Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Car Wash Hit 22x EBITDA with Unlimited Wash Memberships
Transcript
- Lucas: Luna, I want to talk about a sale that broke the mold for a business most of us wouldn't think of as high-multiple material: a three-location car wash chain in the Midwest. It sold earlier this year for 22 times EBITDA. Luna: 22 times? That's almost double what a typical car wash goes for. Most Main Street businesses in that category land around 10 to 12 times. Lucas: Right. And the difference wasn't some fancy new tunnel technology or a prime real estate location. It was a membership program. The owners had converted roughly 68 percent of their customers onto an unlimited monthly wash plan at $29.99 a month. Luna: So basically they turned a transactional business — you drive in, you pay, you wash — into a subscription model. That recurring revenue stream made the business look more like a software company than a car wash. Lucas: Exactly. The buyers — a regional private equity group — told the broker they were willing to pay a premium because the membership base gave them visibility into future cash flows. They could model churn, they could forecast revenue nine months out, and they saw an opportunity to roll out the same model at their other portfolio companies. Luna: Walk me through the numbers. How did 68 percent membership penetration lead to 22 times EBITDA? What was the actual EBITDA of the business? Lucas: So the business was generating about $1.4 million in EBITDA annually before the membership push. After two years of aggressively selling the unlimited plan, EBITDA climbed to $2.1 million. The membership revenue was higher margin because those customers were prepaying and showing up more frequently — but the incremental cost per additional wash was near zero once the equipment was in place. Luna: So the buyers paid roughly $46 million for a car wash chain. That's not exactly spare change. Lucas: And the owners walked away with a check that size largely because they understood a simple truth: buyers pay for predictability, not potential. A car wash that does $3 million in revenue one summer and $1.5 million the next winter is a headache to underwrite. A car wash that has 4,200 people paying $29.99 every single month regardless of weather — that's an annuity. Luna: Let's talk about how they actually built the membership base. Because I imagine not every customer was eager to sign up for a monthly subscription to wash their car. Lucas: They started with a simple offer: first month free, cancel anytime. They also installed a dedicated lane for members — so if you had the unlimited plan, you skipped the line. That created a visible status symbol. Once the regular customers saw members zipping past, the conversion rate jumped. Luna: That's smart behavioral economics. Loss aversion and social proof in one move. I also wonder about the pricing. $29.99 feels low for unlimited washes. How did they make the math work? Lucas: It worked because the average member used the wash about 2.8 times per month. So the per-wash cost to the customer was roughly $10.70 — still cheaper than a single wash at the drive-up price of $15. The business's cost per wash was around $3.50 for water, chemicals, and electricity. So each member generated about $7.20 in gross profit per visit, times 2.8 visits, times 4,200 members. That's about $84,000 a month in gross profit from members alone. Luna: And that's before you even count the non-members who still pay per wash. The membership becomes the anchor, stabilizes revenue, and the transaction customers are almost pure profit on top. Lucas: Exactly. The non-members actually became more profitable too, because the owners stopped discounting. They realized that if someone wasn't willing to join the membership, they'd still pay full price when they needed a wash. So they eliminated all coupons and loyalty punch cards. The average ticket for non-members went up by about 22 percent. Luna: That's a counterintuitive move — removing discounts — but it makes sense when you've created an attractive membership tier. The question I always have with these models is: what about the operational risk? If too many people sign up, you could overwhelm your capacity. Lucas: That's a real risk, and this business actually hit that ceiling in year two. The line for members started backing up, wait times hit 15 minutes during peak hours, and churn started creeping up. Their response was to add a third bay at the busiest location and to install a license-plate recognition system that let them track usage patterns. They discovered that 70 percent of members washed during a four-hour window on weekends. So they introduced off-peak pricing — members who washed on weekdays got a free tire shine or interior wipe-down. Luna: So they smoothed demand without raising prices. That's a lot of operational sophistication for a local car wash. Lucas: The broker said that when the buyers saw the usage data and the off-peak incentives, they stopped asking questions about capacity risk. They saw it as a managed system, not a runaway liability. And that's when the multiple went from maybe 15 times to 22 times. Luna: I think there's a broader lesson here for any Main Street business owner. The car wash is just a physical example of what SaaS companies have known for a decade. If you can turn a one-time transaction into a recurring relationship, you change the entire valuation equation. Lucas: Absolutely. And it doesn't have to be a membership. It could be a service contract, a consumables refill program, a maintenance retainer. The key is that the buyer can look at your books and see a line item that says 'guaranteed revenue' rather than 'historical revenue.' Luna: One thing that struck me was the broker's comment that the owners had a simple spreadsheet tracking monthly churn. They kept it under 3 percent per month, which meant they were retaining roughly 70 percent of members annually. That's strong retention for a discretionary service. Lucas: Churn management is the unsung hero of these models. They lost money on the first month free offer, obviously, but they calculated that if a member stayed for at least four months, they recouped the acquisition cost. And the average member stayed eleven months. So the lifetime value was around $330 per member, and the acquisition cost was about $45. Luna: That's a 7-to-1 ratio. Private equity firms love those economics. It's almost like they're buying a portfolio of small annuities. Lucas: And that's exactly why they paid 22 times. The trailing twelve months EBITDA was $2.1 million, but the forward-looking projection based on the membership book was $2.5 million. The buyers effectively paid 18 times forward EBITDA, which is still high but within reason for a recurring revenue business with low churn. Luna: I think this episode is a perfect example of why you and I keep doing this show. Business owners often have the assets to command a higher multiple — they just don't see how to repackage them. It's like a puzzle where the pieces are already on the table. Lucas: That's a really nice way to put it. And you know, if conversations like this have helped you think differently about your own business, I'll just mention that listener support is what keeps this show ad-free and independent. If you'd like to support us, you can buy me a coffee at buy me a coffee dot com slash fexingo. It genuinely helps us keep digging into these case studies. Luna: Yeah, and we read every message that comes with it. It's a small gesture that goes a long way in making sure we can keep doing deep dives like this one. Lucas: So back to the car wash. After the sale, the new owners kept the entire management team in place and immediately started rolling out the membership model at their other car wash properties. The previous owners structured the deal so they'd get an earn-out if the membership base grew beyond 5,000 active members within two years. Luna: So they had skin in the game even after exit. Smart structuring. What's the one thing you'd tell a business owner who's thinking about trying this model? Lucas: Start before you need to sell. The car wash owners spent two years building the membership program before they even listed the business. They didn't slap it together six months before an exit. They committed to the model, worked through the operational hiccups, and let the data accumulate. By the time they went to market, the story was already written. Luna: Patience and data. A good reminder that the best exits are years in the making.