Are you looking to start your own car wash business? Car wash businesses can be very profitable businesses if run correctly.
If you are planning to open a car wash, you need to understand how you can turn your revenues into profits. In other words, you must know how much revenue you must generate to reach break-even and make profits.
According to the International Car Wash Association, there were 62,668 car wash in 2020 in the United States generating $15 billion turnover.
Despite being a very big industry in the US, it’s also a very competitive one with high upfront costs. If you’re wondering how much profits you can make with a car wash, you’d have to consider first all the costs you must pay for to start and run such a business. Let’s dive in!
What are the Different types of Car Wash?
Before jumping into average revenues and profits for car wash businesses in the US, let’s first look into what are the different types of car wash businesses. Indeed, all car wash aren’t the same, and a self-service car wash will not have the same cost structure (and profitability) vs. a manual hand car wash for example.
Self Service car wash
The self-service car wash is where the car owners drive into your carwash and opt to clean the vehicle rather than your staff. Depending on the facilities used, the average cost for a self-service car wash is between $7 and $15.
The Automated Carwash
The average cost for an automated car wash service is often lower compared to the average cost of full-service, manual hand, and touchless car wash types. The regular automated car wash price falls between $10 and $20 for a simple exterior wash.
The touchless carwash service compares to the automated one just that it uses a high-pressure jet and stronger detergents for washing the vehicle. Unlike the automatic car wash, the touchless car wash involves less chances of damaging the vehicle’s paint.
The average price for a touchless carwash is between $10 and $30.
Manual Hand Car Wash
The manual hand car wash costs much more than the automated and touchless carwash type. The average price for the hand car wash is between $20 and $30, depending on the locality and the vehicle type.
Compared to the drive-thru carwash, the manual carwash takes more time but protects the vehicle from scratches and swirl marks caused by the high-pressure carwash jet.
Full-Service Car Wash
The full-service car wash takes care of the entire vehicle, so the amount is way higher than the simple body wash. Services of the full-service car detailing may include engine wash, under wash, and interior detailing.
The average price for a full-service carwash is between $150 and $200.
What is the average turnover for a car wash?
Going by the International Car Wash Association’s report, the average annual turnover for a car wash service was approximately $239,357 in 2020.
The overall turnover of your car wash service will depend on various factors such as:
- Size and type of car wash service you are offering (In-Bay Automatic / Roll-over, Self-Service, or Conveyor)
- Frequency of customers, etc.
According to BrandonGaille, In-Bay Automatic car wash service washing approximately 20,000 cars annually will have average annual revenue of approximately $139,000 with an annual take-home income of $86,531 for the owner.
Unfortunately, these numbers are mere estimates. The actual annual turnover and your annual take-home salary will be heavily dependent on the type of car wash facility you have, your scale of your operations, the amount you charge for per wash, etc.
What is the average profit margin for a car wash?
Profit margin for a car wash varies significantly based on factors like: location, type of car wash (self-service vs. automated for example), and pricing.
As per our own analysis, car wash businesses can reach profit margins of about 10-20% on average.
How much does it cost to run a car wash?
There are various recurring costs of running a car wash and they include:
- COGS (7-10% sales): water, payment fees and cleaning supplies.
- Salaries (30-35%). Salaries vary depending on the type of car wash you offer (full service will require more manpower than self-service car wash businesses for example)
- Rent (15-25%) depending on the location and surface. Prime locations will likely spend 25% or more whilst tier 2 locations spend 15% or less
- Marketing (5%): mostly offline marketing (e.g. partnerships, billboards, etc.)
- Operations and other (10-15%): janitorial services, maintenance, bookkeeping, etc.
- Capex: these are capital investments incurred at the start of operations (e.g. refurbishment of the building, equipment, etc.). Although significant, the amount varies a lot depending on the type of car wash (see more on startup costs at the beginning of this article).
In general, it costs $20,000 per month to operate a small car wash business with 2 attendants. Learn more about how much it costs to run a car wash in our article here.
How to forecast profits for a car wash?
In order to calculate profits for a car wash, you must first forecast revenues and expenses.
Profits = Revenue – Expenses
Forecasting revenue for a car wash
Revenue can easily be obtained by multiplying the number of customers by the average order value (AOV).
Revenue = Customers x Average Order Value
For example, if you have 100 customers in a day spending on average $10 for self-service car wash, monthly revenue is about $30,000.
Forecasting expenses for a car wash
There are 2 types of expenses for a car wash:
- Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
- Fixed expenses: most salaries, rent, marketing and all the other operating costs listed above
Calculating profits for a car wash
When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.
In order to get to EBITDA, we use the following formula:
EBITDA = Revenue – COGS – Operating Expenses
To make it clearer, we’ve included below the profit-and-loss of a car wash (from our financial model template for car wash businesses).
Whilst gross margin (after variable costs) is very high (~90%) as explained earlier, EBITDA margin can go up to 20-25% depending on the car wash, and net profit margin up to 10-20% for the most profitable businesses.
What is the break-even point for a car wash?
Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.
Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.
Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs. As we just saw, car wash typically have very high gross margins (~90%). That’s because their variable costs are limited (card payment fees, water supply and other cleaning supplies).
The break-even point can easily be obtained by using the following formula:
Break-even point = Fixed costs / Gross margin
Using the same example earlier, let’s assume your car wash generates $30,000 in turnover per month and has the following cost structure:
|Operating Costs||Variable vs. fixed||Amount (per month)|
|Staff salaries||Fixed cost||$12,000|
|Admin, bookkeeping & other||Fixed cost||$2,000|
The break-even point would then be:
Break-even point = Fixed costs / Gross margin %
= $22,000 / 90% = $24,400
In other words, you need to make at least $24,400 in sales to turn a profit. Assuming a customer spends $10 on average, your break-even is 2,440 customers per month, or 81 per day (assuming 7/7). In other words, you make profits once your car wash has at least 81 customers per day.
How to increase profits for a car wash?
There are various strategies that you can use to increase the profits of your car wash, and they include:
- Upgrade equipment: Upgraded equipment are more efficient and have lower maintenance cost, which eventually increases profits
- Optimize payroll: Hire people on commission model or on flexible hourly-pay contracts to reduce fixed monthly costs
- Diversify service: Include additional services like scratch removal, basic servicing, car accessories, etc.
- Membership plans: Increase customer retention by using membership plans. Memberships plans also increase customer lifetime value
- Go green: Switch to green car wash techniques to lower utility bills
- Reusable products: Use reusable supplies such as microfiber cloth instead of disposable ones
To learn about the strategies in detail, read our article here.