Article

Serious Numbers In Owner Retention

February 2007, Auto Dealer Today - WebXclusive

by Don Reed - Also by this author

Is owner retention important to you?  Hopefully, you answered “YES”. What exactly is Owner Retention and why is it so important? Many dealers will answer by saying it’s important so they can sell more cars and trucks in the future to their repeat customers. While I certainly agree with this answer I submit to you, there is much more to consider here if 100 percent service absorption is something you seriously care about.

To begin with let’s determine this: Do your customers like doing business with your dealership? I’m not talking about CSI here. (Don’t misunderstand me; I know CSI is very important.) I’m talking about the number of customers who are actively servicing their vehicles in your service department. Is that number increasing, decreasing or staying the same? How often do you look at this number? You can find the number in your computer. What does this number mean to a dealer?

If the number of active customers in your database is going up each month, congratulations; you are doing a lot of things right toward building strong owner retention. If, however, this number is remaining constant each month, then it would appear you are losing as many customers each month as you are adding through sales. In other words, if you sell 100 units per month, new and used, and your database remains constant, then you’ve obviously lost about 100 customers as well. When a dealer’s vehicle sales decline to say 80 units, the same 100 service customers will leave. Therefore, your database of active customers will start to decline, assuming all other factors remain constant. Not good! Your service absorption will most likely start to decline as well. 

If your number of active customers is declining each month, your customers don’t like you! These are most likely predominately retail customers who are going somewhere else for their service needs. They could be patronizing another new car dealer or an aftermarket competitor, but in either case, you lost ‘em!

What is a good guide to use to determine if you are keeping your fair share of your retail service customers? To begin with, determine your total retail new and used vehicle unit sales for the past 12 months. Next, multiply those unit sales by six, and that should equal your total Customer Pay (Retail) repair orders for those same 12 months. For example, if you sold 1,200 new and used vehicles over the past 12 months (average 100 per month) then you should have written about 7,200 Retail repair orders (average 600 per month) for that same period. How do you compare? In reviewing hundreds of dealer financial statements, I find that most dealers have a retail repair order to unit sales ratio of about 5-to-1, which in the above example would equal around 500 repair orders per month versus 600. Let’s examine the economic impact of losing these 100 repair orders.

Let’s assume that a dealer is following the RULES for achieving 100 percent service absorption:

  • 2.5 HPRO @ $75 Effective Labor Rate = $187.50 in Labor Sales
  • 75 percent Labor Gross Profit Margin = $140.63 in Labor Gross Profit
  • 80 percent Parts to Labor Ratio = $150.00 in Parts Sales
  • 45 percent Parts Gross Profit Margin = $67.50 in Parts Gross Profit
  • One Repair Order is worth $337.50 in Sales
  • One Repair Order is worth $208.13 in Gross Profit
  • 100 Repair Orders is worth $20,813 a month in ADDITIONAL Gross Profit

Lost Income for a year = $249,756

If I’m wrong by 50 percent, it’s still about $125,000 a year in additional net profit! So, is it important to measure and evaluate your customer database?  Absolutely! Do the math on your dealership’s unit sales to repair order ratio and use your own profit margins and sales per repair order and the number will astound you. You might even send me an e-mail or give me a call to say, “Thanks for the new boat.”

So, what can you do to get these customers back? To begin with, you must give them a reason to come back. How do you do that, you ask? You must have a 12-month marketing plan. You must be committed to following the plan, and you must hold your people accountable for following the plan. Let me give you an example of a retailer who has a very loyal customer base: Bed Bath & Beyond. Have you ever received one of their mailers? If so, you will note that each one gives the customer a reason to come into their store. (i.e. SAVE 20%, SAVE $15, etc.) The mail piece is an odd size and does not match the size of most mail, making it stand out. They send these to their customers about once a month. How often do you send direct mail to your service customers? Do you always give them a reason to come in that promises a benefit? Many dealers do this quarterly (seasonal) but never monthly. This doesn’t make sense. Do you advertise your new or used car sales quarterly?  I hope you see my point. If it is important to advertiser your vehicles more often than once a quarter, it is equally as important to advertise your service department.

Vol 3, Issue 12

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