Finishing Line - March 2010

Choice — Type of Car Wash
By Robert Roman

In developing a new car wash, deciding what type of wash to build is often based on personal preference alone. However, some people find it useful to design a business model to help validate what type of wash is best suited for them.

A business model describes how a company intends to create and deliver value. A car wash business model can be designed by the dimensions of customers, value, infrastructure, and finance.

Potential customers will compare your new business to a broad set of competitors. Customers will view your new car wash relative to their own frame of reference for services like yours. A frame of reference is the category in the customer’s mind in which they will place you and other potential suppliers.

What you are is defined by the customers you serve. As a car wash owner, you may define your business in terms of products, services, or technology, but motorists view a car wash as a solution to their problems. You may say, “We are a self-service company.” Customers see an exterior-cleaning solution, carpet and seat cleaning solution, paint protection solution, an alternative to washing at home, etc.

What customers care about most is how they will benefit from your car wash versus all its competitors including washing at home. Customers will evaluate your business’ capabilities relative to solving problems or meeting needs they have within this frame of reference. Customers could not care less about the attributes (features and advantages) of a car wash except to make sure the promises are believable. In this context, one of the keys in selecting a type of car wash is being able to choose customers to whom you tailor your highest-value offering.

All purchase decisions are based on value, even in commodity markets. In any purchase, the consumer compares each supplier’s benefits against its costs and chooses the one with the greatest excess of benefits over costs, which is net value. Benefits and costs include emotional ones (a clean car makes me feel happy) and tangible ones (washing at home takes an hour of my time).

For example, the perceived benefits of express exterior over full-service may include faster speed, less waiting time, free vacuums, lower price or, say, less risk of someone taking something from a vehicle. Cost would include price plus indirect costs associated with the purchase such as driving time, fuel, etc. When benefits exceed costs, net value is positive.

Value creates revenue streams for the car wash. If you decide to build a self-service carwash with wand-bays and an in-bay automatic, you are choosing to make money by offering value to different market segments (DIY and DIFM). Of course, you can’t be all things to all people. In choosing one type of wash, you are not choosing another. Consequently, companies will attempt to create meaningful differentiation, such as process speed versus quality of finish versus scope of services offered versus pricing.

Creating value requires competencies and infrastructure. Competencies are the skills and implicit and tacit knowledge critical to business success. Competencies can be defined in terms of problem solving, decision making, marketing, operating, team work, training, managing, etc. The knowledge and skills required to operate a car wash depend on the wash format.

Infrastructure includes land, building, equipment, and technology needed to bring a car wash to a commercially viable state. Cost depends on format, architecture, materials, scale, and scope. The cost to build a wash can range from $700,000 for a wand-bay facility to $4 million or more for an express wash with gasoline and a convenience store. Operating expenses depend on wash format and process. For example, variable unit cost for self-service (wands plus in-bay) is about $1.80 whereas full-service conveyor is typically over $12.00.

Profit results from the difference in revenue and costs. Sustaining superior profit creates the value that investors desire most. Consequently, the challenge is to determine what business model will best achieve the profit goal given the dynamics that exist in the marketplace.

When choosing a business model, investors should answer several questions for themselves before deciding: Does the business model target the needs of the market segments? Does it provide a distinct competitive advantage? Will it generate sufficient sales and margins given its cost structure?

Can I afford to build to achieve the level of output? Do I have the production management skills to handle the size of the facility? Can I manage the labor force required of that size facility? Are my marketing skills good enough to handle the volume of production?

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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