Which is best? $5 earned at .50c /min, or $4 at .75c /min?

[Sequoia]

As I have noodled through my price increase, I have come back to what seems to be a key question on pricing. Is it better to focus on maximum gross revenue regardless of efficiency or minutes given, or better to focus on highest efficiency (price per minute) even if this means a lower gross revenue amount?

For example, suppose you owned two washes. They are identical washes and get the exact same number of customers, but with different price schemes:

Wash 1- every customer is a $5 customers who is getting their services at a rate of .50 cents per minute, or

Wash 2- every customer is a $4 customers who is getting their services at a rate of .75 cents per minute.

Wash 1 will have more revenue, of course. But Wash 2 will have fewer hours on the equipment delivering the services and fewer chemicals dispensed.

Which wash will do better in the long term?

 

[GoBuckeyes]

I guess it depends on what you want. Do you want a real busy wash or do you want to make money?

Scenario 1) $5 at $.50/min is 10 minutes worth of services

Scenario 2) $4 at $.75/min is 5 minutes and 20 seconds worth of services

Between your two scenarios you're giving away almost twice as much time for only an extra dollar. What could 4 minutes and 40 seconds worth of presoak or engine/tire cleaner cost you? If you mix it strong it could be $0.20 to $0.50 worth of chemical, plus electric etc. Even though self-serve variable costs are low, I think operators fail to consider their total expenses enough when figuring their pricing.

Which is better scenario 1 or 2....

scenario 1) Customer washes for 8 minutes at $.50/min for a total of $4.00

scenario 2) Customer washes for 8 minutes at $.75/min for a total of $6.00

I think this is a more realistic comparison. People that use a self-serve more often than not will wash until the given task is finished or mostly finished. I think the amount of money required to re-start the timer plays more of a role as to whether they will finish the task 100%.

 

[PaulLovesJamie]

Short answer: a business exists to make money, therefore wash 1.
Longer answer: not enough info to answer your question, because at a minimum the answer depends on your cost structure plus your plan to utilize excess capacity.

 

[SHINEY2]

Wouldnt senario #2 provide more income, since you would get more vehicles per hour plus more $ per minute?

Seems like #2 to me...

 

[Sequoia]

Gross vs efficiency

Let me clarify:

Both washes will get the EXACT SAME numbers of cars.

Wash #1, at $5 per wash from .50 cents per minute, will gross more revenue. Wash #2, at $4 per wash from .75 per minute, will gross less but be much more efficient.

Assuming that everything else is identical between the two washes, which one will be the bigger economic winner in the long term?

 

[Earl Weiss]

Let me clarify:

Both washes will get the EXACT SAME numbers of cars.

Wash #1, at $5 per wash from .50 cents per minute, will gross more revenue. Wash #2, at $4 per wash from .75 per minute, will gross less but be much more efficient.

Assuming that everything else is identical between the two washes, which one will be the bigger economic winner in the long term?

Wash #1. See example below.

Figure your average cost per minute for water, solutions, utilities (gas, water and elec. etc. ) and maintnenace. Fixed costs remain constant.

Lets say the cost for these items is 10 cents per minute.

We also have to make some assumptions:
1. That the customers will use 100% of the time. (So the cost factor below is accurate)
2. The cycle times do not affect # of cycles since you say both do the same # of cars.

Wash #1 is 10 minutes which results in a cost of $1.00. and a gross profit of $4.00

Wash #2 lasts 5.33 minutes ($4.00 / .75) which results in a cost of 53.3 cents and a gross profit of $3.47.

So wash #1 generates more gross profit per cycle. Doing the same # of cars #1 wins.

Will they do the same # of cars? That's an important question.

 

[blurdgman]

HERE WE GO AGAIN....
Customers come to wash their cars not to haggle. As long as you are reasonably competitive they don't pay too much attention to minutes. That's why I suggested, in your other posts that you should give a feeling of a bargain by prominently indicating a $2 start. I have found that 75 cents per minute is very acceptable to customers. Offering bonus time also reduces the number of customers you may accommodate per hour if you're in a cold climate wher salt is used on the roads an everyone wants to wash their cars at the same time.
A few years ago in the summer I offered washes at half price for a month, there were no more customers than usual that took advantage of this deal. It showed me that this effort only cost me money for nothing.
My washes list "$2 to Start". Later I also mention that $3 will operate the equipment for 4 minutes. This offers the customer knowledge of the base rate. Perhaps I should indicate " $6 for 8 minutes" instead. I haven't tried that. All these figure are at the rate of 75 cents per minute.
When it's time to raise prices I keep the prominent "$2 to Start" and reduce the time rate and include an indication of the new rate. All this has worked very well over the years.
Stop fretting and do what your gut tells you.

 

[Waxman]

So If I am at $2 to start for 3.5 minutes I should stay at $2 and reduce my time per coin/pulse instead of raising startup cost to $3?

 

[Sequoia]

Efficiency

Actually this is not about my pricing. I have that locked in-- and thanks for the past help on that. Signs are being made up now.

My question revolves around the importance of "gross" versus "efficiency." Most businesses strive for maximum efficiency-- and oddly enough I think that is the wrong thing to pursue in a SS car wash. Let me explain.

A friend has his SS washes priced at $2/4 minutes. Or, .50 cents per min. He created a deal of $5 for 20 minutes, which is half his normal per minute price. Revenues went through the roof. Expenses only went up slightly. And, if he were to sell, he has a better multiple on gross now than before. What this tells me is that its a lot more about getting every single gross dollar in a SS wash than it is a quest to do it efficiently.

As I look at the economics of my wash, the indirect costs are the majority of the expense. Taxes, insurance, electricity for all-night security lights, floor heat all night when no one is washing, and so on. Since these indirect costs are so expensive, in comparison, to the cost of actually delivering a wash (direct expense), I have come to the conclusion that I shouldn't worry about efficiency at all in my operations-- just target gross revenue, all else be damned.

That's a long stretch from every other business I have ever run. Throwing out efficiency in the quest for an extra quarter or buck is something unique to my experience. My friend saw his economics greatly improve by delivering washes at half his customary efficientcy (.25/min vs .50/min)

I was curious about how others think on the topic.

 

[rph9168]

A lot depends on your location and customer base. If you are in a high volume location and have competitors within striking distance you should probably consider the efficiency model. You keep pricing where you can be competitive and work for a high volume of business. If you are in an area where there is not a lot of competition, low volume area and a decent disposable income customer base you might consider going for the gross profit model where your customers will pay more than those that are in a competitive high volume area.

 

[pitzerwm]

Sequoia, IMO you are dead on. Think about "super size me" that didn't actually start with McDs, I don't remember who started it but I'm thinking maybe Denny's. The realized that to give you 50% more food only cost them a small amount. Even if they didn't charge more, to cover that, the customer felt that they were getting more for their money at Denny's.

Of course, everyone started doing it and we all got fat. Customer perception is everything. When I put in the foam brushes, I set them for efficiency, same for the HP soap. While I was visiting Kevin Reilly in CA, he was putting out so mush soap and foam, that I asked him if he wasn't wasting it. He told me that it cost nothing to put out that much and the customers loved it. I immediately copied him and never regretted it.

That's the reality of this business, the real cost of supplies is a small percentage of the whole.

 

[blurdgman]

Waxman:
Yes!

 

[Sequoia]

Pricing

Waxman,

I think rph has a point regarding the demographic and economics of your customer base.

If you reduce the start time to an amount below what is reasonably required to wash a car, you will have three scenarios:

a) customer add more money when meter shuts off;
b) customer doesn't add money, for whatever reason, and drives off with a soapy vehicle; and,
c) customer decides to pay minimum, then work the foam brush for as long as they want regardless of the meter having exprired. Then, to rinse, they pay the minimum again. Maybe they will even bring their bucket.

Every time I see a soapy vehicle leave my wash I cringe as it is an obvious sign of a customer who will never come back. When I work at the wash, I frequently see customers run out of time, and if they start to re-enter a soapy vehicle after time has run out I give them free time to rinse off. Observing this was the basis for me earlier asking about doing pricing based on vehicle type, and I have sort-of incorporated that, to a small degree, in my new signage. http://www.sequoiacarwash.com

My startup time is 4 minutes. I believe, in my market, that going to less startup time than that will cause more problems than benefit, with more soapy vehicles leaving that will never return.

Your market may be different. That's the impression of my market.

 

[Waxman]

I think the minimum to really wash a vehicle w/soap, foamy brush, wax and rinse is 5 minutes. I'd be slightly above to that if I bumped up to a $3 start and kept time per coin/pulse same as it is.

 

[MEP001]

a) customer add more money when meter shuts off;
b) customer doesn't add money, for whatever reason, and drives off with a soapy vehicle; and,
c) customer decides to pay minimum, then work the foam brush for as long as they want regardless of the meter having exprired. Then, to rinse, they pay the minimum again. Maybe they will even bring their bucket.

A credit card system will eliminate all three of these problems with at least a third of your customers. There's at least one system that's affordable to install, has low fees and doesn't even need a phone line or internet service.

 

[Randy]

Sequoia being the only car wash within 35 miles or so I think you can charge just about whatever you want. 2 weeks ago we raised the price at one of our washes to $5 to start for 10 minutes. We also raised the vac’s to $1 for 3 minutes. No one has complained and revenue is up at that wash. The closest competition is at .25 to start. All he gets is “Plinkers” who drop in one quarter at a time, we very seldom ever see anyone there.

 

[Sequoia]

Pricing

Nearest wash is 12 miles-- a nice 3-bay SS with a drive thru automatic.

I went to $2/4 mins in late 2005, he's still at $1.75/4 mins. When my signs get finished I'll be at $3/4 mins and expect he will stay at $1.75/4 mins. Only a moron would drive 24 miles round trip to get the lower price.

I agree that doing CC acceptance in the bay is the next revenue step for me. I'll have to get serious about looking at those systems and choosing one.