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Subscription Prescription - A Step Beyond: Members Only

By Robert Roman

04/01/20

Pursuing thousands of unlimited members and recurring monthly income requires a commitment. This means dealing with recruitment, promotion, turnover rate, credit and debit card issues, and keeping up with industry best practices, which requires capital investment and personnel training.

For example, let’s consider a wash that produces 100,000 cars at $9.50 or gross sales $950,000. According to the folks that make point of sales systems, this volume may represent, on average, about 25,000 distinct customers.

Five thousand unlimited members would represent a 20 percent take rate.

If the average price were $20, the program would generate revenue of $1.0 million or $500,000 at 10 percent.

Clearly, such a program is a distinct business when compared to the baseline. So lucrative is the potential that it opened the door for digital-ready networks that are designed to solve the problem of managing a subscription program.

Networks collect customer data via apps and then use it to deliver automated marketing notifications and start unlimited plans and referral campaigns.

Most car wash subscription programs are of the monthly variety, but I did come across a few that allowed for annual payment. One scheme was buy 11 months and get one month free, another was pay a one-time fee of $370.

Interestingly, as I searched for more locations that offered an annual payment option, I noticed some companies are now excluding rideshare and ride-hailing operators, taxicabs, and commercial vehicles. I’ve also noticed some companies are now putting limitations on how many times a day a customer can use the services (e.g., twice a day).

Arguably, operators wouldn’t take such measures unless there was an issue such as rising operating expenses or exceeding capacities.

For example, Anthony Analetto with Sonny’s Carwash Factory says some washes are intentionally raising monthly subscription prices to reduce the number of members. “They’ve reached their peak capacity and are trying to scale back on the number of discounts they are extending.”

To illustrate, the per-hour requirement for a site at peak time based on 100,000 washes is 96 cars, two pay stations, and 10 vacuums.

Adding 5,000 members with each customer visiting an average of three times a month would increase annual sales volume from 100,000 to 260,000. Per-hour requirement for a site at peak times based on 260,000 washes is 250 cars, four pay stations, and 50 vacuums. Even at 10 percent or 2,500 members, the requirement is 173 cars an hour, three pay stations, and over 30 vacuums.

This underscores Analetto’s comments on the importance of designing a site to process at anticipated peak hour and selecting price points to avoid overwhelming it.

To illustrate, we did the math for a 6,000 members-only car wash with one-time price of $200. Based on unit variable cost of $1.50 and $470,000 in fixed costs, earnings before taxes would be $400,000. Six thousand members visiting an average of three times a month is 216,000 washes. So, per-hour requirement at peak times is 150 cars and 30 vacuums.

Let’s consider some of the attributes of a members-only plan. Since the business doesn’t rely on attracting transient highway traffic, it doesn’t need to be located on expensive prime real estate. This is a 100 percent “cash-less” business. This means no money to handle or bank drops to make, and self-pay terminals are not required.

One-time price of $200 eliminates the need to up-sell or pursue strategies such as top package marketing. This would allow operators more flexibility in tailoring services to control cost and speed up the process such as offering only two selections.

Another attribute involves time value of money. Experts find annual subscriptions can secure more business and cash upfront, increase cash flow, and reduce churn.

On the flip side, members-only presents the challenge of cultivating customers based on the strength of one’s marketing prowess. However, this might not be as much of a challenge as it seems.

For example, a five-mile radius contains 78.5 square miles. If population density is 1,500 per square mile, total population in the area is 117,500 or roughly 47,100 households. 6,000 households would represent 13 percent market share.

If we apply the rule of thumb that any retail store will attract 20 percent of the population in its trading area, 13 percent doesn’t seem like a lot especially now, since digital networks are available to help with the heavy lifting.

 

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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