping that they will
reach their objectives.
Hmmm, the above sounds negative. Well, my intent is not to paint
a black picture, but to increase the level of communication among
all participants. The first step, if the overall objective is to
restore/improve the appearance of a vehicle, is to understand the
cost per vehicle. Managing the cost per vehicle drives the business.
In the case of chemicals, consider the benefits of a chemical product
CHEMICAL PRODUCT AUDITS
Previously I defined the chemical cost per vehicle as the total
cost of chemicals during a time period divided by the number of
vehicles treated with those chemicals. This number is an average,
and you can look at the components of the total cost: cost of wax
per vehicle, cost of car wash soap per vehicle, cost of dressing
per vehicle, etc. While these numbers are averages, you can look
at the effects of individual products. For example, if you were
considering changing emulsion dressings, you could first determine
the theoretical (what the manufacturer says) cost per vehicle with
the data provided by the chemical salesperson and then compare it
against performance in your shop.
Here is how you would do it. On a certain date, remove the "old"
dressing from inventory and trigger bottles at workstations, and
make the "new" product available. During the test period
- say one month - count the number of vehicles treated with the
product. At the end of the test, determine how much of the product
remains at all locations and subtract the remainder's value from
the total spent on the product. Divide this number by the number
of vehicles treated with the product, and you get a product cost
per vehicle. Ta da! Now you can compare costs and benefits.
Several things happen at this point. If there is a difference between
the theoretical and actual cost per vehicle, you can work with the
salesperson or directly with the manufacturer to determine why there
is a disparity between predicted and actual results. There may be
something that you do not know, or the product may not offer you
the value you desire. The value of the foregoing is that you have
something to communicate and share.
The effect of the product on productivity, labor per vehicle, can
understood. If productivity changes, you can add these factors to
your consideration of the product's value.
GOOD COMMUNICATION IS VITAL
This month we considered an important component of value, and there
is much more to be considered. Good communication among all participants
is important, but don't forget to consider the customer's perception
This factor was emphasized by my experience at a car wash operated
by a gas station. I own a full-sized conversion van, and, while
I usually wash it by hand, I chose to splurge and run it through
an automatic. When I paid for the gas, I asked if the unit could
handle a van and whether or not it would damage the van's exterior.
I was told not to worry because it was touchless. In I went and
discovered that putting a block-shaped object in a touchless was
a horrible mistake. There was about 1 inch of clearance between
the mirrors and the sides of the unit and 3 inches of clearance
at the top. I should have known better. The unit wreaked havoc on
the pin striping and the paint on plastic parts. Believe it or not,
I didn't inspect the vehicle until much later because it started
There is a moral to this story: Wishful thinking and poor communication
caused a problem. I certainly won't make the same mistake again.
Incomplete knowledge causes problems. Don't rush in without the
John Lamade has extensive experience in the marketing of detailing
products and is a contributing editor to Auto Laundry News. Contact
John via e-mail at firstname.lastname@example.org.