The Business Of

Cars | Mister Car Wash | How Do They Make Money?

Morning All!

So yesterday, we started Part 3 of The Business Of Cars. And we set the scene for the week, looking at how popular car washing is in America, how Mister Car Wash (MCW) fits into the overall car wash industry, and how the company differentiates itself with its subscription model!

Today, we’re going to talk a lot more about subscriptions and break down how exactly MCW makes its money! The chart below shows us how the car wash giant’s $877m revenue in 2022 was made…

… and we can see straight away that not all of the company’s revenue comes from subscriptions! Whilst the majority of people who go to Mister Car Wash’s locations have got subscriptions - which allow them to get unlimited car washes per month. MCW also allow car owners to go and wash their cars as a one-off, without needing a subscription.

Now, for most of today, we’re going to focus on the subscription revenues. Because as we’ll see - this is Mister Car Wash’s main priority. But we will touch on the non-subscription revenues at the end. Alright, let’s crack on! And we’re going to split MCW’s subscription revenues into the 2 drivers we used for The Business Of Netflix: (i) the number of subscribers, and (ii) the average revenue/subscriber.

If It’s Good Enough For Microsoft… It’s Good Enough For Mister Car Wash!

Okay so, let’s start with subscribers. Yesterday we saw that Mister Car Wash had 436 locations at the end of 2022. Up from just 60 back in 2010. And we noted that the primary way MCW grew that number was by acquiring other car washes. Similar to what we saw with AutoNation buying car dealerships! Now, more recently, the company has actually decided to build out their own car washes - not acquire them - and we’ll talk more about this on Thursday.

But I just want to comment on how quick that expansion is. 60 to 436 locations in 12 years is a quite extraordinary growth of ~17% per year! That is rapid expansion! And this location growth has been a huge driver of their overall revenue growth - which will be clear at the end of today!

Okay, so 436 car washes. That’s great. But there’s no point having 436 locations if there’s no customers at these locations right?! So, the more important question is - how many customers (subscription members) do Mister Car Wash have on average at each location?

Well, the answer is ~4,300! Which is pretty incredible when you think about it. An average of ~4,300 people subscribe to EACH of Mister Car Wash’s locations. And the chart below shows us that this subscriber/location figure has seen some strong growth over the years. From ~600 members/location in 2010 to over 7x that now!

But here’s a follow up question - why? Why are locations seeing more members? Well, the answer is a couple of things. One, people have become more aware of the Mister Car Wash brand. The company has invested in advertising over the years (as we’ll see tomorrow). And in addition, subscription members who’ve like their experience will have recommended Mister Car Wash to their family and friends - AKA word of mouth marketing.

Now, this whole ‘experience’ part we’ll save for Thursday. Because Mister Car Wash actually invest a lot of their cash into making their car wash experience pretty unique. But just a note on word of mouth marketing - this is often thought of as one of the most important form of marketings. And it’s what most companies crave for! Check out this video of Jeff Bezos talking about the power of word of mouth marketing!

Now, the second reason why locations are seeing more members, is because of conversion. What do I mean? Well, you know the people who aren’t subscribed to Mister Car Wash and who go to a MCW location just to get a one-off car wash?

Well, over time, a lot of these customers have been converted into subscription members! We saw earlier that ~68% of Mister Car Wash’s revenue came from subscription members. But 12 years ago, that figure was only 15%! Most customers used to just come to Mister Car Wash as a one-off!

And the reason for this rise in subscriptions is because Mister Car Wash have been super keen to get people onto their subscription plan. But question - why have MCW been so keen on converting one-off visitors to subscribers? Well, the answer is because subscription members bring in more consistent, recurring revenue. Every month, MCW makes a regular income from these customers. It doesn’t matter how many times they’ve actually washed their car! As opposed to the non-subscriber customers where MCW only get paid when they actually wash their car.

And by the way - this isn’t just Mister Car Wash. Some of the largest companies in the world have switched their business models to the more recurring, subscription model! To learn how Microsoft, Gillette, and Adobe all pivoted to the subscription model, give this easy to digest article a read!

Okay so, let’s summarise this first part on subscribers! We’ve seen Mister Car Wash have 436 locations. They have ~4,300 subscription members per location. So how many total subscription members is that? Well, it’s a mighty impressive ~1.9 million subscribers (436 x 4,300)!

Wash Your Car More Than 1x A Month? Get A Subscription!

Alrighty, so we’ve looked at the first part of the revenue equation - the number of subscribers Mister Car Wash has. Now, let’s look at how much revenue MCW makes from each of their subscribers!

So, first question - how much does a subscription to Mister Car Wash cost? Well, according to the latest data i could find, there’s actually 2 different subscription packages available to customers. The basic, standard option starts at $19.99/month. Whilst the more premium level at $29.99 includes a few extras like having your tires shined and your underbody washed. Fancy!

Now, MCW don’t give us an exact figure for how much their average subscriber pays a month. But by doing some rough maths, we can estimate that the average subscriber pays ~$26.17/month. Which works out to ~$314/year. So, to work out how much revenue one of Mister Car Wash’s locations made in 2022, we just need to make a simple calculation. What’s ~4,300 members paying $314/year? ~$1.3 million!

And how does that compare vs a normal, non-subscription car wash? Well, it’s very good! Below, we can see that the average car wash across America makes ~$594k revenue a year. So Mister Car Wash’s ~$1.3 million is a pretty good effort! Especially when you add on the non-subscriber car wash customers too!

But here’s a question - why would I (a Mister Car Wash customer) choose to get a subscription vs opting for pay as I go? Surely if I just went to get my car washed once a month, it would be cheaper to get a subscription, right? And yes, that is absolutely right! The price for a non-subscriber to get a one-off car wash at one of Mister Car Wash’s locations is ~$10. So, if I only went to get my car washed once a month, it would be cheaper to not get the subscription.

I would pay ~$10/month vs at least $19.99/month on subscription. HOWEVER, what if I went more than once a month? Let's say I like getting my car washed twice a month. Then, it would cost me ~$20/month without a subscription ($10 x 2). And $19.99/month on subscription. So, in this scenario, it’s basically the same price! But with a subscription, I get much more value. I can get unlimited washes for the same price as 2 washes without a subscription!

So, the big question is - how often do Mister Car Wash subscribers actually get their car washed? Because if these subscribers get their car washed less than 2 times a month, they might find better value unsubscribing and paying as they go. Which would be bad news for MCW - as they’d lose some recurring revenue.

However, thankfully this isn’t an issue for Mister Car Wash! Because, as we mentioned yesterday, Americans - and MCW subscribers in particular - absolutely LOVE having their cars washed. Whilst the average American washes their car ~13x a year. The average MCW subscriber washes their car an incredible ~30x a year! So the subscription model is definitely better value for them! As we’ll see on Thursday though, it’s not just the price benefit that makes people become subscribers… it’s the superior experience! More on Thursday!

Can Mister Car Wash Become As Big As Planet Fitness?

Alrighty, let’s wrap up! The equation below summaries the 2 revenue drivers we’ve covered today. Mister Car Wash have ~1.9 million subscribers. Each of those subscribers pays ~$314/year on average. Which in total comes to ~$596 million in revenue!

But hold on - at the start of today, we said that the company made $877 million in revenue. So what’s missing here? Well, what’s missing is the revenue Mister Car Wash make from their non-subscriber customers! These non-subscriber customers brought in a very healthy ~$281 million in revenue from their one-off car washes. And adding $596m + $281m gives us the overall $877 million figure!

Now, as we can see from the chart below, this total revenue figure for Mister Car Wash has grown an impressive ~18% CAGR since 2010! From ~$124m in 2010 to $877m in 2022. And this ~18% growth really isn’t something to gloss over. Remember, Netflix grew their revenues at ~24% CAGR from 2014-2022. And Nvidia grew their revenues at ~23% from 2014-2022. So ~18% - well done Mister Car Wash!

Okay, final point! The table below shows us how Mister Car Wash’s subscriber base stacks up vs other subscription businesses. Obviously, it’s probably not fair to compare MCW’s numbers with the largest subscription businesses in the world, e.g. Netflix (~247m subscribers), Spotify (~226m), Amazon Prime (~200m)!

But if we look at the other names on the table, it makes for interesting reading. The biggest dating app company in the world, Match Group (owns Tinder and Hinge) has ~16m paying subscribers. The biggest gym group, Planet Fitness, has ~14m subscribers. And the New York Times has ~10m online paying subscribers. Can Mister Car Wash one day reach those kind of figures? They’ll definitely be hoping so!

13th Feb 2024

Nigel Jacob CFA