Article

Five Key Measurements to Better Dealership Health: The Little Things that Add Up to Increased Profits

April 2008, Auto Dealer Today - WebXclusive

by Ryan Linnehan - Also by this author

My oldest son is a budding artist. I’m not sure where he got that skill from, since my wife and I are limited to stick figures at Pictionary. My painting skills are even worse, as I even struggle with “Paint-by-Number.” Fortunately, there are some key numbers in the buy here pay here (BHPH) industry that can provide some crucial information in a snapshot, which can help us “Manage-by-Numbers”.

There are some important numbers that we need to monitor daily in this business: cash on hand, sales volume, charge-off levels and net profit. We all know the activities that lead to those “bottom line” numbers are made up of hundreds of “little things” that need to be done every day. Maximizing our effectiveness in all these small areas will help us take our companies to the next level. Let’s look at a few of those areas of measurement.

Applications per Day – I think most dealers will agree that the sooner in the process you can get a customer “on paper,” the chance of success will be higher. While accurately logging floor ups has been a challenge historically, every BHPH deal must have a credit application completed, which makes tracking that number infinitely easier. Now, you may not be looking for a specific number so much as watching the trends over time, especially when comparing to the same time period year after year. For example, last February, we recorded 37 applications per day. If we track the number this year, and see we are only averaging 30 per day after the first week, then we know we have an area that needs to be addressed immediately!

Recency over 30 Days – Most of our emphasis in collections is placed on the contractual delinquency, and rightfully so. However, an area that can be easily overlooked is the payment recency. Rather than reflecting the number of days past due date a customer is, the recency report shows how many days it has been since they last gave you any money. Now, there may be legitimate reasons why you wouldn’t receive cash from a customer, such as they have paid ahead. However, if it has been more than 30 days since a customer has paid us anything, I definitely want to know about it. If this is the case it probably wouldn’t hurt to make a “courtesy” contact just to make sure everything is OK with the customer and your collateral!

Interest Collected/Charge Off Ratio – If this ratio is 1:1 or greater, you are looking good. I think most people understand that the term “gross profit” in BHPH can be misleading, since it is not fully collected at time of delivery. As a result, it is really just “paper profit,” or phantom profit in some cases. However, if your interest collected covers your charge off amounts, then to a large extent, your gross is real.

Total Warranty (Policy Adjustment) & Goodwill /Total Sales Gross – Again, this is a number where you would want to create your own benchmark based on historical data and your subsequent goals. We think of service after the sale as part of our long-term advertising, so we are pretty aggressive in this area. For me, I like to see us in the 4 percent to 5 percent range. Many dealers may choose a number slightly less.

Appointment Show Rate – Whether you get mostly lot ups, or are like us where over half of our leads originate by phone or Internet, it is crucially important to set good appointments when dealing with customers over the phone. Research has shown dramatically increased success rates from not only setting appointments, but setting them on the quarter hour, following up with a confirmation call (from a manager ideally) and having an incentive for them to come in. We offer to pay for their gas to visit us by giving $50 to any preapproved customer who keeps their appointment, and if we can get them in within 24 hours, we will increase the offer to however much it takes to get them in (within reason usually). Delays cost deals, and for adequate incentive, we can make it worthwhile for them to take a personal day from work to come see us!

As important, as it is to manage your business by the numbers there are other items to keep in mind. First, while it may be possible to run your businesses strictly by the numbers, it is always advisable to interact on a personal level as much as possible to “fill in the blanks.” While reviewing the data can be pretty telling, there is often more to the story that you can observe firsthand that the numbers don’t completely tell you. Also, beware of “Analysis Paralysis.” In other words, don’t spend so much time reviewing the information that you fail to act.

Next, be sure to spot check the data you are reviewing and the associated source of the information to make sure that the data is not being filtered or fudged. Be prepared to fire anyone that does, so you can be confident in the integrity of the data.

Finally, a great way to take a daily snapshot of the health of your businesses is by using a DOC (Daily Operating Control). Those of you that have read this column in the past will know the value we place on having proper controls in our businesses. A DOC will really help you dial in the key areas you need to monitor. It will typically include all the basic information I mentioned earlier, as well as several other key areas you may choose. This tool will really allow you to manage your business “by the numbers” and will help you transform your business into a true masterpiece!

Vol 5, Issue 2

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