Auto Detailing - December 2001

Cost per Car Crucial Information
for Process, Pricing, and Profit

By John Lamade

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 vehicle.

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.

BENCHMARKING

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.

PRICING

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 to track.

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 vehicle.

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 consider value.

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 look
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 audit.

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 also be
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 of value!

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 to rain.

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 facts!

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 john.lamade@gte.net.

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