Profitability?
06/09/2010
Understanding the business horizon
by Ken Dollhopf
Of course the goal is that every quarter, month, week, day and hour should be profitable. The fact that there is a synthetic calendar day as a threshold for the year is just that synthetic. What is real is the week’s payroll nut, the monthly utilities and the balance in your checking account. In other words, “cash flow is king” to most car wash businesses.
During the recent hard recession or a severe stretch of bad wash weather, top operators quickly move their main metrics to cash conservation. This means extreme focus on cost control and, for most businesses, a much shorter business horizon. During normal wash volume stretches an owner may typically make decisions on a horizon of three years or so. During the recession, this was often shortened to four to six months. The difference is profound—a short horizon means no investment unless it will deliver a positive cash flow within that period.
What’s Your Status
What is the current status of your business horizon? This is an important metric to keep in front of you when you are running the business as it is the main “filter” that all of your business decisions will be checked against. Depending on your type of company it is also important that key decision makers or managers also know where the horizon is currently set. Large problems can develop if partners are “out of sync” on the business horizon.
Why such a discussion about business horizons when the topic is profitability? The point that I am trying to make is that a single calendar date for the year has no bearing on your business decisions. What does, and should be important is the business horizon that you are managing within. This is important because it is the timeframe that should be used for determining your current profitability metric. If a car wash is operating in a two month horizon and the business accountant is providing quarterly statements, this is not good. Match your profitability monitoring frequency to the business horizon. This will give you real numbers for revenue and expenses that you can manage your business with.
Understanding Your Goal
Will just understanding your horizon make you more profitable? No. But operating decisions made in concert with your correct horizon will be much more effective. If your horizon is three months, a local marketing program that includes billboards is not wise. You need quicker programs that must be focused on immediate consumer penetration. This may be a holiday special, or April Wednesday specials. If your horizon were two years, an investment in an RFID loyalty program would be the path you should explore.
On the cost side, the horizon metric is even stronger. A two month business horizon probably means letting labor go and much longer work hours for you if you are a hands-on operator. A one year horizon may lead to operating decisions that involve quick equipment repairs and workarounds to keep things running.
The challenge is to be honest about where your business horizon truly is. The positive thing is that this is something that most car wash operators in the U.S. are good at … good common sense.
Basic Guidelines
As a basic set of guidelines based on business horizons this chart gives some idea of how it could be used in your business:
| Business Horizon | Main Issues | Focus |
| 1-3 months | Cash flow is marginal or negative. Decisions must be based on short term cash gains and reducing immediate costs. | Revenue: The main item is to focus on immediate cash revenue sources. Metrics must be improved for revenue/car and daily cash sales. Face-to-face customer interaction is important with a focus on selling more services. Offer discounts and coupons on a case-by-case basis. No large-scale discounting. Get personal and hands-on with sales.
Costs: Reduce, reduce and reduce. Daily operation tuning based on cleaning conditions. If it is an easy-to-clean day, then dial chemicals back or speed conveyor up. Dramatically cut labor costs. This often means more direct hands-on work. Perform services that are now paid for yourself, if possible. No long-term spending and treat all expenses as a cash sale. Offer discount to customer face-to-face to pay with cash versus credit card. Metrics: Look at your cash in and out EVERY DAY! |
| 6-12 months | Cash flow is marginal or negative. Profitability is very low. Decisions must be based on midterm cash gains and reducing all costs. | Revenue: The main item is to focus on revenue sources. Metrics must be improved for revenue/car and daily sales. Face-to-face customer interaction is important with a focus on selling more services. Use a simple incentive program for greeters and selling agents to improve revenue per vehicle. Market the wash using easy to monitor and change tools like Google Local and AdWords. Push wash booklets and multiple wash packages. No large-scale discounting.
Costs: Weekly operation tuning based on cleaning conditions. As cleaning conditions change, make sure that the equipment and chemicals are immediately adjusted to minimize expenses. Do not add labor unless really needed. Focus on good employees with small incentives to perform well. Make sure equipment is operating efficiently. No long-term spending and treat expenses as “will this help me this year”. Metrics: Closely look at your cash in and out weekly. Focus on costs per vehicle and changes week by week. Key performance indicator is returning customers. |
| 2-3 years | Business is fairly strong. Focus should be on market share growth and customer loyalty. Development of a longer term site upgrading program to keep separation from the competition. | Revenue: The main item is to focus on market share. Metrics must clearly identify competition wash volumes and revenue. Strong concentration on quality and consumer experience. Use a complete incentive program for managers, greeters and selling agents to improve revenue per vehicle. Marketing should be focused on brand development with the goal of consumer recognition and quality.
Costs: Multi-level cost accounting with daily operations focused on daily and weekly numbers while accounting is reviewing monthly and exception reporting. Product differentiation through services, facilities or location. Make equipment decisions based on 7-year total cost of ownership and feature set. Metrics: Closely monitor market share weekly. Focus on costs per vehicle and changes week by week. Key performance indicator is consumer loyalty. |
Ken Dollhopf is the vice president of marketing and new business development for PDQ. Ken can be reached at Ken.Dollhopf@pdqinc.com. For more information visit www.pdq.com.
