Product driven CRM
Product-driven CRM – the key to long-term profit
Dealerships looking to increase their profits in the sales department have traditionally focused on two areas – increasing the prospect conversion rate, and increasing gross profit per sale. That is what the vast majority of sales training programmes today are dedicated to. But there is only so far you can go with that.
There is undoubtedly some potential to improve the prospect conversion ratio in most dealerships. The true industry average is no more than 10% or so. Many dealerships believe their figure to be higher, but they often fail to take account of selective logging in the showroom. The top performers are probably achieving 20%. But even with a tightly-controlled sales process in place it is hard to go beyond the 20% level – not least because of the quality of people employed in the industry, and the prevailing salary/commission structures.
Increasing the profit per sale is even tougher. In a mature, competitive market, raising your prices is often not an option. And raising your gross profit by a significant amount without raising prices is extremely hard work – even before you take into account the increasing costs of holding a franchise in the post-Block Exemption environment. You don’t just have to sell better, you have to buy better as well.
One alternative is to sell more accessories, or more finance. F&I has long been seen as a way to increase profits, but that too is under increasing pressure, not least from the legislative authorities. And if you look at the trends in the USA, with the controls they now have coming in such as the disclosure of finance commission, that pressure seems certain to increase.
During the past ten years the industry has focused more on increasing the customer’s repurchasing frequency as a way of increasing profits. Ford set the ball rolling when it brought out the Options PCP. It was designed to increase the frequency with which customers change their cars, and to make sure they came back to the dealership they bought the car from in the first place. When they saw how successful it was, the rest of the industry soon followed. But because PCPs are linked to residual values there is a risk involved, as the industry found to its cost on both sides of the Atlantic.
Now that residual values appear to have stabilised, the PCP is regaining popularity. But there’s a clear need for the industry to develop new products that lock customers in and drive them back to the dealership, which are not tied to residual value risks. We’re seeing some of those products being developed in the USA today, in the form of tyres-for-life and engines-for-life programmes. Dealers who have embraced them are achieving some success in terms of getting customers to come back to the dealership more often – or even at all!
The tyres-for-life guarantee is not sold as an add-on product, it is built into the selling price of the car and customers have to come back to the dealership every three months or 3,000 miles for a quick tyre inspection. The engine-for-life package requires customers to keep coming back to the dealership in line with the manufacturer’s service intervals.
With tyres for life, the warranty company that funds the programme can buy the tyres in bulk, which keeps the cost down and makes the programme viable. It is based on the fact that the average customer changes car every 27 months, which typically equates to one set of tyres (it also helps the used car department, because every used car that goes out has a new set of tyres on it).
Customers who keep their cars for longer than that are more likely to come back to the dealership when their tyres need replacing – where else can they get them for free? And that gives the dealership an opportunity to sell other products and services if it is handled in the right way by the service advisor. If not, it may be perceived as a rip-off. The customer may feel you are simply loading as much as you can onto the invoice.
Increasingly, US dealerships are putting more of their marketing budget into activities like these, and reducing the amount they spend on newspaper advertising. That represents something of a sea-change.
The motor trade is less good than some other industries – companies like Dell, EasyJet and Ryanair spring to mind – at marketing additional products to their customer base. On a regular basis the online computer and travel firms will come back to you offering additional products and services. If you buy a computer from Dell, for example, they will continue to offer you consumables, or a new laptop 12 months after you’ve bought one, or an upgrade to your home system 12 months after you’ve bought one. Easyjet and Ryanair sell travel insurance, hotel bookings and car hire, plus of course their in-flight services.
For the motor trade, satellite navigation systems are an equivalent example. A dealership database is perfect for marketing these to. Who’s to say that of the 5,000 or so customers you have on your database, 200 – 300 aren’t going to be interested in a SatNav system right now? It is good CRM.
But the next generation of CRM strategies will encompass products that lock customers in to the dealership – because if you have got your customers locked in, once you start to tweak their repurchase frequency through your marketing activities you can start to see serious growth in your profits.
A key concept here is customer lifetime value – or what US business guru Jay Abraham (www.abraham.com) calls their ‘marginal net worth’ to your business. Marginal net worth is a key performance yardstick for an increasing number of the world’s most profitable businesses. It helps them to focus their marketing efforts on doing more business with the customers they already have a relationship with, retaining them for longer and gathering referrals.
It is a relatively straightforward exercise to work out much the average customer is worth to your sales department. To find out, you need to know:
• What is your average gross profit per sale? In the sales department, that might be £750 on the sale of the car, plus F&I income of £250 per retail delivery (50% penetration, at £500 per case financed), and £100 from accessories (not just accessories sold with the car – have you considered sending your customers a brochure with ideas for Xmas gifts that they can buy from your dealership?)
• How many times a year does the average customer buy from you? If the customer changes car every three years, it would be 0.33. If it’s every two years it is 0.5. Clearly, the higher the number the better.
• For how many years does the average customer buy from you? An entry-level franchise such as Fiat might find it difficult to retain customers for more than six or seven years. But for franchises with a broader range, like VW, Toyota or Ford/PAG for example, there may be scope to hold on to them for longer.
• How many people does your average customer refer to you? Typically, dealerships get an average of 1 referral per customer, with the top-performers achieving 2 or 3 per customer (including the second car in the household).
• What % of these referrals actually become your customers? The industry average for converting referrals is around 40%. But with the right systems in place, many sales executives achieve more than 50%. Issue 1 included some best practice guidelines on how to become more successful with referrals. If you missed it and would like a copy, email Brian at brian@saleslynx.co.uk.
Armed with the above information, you can fill in the table below to determine the marginal net worth of your average customer:
A Average gross profit per car sale =
B Number of car sales per year per customer =
C Number of years customer buys from you =
D Number of referrals from customer =
E % of referrals who become customers =
F Gross profit per year per customer (A x B) =
G Gross profit over life of customer (F x C) =
H Referrals who become customers (D x E) =
I Gross profit from referrals (G x H) =
J Total value of one satisfied customer (G + I) =
You might be surprised at how much one customer is worth – and that does not take into account the value of any aftersales work!
CRM in the motor industry today is hampered because people have not yet recognised the true power of the marginal net worth of a customer. If they did, they would make sure their CRM programmes were working effectively. And they would invest money not just in technology but in people to make sure their customers are locked-in for life. Programmes like tyres-for-life and engines-for life could become the model for a product-driven CRM future.
Dealerships looking to increase their profits in the sales department have traditionally focused on two areas – increasing the prospect conversion rate, and increasing gross profit per sale. That is what the vast majority of sales training programmes today are dedicated to. But there is only so far you can go with that.
There is undoubtedly some potential to improve the prospect conversion ratio in most dealerships. The true industry average is no more than 10% or so. Many dealerships believe their figure to be higher, but they often fail to take account of selective logging in the showroom. The top performers are probably achieving 20%. But even with a tightly-controlled sales process in place it is hard to go beyond the 20% level – not least because of the quality of people employed in the industry, and the prevailing salary/commission structures.
Increasing the profit per sale is even tougher. In a mature, competitive market, raising your prices is often not an option. And raising your gross profit by a significant amount without raising prices is extremely hard work – even before you take into account the increasing costs of holding a franchise in the post-Block Exemption environment. You don’t just have to sell better, you have to buy better as well.
One alternative is to sell more accessories, or more finance. F&I has long been seen as a way to increase profits, but that too is under increasing pressure, not least from the legislative authorities. And if you look at the trends in the USA, with the controls they now have coming in such as the disclosure of finance commission, that pressure seems certain to increase.
During the past ten years the industry has focused more on increasing the customer’s repurchasing frequency as a way of increasing profits. Ford set the ball rolling when it brought out the Options PCP. It was designed to increase the frequency with which customers change their cars, and to make sure they came back to the dealership they bought the car from in the first place. When they saw how successful it was, the rest of the industry soon followed. But because PCPs are linked to residual values there is a risk involved, as the industry found to its cost on both sides of the Atlantic.
Now that residual values appear to have stabilised, the PCP is regaining popularity. But there’s a clear need for the industry to develop new products that lock customers in and drive them back to the dealership, which are not tied to residual value risks. We’re seeing some of those products being developed in the USA today, in the form of tyres-for-life and engines-for-life programmes. Dealers who have embraced them are achieving some success in terms of getting customers to come back to the dealership more often – or even at all!
The tyres-for-life guarantee is not sold as an add-on product, it is built into the selling price of the car and customers have to come back to the dealership every three months or 3,000 miles for a quick tyre inspection. The engine-for-life package requires customers to keep coming back to the dealership in line with the manufacturer’s service intervals.
With tyres for life, the warranty company that funds the programme can buy the tyres in bulk, which keeps the cost down and makes the programme viable. It is based on the fact that the average customer changes car every 27 months, which typically equates to one set of tyres (it also helps the used car department, because every used car that goes out has a new set of tyres on it).
Customers who keep their cars for longer than that are more likely to come back to the dealership when their tyres need replacing – where else can they get them for free? And that gives the dealership an opportunity to sell other products and services if it is handled in the right way by the service advisor. If not, it may be perceived as a rip-off. The customer may feel you are simply loading as much as you can onto the invoice.
Increasingly, US dealerships are putting more of their marketing budget into activities like these, and reducing the amount they spend on newspaper advertising. That represents something of a sea-change.
The motor trade is less good than some other industries – companies like Dell, EasyJet and Ryanair spring to mind – at marketing additional products to their customer base. On a regular basis the online computer and travel firms will come back to you offering additional products and services. If you buy a computer from Dell, for example, they will continue to offer you consumables, or a new laptop 12 months after you’ve bought one, or an upgrade to your home system 12 months after you’ve bought one. Easyjet and Ryanair sell travel insurance, hotel bookings and car hire, plus of course their in-flight services.
For the motor trade, satellite navigation systems are an equivalent example. A dealership database is perfect for marketing these to. Who’s to say that of the 5,000 or so customers you have on your database, 200 – 300 aren’t going to be interested in a SatNav system right now? It is good CRM.
But the next generation of CRM strategies will encompass products that lock customers in to the dealership – because if you have got your customers locked in, once you start to tweak their repurchase frequency through your marketing activities you can start to see serious growth in your profits.
A key concept here is customer lifetime value – or what US business guru Jay Abraham (www.abraham.com) calls their ‘marginal net worth’ to your business. Marginal net worth is a key performance yardstick for an increasing number of the world’s most profitable businesses. It helps them to focus their marketing efforts on doing more business with the customers they already have a relationship with, retaining them for longer and gathering referrals.
It is a relatively straightforward exercise to work out much the average customer is worth to your sales department. To find out, you need to know:
• What is your average gross profit per sale? In the sales department, that might be £750 on the sale of the car, plus F&I income of £250 per retail delivery (50% penetration, at £500 per case financed), and £100 from accessories (not just accessories sold with the car – have you considered sending your customers a brochure with ideas for Xmas gifts that they can buy from your dealership?)
• How many times a year does the average customer buy from you? If the customer changes car every three years, it would be 0.33. If it’s every two years it is 0.5. Clearly, the higher the number the better.
• For how many years does the average customer buy from you? An entry-level franchise such as Fiat might find it difficult to retain customers for more than six or seven years. But for franchises with a broader range, like VW, Toyota or Ford/PAG for example, there may be scope to hold on to them for longer.
• How many people does your average customer refer to you? Typically, dealerships get an average of 1 referral per customer, with the top-performers achieving 2 or 3 per customer (including the second car in the household).
• What % of these referrals actually become your customers? The industry average for converting referrals is around 40%. But with the right systems in place, many sales executives achieve more than 50%. Issue 1 included some best practice guidelines on how to become more successful with referrals. If you missed it and would like a copy, email Brian at brian@saleslynx.co.uk.
Armed with the above information, you can fill in the table below to determine the marginal net worth of your average customer:
A Average gross profit per car sale =
B Number of car sales per year per customer =
C Number of years customer buys from you =
D Number of referrals from customer =
E % of referrals who become customers =
F Gross profit per year per customer (A x B) =
G Gross profit over life of customer (F x C) =
H Referrals who become customers (D x E) =
I Gross profit from referrals (G x H) =
J Total value of one satisfied customer (G + I) =
You might be surprised at how much one customer is worth – and that does not take into account the value of any aftersales work!
CRM in the motor industry today is hampered because people have not yet recognised the true power of the marginal net worth of a customer. If they did, they would make sure their CRM programmes were working effectively. And they would invest money not just in technology but in people to make sure their customers are locked-in for life. Programmes like tyres-for-life and engines-for life could become the model for a product-driven CRM future.
posted by Saleslynx at 2:45 AM
0 Comments:
Post a Comment
<< Home