Making the decision to add an in-bay automatic to your self-serve site

by John Holzinger

“How do you intend to grow your business over the next five years?”

All business owners are faced with this internal question as they do annual business  planning. It’s one of the reasons why you may be considering the addition of an automatic to your wash. It may be your first automatic or the addition of a second at your site, you may be considering conversion of a bay or the addition of a bay. The key question, “Should I or shouldn’t I,” remains the same. We will discuss many potential benefits of making this move but let’s start with national survey data.

National surveys run each year within the self-serve industry provide a very clear piece of information. The average automatic will generate revenues equal to approximately five self-service bays. If your current four-bay site generates $6,000 per month then you can reasonably forecast the potential revenue gain by adding an automatic at $7,500 per month! Now, of course, your site needs to grade out well for an automatic wash, and this type information can be provided by your equipment representative. Very proven site surveys are available to confirm the potential of your site by examining local demographics and many other criteria. I have, over the years, seen numbers considerably better than this but a conservative estimate is always the best for business planning.

You may be asking from where does this new revenue come? Will the automatic really add this revenue or does it just take away from my self-serve business? Think of it this way … “Suits, women, elderly and soccer moms.” These are the demographics that are not using your coin-operated bays for one reason or another. This is all potential new business not frequenting your site now! It’s more than 50 percent of the local population and that’s why revenue results for the automatic can easily be forecasted.

Since there are many potential benefits of the automatic let’s break down as many as we can so you can work with those that are closest to your objectives for your wash.

 “I need to generate steady cash flow year round.”

If you operate in a climate that has winter and you do not have an automatic it is safe to say you lose the majority of your revenues from November to April. Take one bay’s revenue from August and multiply by five. That’s what the automatic can be producing per month from November to April. Many cases are much higher than this but we will continue to be somewhat conservative. Once you have “trained” your customer base on the automatic, then remember, this becomes year-round revenue as a result of the markets we mentioned … suits, etc.

 “I need to maximize return on investment generated from this property.”

Many entrepreneurs are governed by the ROI model and have clearly defined targets. Let’s take a look at how adding an automatic accomplishes this goal. Using the above example the automatic generates gross revenue of $90,000 per year with an annual earnings before interest, taxes, depreciation and amortization (EBITDA) at 55 percent, which provides $49,500 of net profit. If you finance the unit at payments of $2,000 per month, your automatic provides a net/net of approximately $25,500 per year.

If your equipment investment is approximately $120,000 then your automatic will potentially generate an ROI of 21 percent! Once again, your equipment representative can assist in your calculations, revenue forecasting, cost analysis and provide other operators who are generating similar results.

I have interviewed many customers over the years that have generated better ROI results than what we have just calculated, and others who have not produced these results. In each case your due diligence, financial advice and results from other operators should certainly be used to assist your decision.

 “I want to sell my wash.”

Now this is one of my favorite discussions as I have found most operators attempt to throw me out of their office when I suggest they spend money to make money. So before you skip this article and decide I must be senile now that I have hit 63 … let’s examine.

Most business valuations that determine sales price are based on EBITDA. Many businesses have sold for four to five times EBITDA. Let’s use five times for our model.

The four-bay wash described earlier was generating $6,000 gross per month, which at 55 percent net means a net annual profit of $40,000. If we use five as multiplier then this four-bay business is valued at $200,000.

The same wash with the automatic added is generating $13,500 gross per month; at 55 percent profit this means an annual net of $89,000. If we use same five as multiplier then this business is valued at $445,000 … versus $200,000.

Would you spend $120,000 to generate $245,000? This is an interesting question that many operators should examine. I am always surprised by the initial response to this concept and yet the accounting many times defends the proposition.

I also have seen, based on annual surveys and customer interviews, that self-serve bay, vacuum, and all other revenue sources also show increased revenues as a result of the automatic being added to the site. These numbers will also contribute by a factor of four to five to the value of the business!

 “I need to grow market share and don’t want to reduce my pricing.”

This is another way of saying that I need to defeat my competition and steal customers. I know of no operator who wants to reduce their price per minute in their bays or lower the same for their vacs. The addition of an automatic provides increased value and convenience to your customers. You must also consider the fact that women and elderly make up more than 50 percent of your potential customer base. They will not use self-serve bays no matter what your pricing! They will use the automatic.

 “I want to prevent any new competition.”

This goal is easily clarified. Remember when you were researching a good site for your wash. Didn’t you study the weaknesses of any existing wash and then select a site with no close completion or recognized ways you could defeat existing competition if you built a better wash? Imagine what potential investors are thinking when your site does not offer the value and convenience of an automatic wash to over 50 percent of the potential customer base! Many operators have made their investment decisions for equipment with this concept as the main factor. They have taken a long-term approach to their business model and recognize the “protection” the automatic provides.

 “My wash is my retirement plan.”

I have had this conversation several times since my first month in the business with a Mark VII operator in Kentucky. All of the potential benefits we have discussed in this article all relate to enhancing, maintaining and protecting your retirement plan. Many operators have children, brothers, or other relatives who he has positioned to run the wash in his absence. (That’s another way of saying retirement.) The piece of mind generated by having the automatic as part of the wash offering at your site is another benefit you may want to consider.

My final thought is this. I currently travel most east coast states from Maine to Florida. I consistently find that the only operators generating success during these very difficult economic times have locations that combine coin-operated bays and automatics. They also have the site attended to provide service and support to “suits, women, elderly and soccer moms.”

 John Holzinger is manager of business development, Eastern United States, for Mark VII Equipment Inc. He has been with Mark VII since 1992 and has served past positions including director of operator/investor sales, director of petroleum sales and manager of national distribution. If you would like to contact Holzinger, call 720.837.4585 or e-mail jholzinger@markvii.net.