Optimum times for startup and bonus promotions

[Sequoia]

I'm getting ready to increase my SS prices again, and its forcing me to look at all of the various price/time options. Given the economy it's a little more dicey now and I want to do it right the first time.

Currently, I am at $2 / 4 minutes, with a promotion of $4 / 10 minutes. It seems I get almost an equal number of washers at the $2 and $4 level.

A stealth price increase would keep the same $2 startup, but cut the time back to 3:20. However, I am a little leery of shortening the wash time below 4 minutes. Another price option would be to require $5 for bonus time and bump it up to 12 minutes instead.

Both considerations have me asking what is the optimum time for startup and the optimum time to set as the "bonus target." Do you feel 4 mins for startup and 10mins for bonus is optimal, and if not, what time intervals have worked for you?

Thanks!

ps Another consideration is to leave my $4 / 10 min bonus time alone, and simply change the startup to $2.50 for 5 minutes instead of 4. It's the same price per minute as before, but it collects and extra .50 per start.

 

[MEP001]

I feel that an increase in startup price will do more for the "bottom line," but it's harder for the customer to swallow. I see a lot of people pull through a bay, look at the price and leave, and we're only 25? more than the competition. Cutting time does more to lower your operating costs since a lot of customers are conditioned to spend a certain amount of money rather than adding more until they're done. I think that's one reason why credit card users spend more than the cash ones.

I know someone who gives double time after $5 on weekdays, with a loop detector to shut off the bay when they're done. He said it turned a poorly performing wash into a great one.

 

[Doug P.]

Great question. Back in 81 before I built my first wash there was a car wash eq company called Best Equipment in Western Ky. that had an info packet they sent to prospective customers. In this kit they had a chart that listed different startup times and prices and the average revenue per bay per month for each combination. I remember that at that time 75 cents for four minutes produced the most revenue by far. I would like to see the trade magazines include this in there surveys.

Most of my washes are $1 for 2.5 minutes and $5 for 17 minutes. Between a fourth to half of my customers go the $5 choice. I raised my startup to $2 for five minutes at one location about six months ago and left the $5 for 17 the same. The revenue is definitely up compared to my other location over the last 6 months. I'll run some numbers and post exact percentages later. This location does not have any competition. Had a few people leave but revenue is up. All of my competitors have a $1.25 startup and about the same time per quarter. I need to make a move on pricing and time pretty soon myself

As far as your pricing situation I tend to agree with the poster that said raising startup price will increase revenue and lowering time will decrease operating expenses. Where are your competitors at on pricing? When you have inbay bill acceptors, dollar coins, and or dollar tokens I think even dollar pricing makes it simpler for customers but in some situations that may not be best.

The only thing I can say with absolute certainty is that my expenses have risen much faster than my revenue over the past few years.

Doug P.

 

[I.B. Washincars]

Doug, just a couple of weeks ago I dropped the time @ 3 of my washes from 5 to 4 1/2 minutes for $2. This includes the wash closest to you. As of yet I don't think anyone has even noticed. I've noticed quite a few washes around have made the jump to the $2 plateau.

 

[kabak]

we are at $2=4min and thinking to add bonus time $5=14min do you think our revenue vill go up

 

[Sequoia]

Price increase

I believe my "direct costs" for deliving a car wash (wash water, chemicals, electricity for the pump, etc.) are half or even less compared to the "indirect" costs of property tax, insurance, etc. I don't have a mortgage but if I did it would make the percentage of direct cost even lower.

Based on that, I believe that going for efficiency is probably not the best revenue producer over time as the direct cost is a low percentage of the product I deliver. So it would be better to raise the start price instead of lowering the amount of time given at startup. Bringing in higher gross revenues, even if sacrificing efficiency, is probably best for my operation.

Sooo, this raises a new issue. If I bump prices 10% I will go to 2.25 for 4 minutes instead of $2. Unfortunately that will probably not be too popular since I only sell dollar tokens. So I think I will do my price increase in two steps instead.

Step one- up the start time from $2 to $2.50 and increase the minutes from 4 to 5. Don't do anything further, and wait until next year for the next increase which is the real increase I want to do anyway.

And, if I want to sell the wash, I will have hopefully maximized its value since some folks value washes on a percentage of gross income.

Next year- Keep the $2.50 startup, and lower the time back to 4 minutes. And, increase the cost of the bonus promotion from $4 for 10 mins to $5 for 12 mins.

With gas prices continuing to skyrocket I am a little leery, like others, of pushing prices upwards too rapidly. But, from experience, I also know if you don't keep nudging prices upward a little bit at a time you'll find yourself 5 or 10 years down the road collecting the same revenue while having expenses that have dramatically risen. I'd rather risk moving a little too quickly than not fast enough.

 

[pitzerwm]

You can't accurately price your product/service if you don't know what your true cost is. That is your first job. Figure it out and then you will have an idea what to charge for it.

 

[PaulLovesJamie]

Step one- up the start time from $2 to $2.50 and increase the minutes from 4 to 5.

Duane, that is exactly what I did several months ago. I also sell tokens valued at $1.
FYI, I did get more comments than usual. But revenues took an immediate jump up, and I notice that most customers put in $3 to start, not 2.50.

 

[Sequoia]

Thanks Paul, that helps.

Regarding cost-based pricing, I am by no means an expert in the car wash business but after 3 years of owning a SS it seems that other factors have as much, maybe more, impact on the optimal price setting. Certainly the "perception of value" by the customer is a key driver on optimizing the pricing-- if you don't have that (compared to the competition) your business isn't going to do well at virtually any price. Conversely, if you overbuilt and overpaid you can't charge double the market rate just because your costs are higher.

I do agree with Bill that as a good business person you should know your cost to deliver the product. But I don't sense in this market that you can rely on a cost multiplier and expect to land on the optimal pricing for any given market.

I've raised prices now for three consecutive years-- and always timed it with some sort of visible upgrade at the wash. (Display timers, then new combo vacs, then vending.) The people who sold me the wash told me that the local market would never support a $2 startup (they were $1.50), but my volume actually increased at the higher startup-- which I believe was due to general wash rehab and upgrades.

Now, I'm starting my 4th year and intend a 4th price increase most likely to a $2.50 startup-- but I don't have any visible upgrade to serve up for customers to notice. So I'm a little leery of that as well.

My .02 cents .....

 

[robert roman]

Increasing price to cover costs has always been a problem for SS. This is so because most owners proscribe to lower return per customer; focus on controlling costs and make money by selling low price to a wide audience. This means price schemes (i.e. $2.00 for 4 min, bonus time) and offering more products (i.e. tri-foam) to create value to get customers to buy more time. There are several problems with this.

1) If price is too high, it forces some people out of the bay which narrows the audience. If price is too low, it cuts profits.
2) If price needs to go up to cover expenses, this means raising the start-up and/or changing cycle time which narrows the audience and/or reduces the value proposition.
3) If the operator adds more products, this makes controlling costs difficult because the technology does not allow different rates to be charged for the different products (i.e. tri-foam costs more than soap on per unit of time).

An alternative would be a lower start-up. With this approach, the start-up would be based on the avg per unit cost to operate the wash (sum of avg fixed and avg variable cost). If you could earn an acceptable profit with a start-up of $2.00 for 4 min, the base price would be $0.50 per min. The start-up would be set at $0.50 for one min (or $0.25 for 30 secs) and then you would sell additional mins for $0.50. This approach embodies the resource based view of competitive strategy which emphasizes economic rent creation rather than profit. What are the benefits?

1) Low base price would open up the business to the widest possible audience allowing the collection of more rent (customers).
2) Controlling costs and raising price would become easier because price is based on average per unit cost rather than an arbitrary process.
3) Low price provides a distinct competitive advantage. If competitors copied the strategy, it would level the playing field and allow competiton on the basis of value.

Bob Roman
www.carwashplan.com

 

[rph9168]

Lowering the start up cost is self defeating. I have seldom seen it make the competition to lower their price point while reducing your bottom line. I think there are more intangibles involved that are some times over looked or under estimated.. I have never seen long term success at any wash that didn't keep their equipment in good shape, keep the bays clean and well lighted, and have a good show including fragrance and foam. Even some washes in so-called good locations struggle when they fail to maintain a high standard.

Controlling costs is very important. You should be able to calculate your per minute cost for each product you have and at least get a good idea of what your chemical and water costs are. You should also be able to get a good handle on your other utilities as well. This should help in deciding your pricing strategy.

I can't think of anything I have bought lately that has not gone up significantly. I even find myself begrudgingly accepting the fact that I have to pay more for the things I buy. I think this creates an atmosphere where your customers are less likely to complain about price increases. For that reason I would be more inclined at this time to increase your price per unit rather than decrease time or perhaps doing a little of both if you feel that will make you more competitive without sacrificing quality.

 

[robert roman]

If you believe that what I have suggested is self-defeating then, with all due respect, the notion has gone over your head.

Where did I say anything about lowering the bottom line, not controlling costs, not offering more products or nelecting the wash?

The goal of what I suggested is not to force your competitor to do anything but rather to increase your ability as an owner to collect more rent (more customers equals more profits).

Carwash A has start-up price of $2.00 for 4 min. The wash attracts 20 customers who buy 2 cycles per wash (8 min) which generates $80.

Carwash B has start-up price of $0.50 for 1 min. This wash attracts 20 customers (the same market segment) who buy 8 min per wash at $0.50 per min which generates $80. The low start-up attracts an additional 10 customers, those who would be turned off by a $2.00 start-up time, who purchase just 3 min per wash at $0.50 per min which provides another $15. Total sales for wash B is $95 plus any vacuum or vending services that these more frugal customers may purchase. Moreover, there is the possibility that these 10 may become loyal and may upgrade and/or buy more in the future. In addition, there is the notion that a busier wash often attracts more business.

 

[rph9168]

Your assumption depends on lowing the start up price to add new customers. I still say that is self-defeating. How can you assume an increase in business? I guess if you live in the realm of assumptions instead of the real world anything is possible.

 

[I.B. Washincars]

Your assumption depends on lowing the start up price to add new customers. I still say that is self-defeating. How can you assume an increase in business? I guess if you live in the realm of assumptions instead of the real world anything is possible.

Well said RPH. Assuming 50% more customers from lowering the startup is terribly optimistic IMO. I don't think I have ever spoken to anyone that has lowered the startup and had a significant effect on the bottom line. As I said before, you lose ground on the customers that buy only one cycle so you will have to gain some customers to just get back up to even.

 

[pitzerwm]

On the old forum there was one guy at least that had lowered his startup cost to reflect his competition's pricing. He stated that his gross went up and he was happy with the decision.

I don't know that I buy Robert's whole premise, because, out of the 20 customers they would probably use less time, then the ones that had to add another $2. What I would expect is that maybe 6-7 people would hurry and only use 6 minutes, so they wouldn't need to ad the extra $1. When I raised my price at the wash or here, I calculate how many people/customers that I can lose before it cuts into the added revenue. I never end up losing that many customers, so you make more revenue and have less wear and tear on the equip. In this industry, I doubt if there is any scientific studies to confirm either way, check out the poll section, I think that I will start a poll and lets see what we find.

 

[robert roman]

Last year, I helped a number of owners improve their carwash businesses with these types of "living in the world of assumptions" ideas. Usually the improvement was an increase in sales volume by a factor of 1.3 to 1.4. In one case, I helped an owner double his sales volumes. I can only "assume" that these folks are smiling all the way to the bank.

I have made a good living for the last eight years or so providing solid advice and guidance to investors and veteran operators on how to get into and make more money in the carwash industry. I participate in this venue out of the kindness of my heart because the carwash industry has been so good to me. It is my way of giving back. However, I must have rocks in my head for participating in the self-service forum.

Trust me, I will never "darken" this segment of forum again with my foolish ideas about the self-service segment of the carwash industry. I'm sorry I wasted your valuable time.

 

[rph9168]

Wow. To quote "Office Space" - "Someone has a case of the Mondays."

We all take our lumps on this forum from time to time. Most of us take it as a learning experience rather than an affront to our intelligence. As far as anyone's participation in this forum, we are all here to the betterment of the industry and each other. I consider it an honor to participate and have learned much by doing so. I guess if I knew it all I could "never "darken" this segment of the forum again".

 

[Sequoia]

Robert's ideas

Robert,

I welcome your comments although I disagree greatly. Let's examine why:

Your suggestion of a .50 cent start for 1 minute is troublesome. First and foremost, I want to build quality car wash clientele that are satisfied with a good, clean car. This is the best long-term business builder that has high per-wash dollar volumes plus good word of mouth spreading in the community. Your 1 minute of time cannot possibly achieve this objective. Further, 1 minute of time is probably just the right amount of time for a contractor to wash the sheet rock, debris, screws, nails, etc. from the back of his pickup before he leaves-- quite satisfied with his .50 cent purchase.

Next, if half of my customers convert from a $2 minimum to a .50 cent minimum I will lose significant revenue. Many customers are programmed to pay only the minimum regardless whether it makes sense for them or not.

You argue that the low startup opens the business to a wider audience. I'm sure that's true-- I could attract more bed washouts. But, if folks will spend $3, $4, or $5 why would they care if the startup is *any* value less than that-- either .50 cents or $2?

Finally, low price is *not* a distinct competitive advantage. It's a recipe for ruin of your wash and triggering a self-destructive price war with competitors that hurts all business owners. I don't want to lower prices and have others follow me downward; I want to raise prices and have others follow me upward.

I'm sure you're an experienced veteran that has helped others improve revenues at their washes. But, I want to build my wash around quality experiences based on clean cars. Your .50 cent startup targets a completely different audience-- one that I don't want to attract.

 

[JMMUSTANG]

I reduced my price from 1.50 for 4 minutes to 1.00 for 2 minutes because I was tired of people not reading the signs and only putting in 1.00-1.25 and then calling and leaving nasty messages.
Business is down for all the reasons we all have so I'm not sure if the $1.00 startup helps or hurts.
Complaints are down big time. Very few people actually put in 1.00.
But I'm thinking of keeping the 1.00 startup (there is a few second delay before the pump starts up) but posting a $2.00 for 4 minutes sign.
That way the people that put in less than 2.00 won't be having problems because they didn't read the signs.
What do you all think?

 

[MEP001]

Why not just go to a full $2.00 startup?