Archived Blog Posts for May, 2014

If you own and operate your own auto detailing or mobile auto detailing business chances are you do not know what it costs to operate your business on a daily basis. You are providing a service which is very labor intense; you actually need to know what your hourly operating cost is. Once you know what it takes to operate your detailing business per hour you will be able to price your detailing jobs better and provide more accurate estimates for over sized vehicles.

Knowing what your hourly break-even cost is will enable you to determine what you want your profit margin to be per job. Detail King has prepared a simple but effective cost/profit model that will enable just about any auto detailing business owner determine what their hourly break-even costs are. You need to know if you are making or losing money on each job especially the super-sized vehicles like super stretch limousines, boats, big rigs, box trucks, etc.

Your expenses can be broken down by what’s known as fixed costs and variable costs.

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Fixed costs are costs that you have to pay every month and usually are the same “fixed” amount every month. Some examples could be rent on your building or your truck or van payment. Other examples of fixed costs could be a monthly loan payment for your start-up costs or your insurance premium for your business or company owned vehicle.

Variable costs are expenses that usually will fluctuate every month. Some typical variable costs would be utilities, auto detailing supplies, office supplies, advertising, marketing, fuel costs, labor, educational expenses, equipment maintenance and repairs, uniforms, trash pick-up, gray water disposal fees, and travel expense. The list will vary depending on the size of the business and the goals of its leader.

The formula to quickly compute your hourly operating cost is really quite easy. If you use an accounting software package like quick books for small businesses then you can easily total both fixed and variable costs. If you do not have use of accounting software you can still figure your over-head out easily.

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First, list all of your monthly fixed cost for a typical month and total them up. Next, list all your variable costs and take a 4 month average of those expenses. The 4 months to include for your tabulation should include 2 of your busiest months, 1 slow month and 1 medium busy month. Add all of the 4 month totals together and then divide by 4, this will give you your average monthly variable cost total.

Now add both totals together. Let’s say your fixed costs to operate your business every month total $2150 and your average monthly variable costs total $1075. Your total monthly overhead is $3225.

Now take the amount of days you work per month, let’s say 26 days per month. Divide $3225 by 26 and your average per day cost is: $124.03. Now take the average amount of hours you work per day, let’s say its 8 hours – then divide $124.03 by 8. Your hourly break-even cost is $15.50.

Now you need to determine what your hourly rate should be. Deciding what you actually want to make per hour will help you develop what you should charge for your standard detailing services and how much to estimate for over-sized vehicles. You should at least triple the value of your hourly break-even cost. So if your hourly break-even is $15.50 your “hourly service rate” would be $46.50. So you will me “making” $31.00 per hour! That beats flipping burgers for $7.75 per hour doesn’t it?

When developing a service menu and listing your services and their price ranges the prices should be based on the amount of time you think it will take you for each service times your hourly rate. So let’s say you provide a wash, clay, buff and wax service for regular size vehicles and you determine that it should take you about 2.5 – 3.0 hours. Your advertised price range for that vehicle would be $116.50. For rounding purposes you could advertise that service at $109.00 – $129.00 depending on condition of the vehicle (and or size). You would use this same formula for determining what to charge for all of your services.

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If you get a phone call whereas the customer is asking “how much to detail my RV” after you get all of the particulars including the length, color, surface type, etc. you would then determine how many hours this will take you. Let’s say it is 8 hours, and you know your hourly rate is $46.50 then you would quote your customer $372. For rounding and price range purposes; your quoted over the phone price range may be $375-$425. You cannot firm that up until you actually see the vehicle. But now you know how to price these over-sized vehicles while being fair with the customer and making $31 per hour or at least a $248 profit for a day’s work. Not bad!

Keep in mind if you have to bring along a helper your hourly rate goes up so you must factor his or her hourly wage plus at least 25% for employee taxes. But you should also be able to get the job done quicker; so you can be more productive and get more detail jobs completed per day.

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It is critical to understand that if your overhead is too high and you use the formula for your cost and profit model stated earlier you may price yourself out of the market. Keep your over-head manageable. A good example would be if just starting out as a mobile auto detailer and you need to buy a mobile rig, don’t purchase a Cadillac Escalade as your mobile rig, your monthly bank note payment will be outrageous! A better decision would be to consider purchasing a reliable pre owned work van for $2500 versus paying $50,000 for a pre- owned expensive luxury SUV.

If you work smart, and work hard, you will be able to buy a Caddy Escalade someday as your personal vehicle or whatever motivates you. Keep your over-head down, do great work and keep taking your business to the next level and you will Thrive!