“The average automobile dealer in America last year spent about $500 per retail unit to sell a new vehicle. The average new-vehicle gross profit for was about $1,500, so you can see that the average dealer’s advertising costs are consuming about 35 percent of their new-vehicle gross profit. I think that’s way too much, don’t you?” — Don Reed, CEO DealerPRO Training
Why You Should Invest In Keeping Your Customers
If you are one of those dealers who is spending between $400 and $500 in advertising to sell a vehicle then I ask you this:
“How much do you spend per customer per month to keep the ones you already have?”
For example, if you are selling an average of 50 new vehicles per month at $500 PRU in advertising then your advertising expense per month is about $25,000. Let’s say you are then writing about 500 customer pay repair orders per month. Simple math shows that you should be increasing your repair order count by a minimum of 50 per month (10 percent) or about 600 additional repair orders per year if you can keep the customers you already have. An additional 600 CPROs per year in effect gives you 13 months of customer pay parts and labor sales in a 12-month fiscal year.
How To Calculate ROI
If your service and parts team can perform at NADA guides of 2.5 HPRO, 72 percent labor gross, 45 percent parts gross with a parts to labor ratio of 90 percent you can expect to gross about $190 per CPRO with an effective labor rate of $70; on 600 additional repair orders that equates to $114,000 in additional gross profit.
For comparison purposes, divide that amount by the average gross profit per new vehicle retailed of $1,500 and you come up with 76 additional new vehicle retail sales. Is this making sense to anyone yet?
In the following year if you continue to sell 50 units per month and you continue to keep the customers you already have then your repair order count increase now jumps to an additional 1,200 CPROs or $228,000 in additional gross profit, equating to about 158 new vehicles sales, comparatively speaking. At this point does 100-percent service absorption sound good to you?
So, again I ask:
“How much do you spend per customer per month to keep the ones you already have?”
Are You Penny Wise, Pound Foolish?
If your answer is anything lower than $20 per customer then you need to take a hard look at your marketing strategy. Obviously, $20 per retail service customer at 500 per month equates to $10,000 in maintenance costs to hold on to this precious asset called owner retention.
In the thousands of financial statements that I reviewed all over our country, I find the average dealer to be spending less that $10 per retail service customer per month, which is about 5 percent of customer pay gross profit versus 35 percent of gross per new vehicle customers.
It’s cheaper to keep them! Now where do you get the money to fund the maintenance costs? You have a few options to consider:
- Use all of your advertising co-op funds from your manufacturer;
- Move some of the wasted advertising funds from sales to service and parts;
- Consider using an advertising agency to help determine where the wasted funds are being spent;
- Cross train your existing staff to assist in owner retention processes like making calls to no shows, special order parts, service reminders, next appointments and CSI follow up;
- Get control of your policy adjustment; if it exceeds 1 percent of service sales and divert the savings to owner retention; and
- Charge for shop supplies and divert the savings to owner retention (Check your state laws first).
If these processes won’t get you to the $20 mark per customer per month then write a check.
Unfortunately, most dealers that I speak with are not enjoying an increase in customer pay repair order count of 10 percent or more per month. Instead they are remaining stagnant or losing repair order count per month. If this is the case in your store then ask yourself “why?” In my opinion, the number one reason for losing service customers is the dealer’s lack of attention to the backbone of his or her dealership.
How Do You Stack Up?
Paying attention to your dealership’s backbone certainly starts with evaluating the quality of your people and how they treat the customer during each and every visit to your dealership. It is imperative that your dealership keeps a presence in the eyes and minds of your customers.
- Do you give your customers reasons to come back?
- Is your dealership different than the competition?
- Do you have a user-friendly appointment system on the phone or on the internet?
- Are you competitive with the marketplace?
- Do you keep your name in front of your customers regularly?
- Do you strive to exceed their expectations?
You see, if you are not giving your existing customers the attention they deserve and want then you will remain stagnant in your quest for 100 percent service absorption.
Optimizing Your Investment
All of us clearly understand, I hope, that 100 percent service absorption will enable any dealer to withstand any downturn in new and used retail vehicle sales. In other words, you can “recession proof” your dealership by keeping the customers you already have.
Provide them with the highest level of service that you possibly can and your rewards will be many, not the least of which is you will sell more vehicles to repeat customers who are much easier to deal with since they already like your product, like your dealership and probably like you as well.
Now is the time to evaluate your service and parts marketing strategy for your existing customers. They are waiting for you with open arms. Let them know how much you appreciate their business and give them reasons to come back. It’s cheaper to keep them!
“Men are anxious to improve their circumstances, but are unwilling to improve themselves: They therefore remain bound.” — James Allen
