Article

Measuring Return On Investments In Customer Relationship Management

September 2006, Auto Dealer Today - WebXclusive

by Harlene Doane - Also by this author

Will implementing a CRM system sell more cars for your dealership? The answer is absolutely NOT! “Technology in itself will not allow you to sell a single extra vehicle,” states Mark Przybylski, product manager for CRM at ADP. “CRM is about a change in people and processes utilizing the data and technology to create a positive return in multiple areas of measurable profitability for the dealer.” With that fact now established, examine what a CRM system can do for you in terms of real return on investment (ROI).

Is it really possible to measure your Return on Investment (ROI) in a CRM initiative, or is the hype just mumbo-jumbo without substance from the companies selling the CRM products? Since results and ease of use consistently rank as the two most important decision-making factors for dealers when choosing a CRM product or service, it is important to answer the ROI question once and for all.

So how do you begin to measure ROI? It can be quite the conundrum if you don’t start with relevant data from the dealership. Can you answer the following questions based on fact?
  • What is your current appointment ratio?
  • Show ratio?
  • Closing ratio?
  • Your average advertising cost per sale?
  • Percentage of repeat business?
  • Average gross per sale?
  • Number of RO’s per day?
  • Average customer pay dollars per RO?

“Most dealers have a general idea of how they are doing, but for many it is not quantifiable data,” states Todd Smith, VP of sales and marketing for DealerUps. “Our job as a CRM provider is to turn perception to actual measurable reality.” Answers based on fact mean having recorded evidence to support your statements. The only real mumbo-jumbo involved in CRM discussions may be coming from within the dealership, not from the CRM providers. It originates with general managers, sales managers and service managers who provide answers to the dealer based on “gut” answers instead of fact. Dealers who accept this rhetoric are usually performing well below their potential. “Gut” numbers just will not work in today’s market.

To measure ROI, you have to know where you are now – a good starting point. You can’t improve something that you don’t measure, monitor and evaluate. Measuring in the dealership is tracking meaningful data over an extended period of time. If you haven’t been tracking this data you will find it difficult to design a CRM strategy.

Before selecting any CRM product or service, a dealer needs to either have a clearly defined CRM strategy or find someone to help them define it. With the amount of technology available today, it would be easy to be sold on the bells and whistles of a system, however if you the dealer have not expressed your goals to the provider and incorporated them within the initial CRM strategy, you are likely to be disappointed in the end. A really good CRM provider will spend a considerable amount of time discussing your needs and goals within the initiative. If they don’t and are strictly focused on selling you a product, beware! Your dealership goals have to be incorporated into the initial strategy.

If you have been measuring your performance you probably have already identified some areas that need improvement. Maybe your appointment ratio is great, but your show ratio is too low. Maybe your sales customers make their first service appointment then never return for their second maintenance appointment. Identifying specific areas that you want to improve is crucial in the success of your initiative.

If you don’t know where to begin or you haven’t been properly measuring your dealership progress, it’s not the end of the world. However, it will certainly be harder to measure your ROI in the beginning. “ROI used to be strictly a measurement of increased sales,” said Ken Pfau, director of CRM for The Cobalt Group. “Now dealers understand that ROI can be measured in several areas such as sales automation, marketing, database mining and owner loyalty, in addition to increase sales.”

Measuring success in several areas makes much more sense since CRM is not just about an increase in the number of vehicles sold. It is about maintaining an ongoing relationship with dealership customers to increase customer loyalty which ultimately translates to the bottom line from multiple avenues. However, it also can complicate things because instead of looking at one item, such as number of units sold to measure ROI, you now have to evaluate if gross per sale increased, if repeat business increased, if you were able to decrease advertising cost due to your efforts and even if your personnel expenses were affected by increased productivity.

Monitoring is really managing. Checking to make sure the measuring process is a true reflection of actual performance and using it to evaluate your return on investment as well as make corrections when necessary. Dealers, however, can be overwhelmed by too much information too quickly. The last thing they need is to be told, ‘…here is another 30 things to monitor daily’. Most CRM experts agree that tackling the entire dealership at once is not a good idea. Jill Gehrhardt, CRM solutions executive for Reynolds & Reynolds said, “The proper way to approach CRM in the beginning is to focus on only one or two of the seven major profit leaks in the dealership. These profit leaks are areas where dealers will typically find lost opportunities. As the dealership begins to see the return on a couple of areas, they then become anxious to tackle the other areas one by one to improve dealership performance.”

Regardless of the product or provider a dealer chooses, the last thing they need is to be required to generate a multitude of reports. It has to be easy. If you like to pull reports and review them, then by all means settle for one that has an easy to use interface for you to accomplish that. If you want your data in a finished format, choose a product that pulls the imperative data and delivers it directly to your e-mail inbox. Some systems can be set with your preferences so that you are alerted to problems as soon as they arise so that you can take immediate action instead of waiting until the end of the month.

The last step to answering our question of ‘Can you measure ROI in your CRM initiative?’ is the evaluation. Take your starting-point data and compare it to your performance while using a CRM product or service in 30 days, 60 days and 90 days. Not all improvements will appear in the same time frame. Depending on your initial strategy goals, you should be able to evaluate your return in several of the following areas:

  • Improved CSI scores
  • Increased repeat or referral business
  • Increased sales or close ratio
  • Increased gross profit on vehicle sales
  • Improved appointment set ratio
  • Improved show ratio
  • Reduced advertising cost per sale
  • Increase in customer pay dollars on repair orders
  • Increase in maintenance work in service department
  • Increase in employee productivity due to automation of duties
  • Improved response time to Internet leads

All of these areas of improvement will lead to higher profits, which makes ROI measurement possible. So, there is only one remaining question the dealer has to answer. Are the increased profits significant enough, based on the investment in the product or service - including all ongoing training, consulting and support? CRM will not, in itself, solve any problems in your dealership, but any CRM initiative should be measurable and have a clear ROI. If it doesn’t, why would you invest in it?

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