How to Start an Oil Change Business
Changing a vehicle’s oil is difficult and inconvenient if a driver isn’t really set up to perform the service. Oil change businesses offer a convenient alternative, and many customers seek these businesses out of necessity. If you often work on cars and are comfortable performing oil changes, then starting an oil change business might be a profitable opportunity. While this type of business usually requires a significant startup investment, applying creative branding and great customer service can help to establish it as a successful long-term opportunity.
Oil change businesses provide lubrication services for a variety of vehicles, helping to keep those vehicles running at their best. This standard part of vehicle maintenance is difficult for auto owners to perform on their own, and oil change businesses offer a convenient alternative. Most businesses perform oil changes while customers wait, making prompt, efficient service important.
Many businesses don’t just provide oil changes but also provide complementary services like tire rotations, air filter changes, and other basic automotive maintenance. While some mechanics will offer oil changes, businesses that specialize in oil changes are generally faster and tend to charge less for these services. Because vehicles need regular oil changes, there’s an opportunity for a business to provide great service and earn valuable returning customers.
According to IBIS World, the oil change services industry underwent 2.8 percent annual growth from 2014 through 2019. During that time, the number of businesses decreased to 33,481, but industry employment grew to 93,198. In 2019, the industry brought in $8 billion in revenue.
The industry’s growth correlates with the number of vehicles on the road and how far they’re driven. During that five-year period, crude oil prices fell, encouraging people to drive more. Per capita, disposable income also increased during that time, which may have prompted consumers to travel, take road trips, and otherwise drive their vehicles more.
Several trends are affecting the oil change industry today. According to Lubes’N’Greases, consumers are realizing that vehicles are being built to last, and that’s a positive for the oil change industry. With more vehicle owners keeping their vehicles longer, they’re more willing to perform routine maintenance to keep those vehicles operating well. An increase in the number of vehicles that are 11 years old and older is expected to drive increased demand within the oil change industry.
CarWash.com notes increased pressure on oil change businesses to quickly service vehicles and have them on the road again. Consumers are no longer willing to wait an hour for an oil change and instead expect the service to be completed within 30 minutes.
This preference for convenience opens up other opportunities within the industry, though. Many facilities are combining oil change services with car washes, offering drivers the opportunity to take care of multiple car maintenance factors in one short trip. Offering car wash coupons with an oil change can help to support customer satisfaction and loyalty.
Most oil change businesses market to drivers looking for convenience or who don’t have the skills or facilities to perform their own oil changes. An oil change business’s target market includes drivers and vehicle owners who are aware of the importance of vehicle maintenance. In some cases, businesses may also advertise to commercial drivers or fleets to secure a large volume of recurring business.
Skills Needed to Run
While starting an oil change business doesn’t require a business degree, certain skills and experiences can contribute to its success.
Oil change experience and knowledge. A business owner needs to have experience in performing oil changes and general awareness of the industry and the work that goes into an oil change. Familiarity with the different types of oils, like synthetic and conventional oils, is also important.
Automotive knowledge. An oil change business owner should also have general automotive knowledge. Experience working in a garage is ideal since it can contribute to important safety issue awareness and precautions.
Customer service skills. Providing great customer service will help a business quickly build up a good reputation. Some customer service area experience is helpful, especially since a business owner can train employees on how to provide great customer service.
Management experience. An oil change business will need multiple employees, so experience in hiring, training and managing staff is helpful.
Marketing experience. Marketing is important to a business’s success. A business owner who is aware of some common marketing techniques can be involved in the business’ marketing and make wise choices about how to best use the marketing budget.
Checklist for Starting an Oil Change Business
If you’re thinking about starting your own oil change business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write a Business Plan
After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for an oil change business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3: Name the Business
Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Select your Location
It is advantageous to locate an oil change business in a high-traffic area as it’s both easy for customers to find, and they will see it on their daily commute. If you are opting to start a mobile oil change business service, a secure place to park your vehicle is a must.
Related: Choosing a business location
Step 5: Register for Business Licenses and Permits
While there are rules for oil change businesses to follow, in certain areas, there may be some form of state or local environmental licensing.
Additionally, there are general local, state, and federal business registrations that may be needed such as a business license, sales tax permit, Employer Identification Number, and Occupancy Permit.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start an oil change business is another. Funding to start an oil change business can be difficult as it can be expensive. In order to get a small business loan, the borrower(s) will need to have good credit and personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
Marketing is important to both build awareness of a new business, and also as an ongoing activity to bring in new customers to build profits. Many oil change businesses are active on social media such as Facebook and Yelp and occasionally print advertising and direct mail.
Coupons, loyalty programs, and other incentives can also help build up a customer base and establish customer loyalty.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting an oil change business. A few of these include:
– General liability insurance protects the business if a customer’s vehicle is damaged due to faulty work. This insurance offers coverage for damages, legal fees, and settlements.
– Workers’ compensation insurance helps to cover expenses like medical bills or lost wages if an employee is ever hurt while on the job.
– Environmental impairment insurance offers coverage for expenses like legal costs, fees, and clean-up costs in the event that hazardous materials are spilled or improperly disposed of.
The cost to insure an oil change business can vary based on the business’ location, the value of the building and its equipment, and even the number of employees that the business has. To get the most accurate idea of what insurance expenses will be, request quotes from multiple insurance providers. Then, compare the quotes while paying attention to variables like coverage limits and exclusions, premiums, and deductibles.
Step 10: Hire Employees
The most basic oil change business will require a manager and a few technicians. Larger businesses may also hire an assistant manager. According to PayScale, the following are the average salaries for these positions:
– General manager: $43,000
– Assistant manager: $36,000
– Lube technician: $24,000
In addition to budgeting for employee salaries, a business’ budget needs to include other expenses that often come with hiring employees. These expenses include paid time off, worker’s compensation insurance, and retirement and health insurance contributions.
Employee training is very important to a business’s success. Well-trained employees won’t just be safer in how they work, but they’ll understand how to work well together as a team for efficient, quality service. Because employees are handling expensive vehicles belonging to customers, plan to invest plenty of time in training, and create a detailed training and safety manual.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start an oil change business?
Starting an oil change business will usually involve significant startup costs. Most of that money is related to the construction and outfitting of garage bays that allow technicians to easily access a vehicle’s undercarriage without the need for a vehicle lift.
Expect to spend about $250,000 to start a business with a two-car facility that’s built from scratch.
Business owners lucky enough to find an already constructed facility available for rent will have significantly lower startup costs.
Some common startup costs for an oil change business include:
– Garage construction or renovation
– Equipment purchases like oil tanks, radiator flushing machine, air compressor, vacuum system, – tools, etc.
– Inventory (oil, oil filters, air cleaners, hoses, windshield washer fluid, antifreeze, brake fluid, transmission fluid, etc.)
– Furniture for the waiting room
How much can an oil change business owner make?
Profits for an oil change business will vary depending on how long the business has been in operation, its location, the effectiveness of its marketing, and its expenses. Valvoline Instant Oil Change franchises earn an average of $282,067 per store per year. For a smaller, independent store, profits of $70,000 or more a year are more likely.
Many oil change businesses are finding success in offering multiple services, like tire rotations, car washes, or even minor automotive repair services. Offering these multiple services can allow for upselling and can even bring in new customers. But just adding on new services for the sake of it won’t necessarily be effective. It’s important to perform market research to establish whether there’s a need for the services you’re thinking of offering.
Are there grants to start an oil change business?
It’s extremely rare to find a grant to start an oil change business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for an oil change business?
The NAICS code for an oil change business is 811191.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Automotive Oil Change Association