Car Wash Cash Flow: Analyzing Financial Performance
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In the world of commercial real estate investments, drive-through car washes are enjoying a surge in popularity. With their steady cash flow, low overhead costs, and high demand, car washes offer investors an attractive return on investment (ROI).
These are becoming popular with CRE investors, especially those who prefer hands-on management. Demand is increasing, which has led to predictions that the market will see 100% growth by the year 2030.
Drivers continue to abandon the traditional DIY car wash in favor of the convenience and speed of the drive-through model, fueling this growth.
Recent data found that the percentage of vehicle owners using car wash facilities rose from 50% in 1996 to 79% in 2021.
In this article, we'll take a close look at the financial basics of owning and operating a commercial drive-through car wash. First, we'll look at the income they generate, together with methods for increasing profits.
Prices and Revenue Averages
The price paid to use a car wash is affected by several factors. Customer price points are affected by the business' location, together with the type of wash that's defined as its basic product.
According to a recent business survey, the average price for a basic wash in 2023 was around $10.00. Customers who purchase extras such as wax applications, ceramic finishes, and tire degreasing may pay up to $25.00.
Therefore, a car wash that services an average of 100 vehicles a day can generate a daily revenue of $1,000 to $2,500, depending on the number of additional services sold. This adds up to monthly revenue of $30,000 to $75,000.
One way to increase a car wash's revenue is to encourage multiple visits through membership programs.
Encourage Repeat Washes With Memberships
In exchange for a monthly membership fee, a membership or customer loyalty program typically offers unlimited car wash visits. These are usually priced from $20 to $50.
When customers buy a membership and visit the car wash several times a month, they pay less than customers who pay per visit. Savings vary according to the membership fees.
These fees are usually withdrawn automatically from the member's bank account, which is a popular option in today's cashless society.
These programs are a win-win, as they build lasting loyalty between customers and the car wash.
- Customers enjoy driving a shiny vehicle more often for a lower outlay. In addition, more consumers are opting for cashless payments withdrawn from a bank account.
- Investors/owners earn a higher return on investment (ROI). Case studies have found that membership programs can provide up to 35% of a business's total revenue while improving its cash flow.
A savvy car wash owner can design a unique program that offers more than competing car wash businesses. These can help lure drivers away from nearby competitors.
A program unique to a certain business can be built by adding one or more of the following benefits:
- Additional “member-get-member” rewards;
- LImited-time perks and upgrades;
- Special pricing for waxes and other finishes;
- Members-only waiting room premiums;
- Complimentary upgrades on slower days; and
- Family memberships.
To determine if a car wash is delivering maximum ROI, one must compare monthly operating expenses against monthly income. Let's look at these now.
Managing Operating Expenses for Maximum Profits
While car washes generate substantial revenue, it's crucial to consider their primary operating expenses to determine their profitability and ROI.
These include:
- Water and electricity utility expenses;
- Staff salaries and benefits packages;
- Detergents, degreasers, and waxes required during the wash process; and
- Equipment maintenance, repair, and upgrades.
On average, utilities account for 20% to 25% of the total expenses. This is why almost all car washes maintain a water recycling system to control costs. These are stand-alone systems, so purchase prices vary widely.
Labor costs generally range from 15% to 20%, although this can be higher for car washes that offer hand-drying and/or detailing. Generally, businesses offering these services feature a more expensive wash “menu” than those with minimal personnel.
Purchasing detergents and related wash essentials, together with equipment maintenance, typically make up 10% to 15% of the expenses.
By efficiently managing these costs by choosing reliable suppliers, car wash owners can maximize their profits.
In addition, owners who build relationships with their suppliers' sales representatives are often rewarded with discounted pricing for wash and wax supplies. Their sales rep may also arrange special pricing for new products such as ceramic coatings.
After reviewing pricing, loyalty programs, and operating costs, an investor will be prepared to review a car wash business's ROI.
Strategies for a Shiny, Successful Return on Investment
The success of any CRE investment is dependent on its location, competition, technology, and marketing, including a drive-through car wash. Increasing ROI can be accomplished after determining a business' current profitability.
First, an investor will want to compare a car wash's current profitability to its competition. According to recent research, the average profit margin for a car wash ranges from 10-20% annually.
For example, a $1 million investment in a car wash generating an annual net profit of $150,000 would result in a 15% ROI. However, entrepreneurs have taken an initial investment in a single car wash and built multi-million dollar empires, such as Jason Johnson, CEO of the Quick Quack Car Wash chain.
Quick Quack first opened its doors in Sacramento, California, adding five more businesses within the area.
After the acquisition of a small car wash chain based in Texas, Jason, and his business partners eventually Quick Quacked their way to 230 locations in five states, raking in $170 million in revenue during 2023.
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