In previous articles, I stressed the importance of tracking, as you cannot manage what you cannot measure. I also stated that SF leads must be considered much like planting seeds. Some germinate nearly immediately, and others lay dormant for months. Finally, I stressed over and over that I am a firm believer in tracking activities rather than results. I believe if you consistently perform all the activities necessary to sell vehicles, the results will follow. It is much easier to train, track and coach the performance of activities rather than “sales.”
At the recent 2007 Special Finance Convention, about one-third of the nearly 200 dealer attendees submitted statistical operating data for their SF departments. I had the pleasure of moderating a day-long breakout session for about 60 of the highest volume SF departments in the country. The average monthly volume for those dealers was 101 SF units.
In reviewing their data, what stood out was that the advertising cost per sale varied by over $550 from the best to worst dealer. What that means is, two dealers with similar sales levels had a difference in net operating profits by over $650,000 a year just based on advertising costs.
In examining other statistics, the overall conversion percentages of the best in the group were nearly more than double the lowest conversion percentages, ranging from a group best of 18.6 percent to a low of 9 percent. That indicated the better performing dealers only had to work half as many leads to get the same sales results of others. Again, it is important to remember that these dealers were all among the best of the best.
During the discussion it became apparent to all (to no surprise), the better dealers all had strong systems in place to record and track the leads and activities involved with each. While no particular type of software is required, most were using a combination of desking and CRM software that not only allowed them to easily manage the leads and all activities surrounding them, but also inventory (along with the sales process).
Whether or not it is through the use of software, measuring and managing of leads and activities is paramount to peak efficiency. You must have a system in place that allows you to track your advertising, and your team’s proficiency in working the leads that flow from it. You should know how many leads you receive (from walk-in, phone applications and the Internet), how many of them turn into appointments, how many appointments are kept, and how many are sold. You should be able to compare that to the 6-3-2-1 benchmark model.
Doing so will allow you to properly assess advertising effectiveness, as well as the performance of individual sales personnel. It will also tell you when or if you need additional staff – realizing that the average sales person can handle an average of 70 to 80 new leads per month.
Whether you have ten or 1,000 units available to you for SF, you need a system that allows you to quickly and accurately sort inventory based on both days in stock and the “spread,” which represents the difference between what the average trade or wholesale value and the actual inventory value.
The SF manager must be able to quickly identify vehicles that will fit into a customer’s payment range qualification and yield the highest possible gross profit, or identify the oldest appropriate vehicle in inventory.
This system can be managed in a number of ways. For smaller inventories, one of the most common ways is to use a spreadsheet or create book-out sheets on each vehicle and keep them sorted in a three ring binder. Regardless of the method, you want to be able to sort or arrange them by monthly payments or payment categories – such as under $250 per month (usually woefully small); $250 to $300 per month; $300 to $350 per month; and so on.
Determine which category to place the vehicle in by calculating what the payment would be at a minimum benchmark gross profit deal ($2,625 front end using your average interest rate and term), and then sort by age, or by vehicle type.
When a salesperson brings you a customer that will qualify for $350 per month payment, you will already have a selection of vehicles that you know would be the best to show that customer.
Once your SF inventory crosses the 100 unit threshold, you most likely will need software assistance. With that level of inventory, it just becomes too cumbersome and slow to be able to organize and sort your inventory quickly and accurately to properly guide your sales personnel (and customers) to the most appropriate vehicles. These software applications (such as ProMax or Salesmaker, for example) will let you quickly and efficiently manipulate your inventory to maximize the selling opportunity as well as help guide the SF Manager to the appropriate finance company for the situation.
Forecasting and Budgeting
For the leader of the Special Finance department, the title usually includes the name “manager.” This indicates they must manage more than just their time and the department’s leads.
A successful department must have a forecasting system in place to be able to establish reasonable performance goals for its efforts; then budget accordingly.
While discussing the seventh component, I stated the proper way to structure a deal is to work it backwards. The same holds true for department forecasts. What are your goals for your SF profits? What will that take in sales volume and gross profits? From that, how many leads will you need? That will determine both the expectations from your advertising efforts, as well as how many people you will need working the leads. Knowing your needed gross profits and volume, you can then budget your advertising and marketing expenditures. From that, we measure our results.
Yes, this recount is a bit simplified, but it gives you the basis of the process. It is far more detailed than scrambling at the beginning of every month, trying to just figure out which weeks you are going to drop your customary direct mail package or newspaper insert and hope for the best.
The final area of focus, and the one that has derailed thousands of departments over time, is that of funding deals – turning them from contracts into cash. Nothing undermines commitment (Critical Component #1) like a bunch of unfunded contracts. Dealers and general managers who suddenly see an additional $200,000, $300,000, even $500,000 tied up in CIT get very irritable, very quickly. Things always roll downhill, and it doesn’t take long for that emotion to arrive at the desk of the SF manager.
Timely funding must become the culture of the department and dealership. The target should be seven days from delivery to collected funds in the bank, which sounds easier than it really is. Indeed, the steps comprising benchmark funding systems require so much detail and space that I must leave you hanging in suspense for one last article in this series next month, where I will elaborate fully.
The best teams in sports excel by drawing up game plans that are tailored to their strengths, then going out and executing them over and over again. Do the same with your SF department and you will reap the benefits—not only this month or this quarter, but over and over again.
Until next month, Good Selling!
Vol 4, Issue 11