September 13, 2022
According to Detail Pro POS there are over 60,000 car wash businesses in the US alone. Car wash businesses can range from a passive model with no employees to a full service premium car wash model. My goal in this article is to help you compare the different types of car wash businesses, the startup costs, revenue and profit potential of each model so that you can determine what type of car wash business you should start.
The answer will depend on your goals. Are you looking for the most profitable car wash model, the highest return on investment, the safest bet, the most passive model or something else entirely?
Each model will have its own pros and cons. Throughout this article I will be using our Car Wash Financial Projection Template as a tool to help analyze and compare the different car wash models.
Throughout the article I hope to answer the following questions:
- What are the different car wash business models?
- How much does it cost to start a car wash business?
- How to buy a car wash business?
- How much revenue can a car wash generate?
- How will seasonality impact your car wash business?
- What are the typical cost of goods sold for a car wash business?
- What are the operating expenses for a cash wash?
- How much profit can a car wash owner make?
- What type of car wash model is most profitable?
With that, let’s dive in!
What are the different car wash business models?
There are 3 primary car wash business models:
- Self-serve Bay Car Wash
- In-Bay Automatic Car Wash
- Tunnel Car Wash
Now it is possible to mix and match these 3 business models as well as add additional services like interior cleaning, detailing, etc, but for the sake of simplicity we are going to focus on these 3 models.
What is a Self-serve Bay Car Wash?
A self-serve bay car wash is simply an open bay that allows you to pull in your vehicle, pay for the type of wash or amount of time you need in the bay, and then provides equipment like a sprayer, brush and vacuum to allow you to wash your car on your own. Typically, this is the cheapest car wash option for a customer. This model will also have the lowest startup costs and operating costs when compared to Automatic or Tunnel based car washes.
A self-serve car wash can be a truly passive business as you shouldn’t need any employees and the equipment is designed to operate on its own.
Although a Self-serve bay car wash is probably the lowest start cost and the most passive business model, it is likely the least popular car wash model with consumers. Your upside will be lower, but you will also have less downside risk with this model.
What is an In-Bay Automatic Car Wash?
An In-Bay Automatic (IBA) car wash allows you to pull in a vehicle, park, and the equipment will move around the vehicle to wash the car. The upside is that the customer can stay in the car and won’t have to wash the vehicle manually. The automatic car wash will also be faster for the customer. Often you can see an in-bay automatic car wash as part of a gas station or oil change operation, but it could also be operated as a stand alone car wash business.
This type of model can also be a passive business with little to no employees.
The startup cost will be greater per bay than a self-serve model, but the revenue opportunity will also likely be higher because you can charge a higher rate per wash for an automatic wash compared to a manual wash.
What is a Tunnel Car Wash?
A tunnel car wash allows a driver to pull onto a track that will then move the vehicle through a tunnel with equipment washing and drying the car along the way. A tunnel car wash will have the highest startup costs of the three car wash models, but it will also likely have the highest capacity and revenue potential.
Let’s look at the differences in startup costs between the different models.
How much does it cost to start a car wash business?
The cost to start a car wash can range from $50,000 to $7 million. The massive range is related to the type of car wash model you start along with the variability in the cost of land for the car wash. Let’s look at each model individually.
Self-serve Car Wash Startup Costs
For a self-service car wash you can expect $15,000 to $25,000 in equipment per bay, $25,000 for the simplest of building structures, plus the cost of land according to ISS.
In-bay Automatic Car Wash Startup Costs
For an in-bay automatic car wash you are looking at a minimum of $250,000 per bay according to ISS. They estimate roughly $150,000 in equipment plus a $100,000 building as a minimum startup cost.
Tunnel Car Wash Startup Costs
The startup costs for a tunnel car wash can range from $2.5 million to $7 million according to Car Wash Advisory. Those startup costs can be broken down into the following categories that we have built into our car wash pro forma template:
- Water Treatment System
- Tunnel Equipment
- Site Prep
- Vacuum System
- HVAC and Plumbing
These startup expenses can be entered into the fixed asset section of our pro forma as seen below:
Now that we have a rough idea of the startup costs associated with the varying car wash models, you might be thinking about buying a car wash instead of starting from scratch.
How to Buy a Car Wash
Now that we have taken a look at what it would take to start a new car wash business, you might want to consider buying a car wash instead. There are a few key questions related to buying a car wash that I want to hit on:
- Where can I find car wash businesses for sale?
- How much does it cost to buy a car wash?
- How to get funding to buy a car wash?
Let’s take a closer look.
Where to Buy a Car Wash Business?
Fortunately there are many car wash businesses available for sale and easily accessible. BizBuySell lists hundreds of car wash businesses available for sale. As you can see from the screenshot below they have different types of wash businesses available including self wash, automatic tunnel washes, semi truck wash businesses and everything in between.
How Much Will it Cost to Buy a Car Wash?
Car wash businesses can cost between $40,000 and $11 million to purchase.
I found this huge range of pricing simply by sorting the car wash businesses available for sale on BizBuySell by price. The lowest priced single car wash was a 3 bay self service car wash priced at $40,000 up to a single unit tunnel car wash built 3 years ago that was listed at $11 million.
Since the range in pricing can vary so dramatically, what we really want to know is how are car wash prices typically determined?
How are Car Washes Valued?
Car washes are typically valued at 4.6 to 6x EBITDA according to Carwash.com
How to Fund a Car Wash Acquisition?
Once you find a car wash that you are interested in, you will need to find a way to finance the acquisition. My favorite financing option is an SBA loan. The SBA 7a loan program will allow you to borrow up to $5 million to acquire a carwash business. You should expect to invest 10% of the purchase price into the deal from your own savings or from outside investors that you are bringing into the deal.
We have been highlighting our car wash specific financial model so far, but if you are acquiring an existing car wash, our acquisition financial projection spreadsheet will serve you well. You can enter historical revenue and expenses and use that as a base to forecast your financials from. This model will give you everything you need in order to apply for an SBA loan.
Once you land on starting new or buying an existing car wash, the next thing you will want to know is how much can my car wash generate in sales.
How much revenue can a car wash generate?
Revenue between the 3 different models of car washes can vary dramatically. We like to find industry experts that provide revenue forecasts, but we also like to build out revenue assumptions from the ground up as well in order to provide a reality check. First, let’s look at some industry expert revenue forecasts for each of the three car wash models:
How much revenue can a self serve car wash generate?
According to Dultmeier it takes a population of 1,000 to 1,500 to support a single bay self serve car wash. They estimate that a self-serve car wash can generate roughly $1,000 to $1,500 per month in revenue per bay. According to Grandview Research, the US car wash industry generates $14.21 billion in revenue annually. With a US population of 332 million, this means the average American spends roughly $43 per year on car washes. Based on that per capita spending, the Dultmeier estimate of roughly a dollar per month per capita for a self service car wash seems to be reasonable.
How much revenue can an in-bay automatic car wash generate?
According to JBS Industries the average in-bay automatic car wash generates roughly $139,000 per year.
An in-bay automatic car wash can generate more revenue than a self service car wash because it can charge a higher rate per wash and will take less time per wash which means the revenue capacity is much higher.
How much revenue can a tunnel car wash generate?
JBS Industries estimates that a tunnel car wash generates $685,000 annually.
The average price per car wash for a tunnel car wash is roughly $15 which allows a tunnel car wash to generate a much higher annual revenue.
Many modern tunnel car washes offer an unlimited wash membership plan. Our car wash financial model allows you to enter in a conversion rate of active customers that you can convert into unlimited wash members as well as distribute between different membership levels if you have more than one membership level offering.
How will seasonality impact your car wash business?
Depending on the location of your car wash seasonality can be a big factor on both revenue and cash flow for your car wash. The average American washes their car 13 times per year; however, this can fluctuate throughout the year. People tend to wash their cars more often during the winter months. In fact, you can see a clear trend using Google Search Trends and looking for “Car wash near me” search volume in a city like Chicago. There are spikes in search volume during the winter months and specifically around snow and ice events when cars are caked with salt and chemicals from the road treatment.
Based on this search data you can see that search volumes are nearly double or triple the average volume during the busiest months during the winter. Our car wash financial model allows you to enter in seasonality adjustments so that you can see the impact on your cash flow projections. As you can see below, you can enter in the average number of car washes per month per active customer during each month of the year.
In this monthly sales forecast chart you can easily visualize the impact of seasonality on your sales depending on your location.
Next, let’s dive into gross profit for a car wash business.
What is the typical gross profit for a car wash business?
According to Bizfluent the average gross profit for a self service car wash is roughly 70%.
The gross profit can vary depending on the model of car wash you are operating. For both a self serve and in-bay automatic car wash you can expect similar gross profit margins because your only cost of goods sold is the water, utilities, and soap associated with each wash, there is no labor cost component.
Typical Gross Profit for a Tunnel Car Wash
With a tunnel car wash you will need to consider the cost of labor per car wash in order to estimate your actual gross profit.
One way to approach this is to estimate the number of washes per hour you expect in a day and then the average labor cost you expect to pay your labor per day. Then divide your total labor cost by the number of washes you expect to have to come up with a cost of labor per wash.
What are the operating expenses for a cash wash?
Beyond your cost of goods sold you will also have some operating costs associated with your car wash. This will vary depending on your model, but each model will likely have the following operating costs:
- Payment processing fees
- Miscellaneous expenses
If you operate a tunnel car wash, you will have additional labor costs with salaried positions like a general manager.
What type of car wash model is most profitable?
It is clear that a tunnel car wash model is going to be the most profitable car wash business model from an absolute dollar amount level, but our car wash financial model will help you actually calculate your profit margin as a percentage of sales and your return on investment once you enter in all of your specific assumptions.
Below you can see an example output of key ratios that will be calculated for you once you input your specific car wash assumptions into the financial model.
According to a report by Auto Laundry News a full service tunnel car wash can generate between $500,000 and $900,000 in annual profits on the high end. On the low end we estimate that a single self service car wash bay can generate $18,000 in annual revenue with a 70% profit margin which means that a small self service car wash should be able to generate $12,600 in annual profit.
As you look to secure a loan or investment for your startup car wash you are probably going to need to produce a set of financial projections. We hope you will give our template a try and contact us if you have any questions along the way. Best of luck!