There are Only 2 Business Models (Part 2 of 2)
In part one of this series, we looked at the pros and cons of the “High-Volume, Low-Margin” business model. I also made the statement that there are only two models and that standing in the middle of the road long enough will get you run over. That would be a third model and we will look at it for a brief moment first. Please remember that there are always exceptions to the norm.
Middle of the Road
When you operate in the middle of these two primary business models, you never really make enough money to save some for a rainy day, and you also do not have a large enough customer base to survive tough times. Let’s take a look:
|
Annual Volume |
Customer Base |
Avg Ticket |
Annual Revenue |
|||
|
110,000 |
31,429 |
$6.50 |
$715,000.00 |
This car wash probably made a profit that year, however, let’s see what would happen if they lost 20% of that volume.
|
Annual Volume |
Customer Base |
Avg Ticket |
Annual Revenue |
|||
|
88,000 |
25,143 |
$6.50 |
$572,000.00 |
This operator might have broken even for the year, or possibly even lost a little money. Customers in this model tend to move up in good times and retreat to lower cost services or reduce frequency when times are hard.
Low Volume
The second primary model is the “Low Volume, High Margin.” In this model, you wash fewer vehicles but at a higher average ticket. Some benefits of washing fewer cars include fewer chances for damage claims, requires less labor, less repair and maintenance on equipment and, as a general rule, customers who pay more for services are loyal and are not as affected by a bad economy. Let’s take a look at what low volume means to the owner:
|
Annual Volume |
Customer Base |
Avg Ticket |
Annual Revenue |
|||
|
85,000 |
24,286 |
$9.00 |
$765,000.00 |
This operator has worked less, spent less, had fewer employees, and on top of all that, made a nice profit for the year. Now what happens when we lose 20% again:
|
Annual Volume |
Customer Base |
Avg Ticket |
Annual Revenue |
|||
|
68,000 |
19,429 |
$9.00 |
$612,000.00 |
|||
Again, this operator was able to spend less money, work less, and at worst, still broke even or maybe even made a little money along the way. So, why don’t we all adopt this business model? It may not be all that it appears to be.
Customers who pay more tend to be more fickle, expect more, and can afford to pay a little more. With a low overall customer base, you cannot afford to under deliver in this environment. Also, it is a smaller segment of the population, meaning your overall market potential is smaller. Competition can enter the market and take enough customers to make business extremely difficult. It’s also extremely hard to maintain a high ticket average. This is where you have to decide which model fits your personality best?
When volume begins to drop and you see your revenue going down, it is logical to try and find a way to get more customers. The first logical step is to coupon or discount, which leads to a lower ticket, to even lower revenue, and to greater struggles with the cycle starting all over again. Neither model is right or wrong- both have proven to be very effective ways of doing business. So what does it come down to? It comes down to you, and who you are as the business owner. Some personalities lend themselves to fast pace, low connection, high volume operations. These operators love coming to the lot and seeing long lines and employees moving. Others thrive on slower pace, more connection, low volume operations. They love pulling on the lot and greeting customers by name and perfection is their game. Find out who you are and then go be the best at that model.
