According to successful businessman Fred DeLuca, “Profit or perish… There are only two ways to make money: increase sales and decrease costs.” In the car business, we all know what it means to increase sales; but decreasing costs can be rather complicated. We have three types of “costs” in our industry; cost of sales, expense, and other income/deductions. There are also “hidden costs” like lost sales.
Mr. DeLuca (the founder of Subway) didn’t have to worry about lost sales. Almost everyone who walked in the door of his sandwich shop ended up buying. But this isn’t quite the same in our business.
What were your lost sales last month? In the parts department, these are tracked carefully to order the right amount of parts next time, but do we know the closing ratios in parts and service? I recently ran a report of all quotes and estimates in the parts and service departments for a few clients and then looked six months later to see if these converted into sales. I found that the parts department had a 97% average closing ratio and for service, 94%. It was rather similar across all dealerships.
“What is your closing ratio and the real cost of lost sales?”
What about your sales department? What is your closing ratio and the real cost of lost sales?
I was trained in this business by some of the most successful dealers, who taught me about closing ratios in the sales department. There was a time when great dealers expected a 33% closing ratio; that meant that every third person that came in the door or called our dealership, bought a new or used vehicle. My dealer knew what it cost to bring that customer in the door. If we had 1,200 “ups” for the month and spent $60,000 in advertising, it cost $50 per “up” to get them in the door. We sold 400 vehicles, and “lost” 800 deals. That meant the lost sales cost $40,000 in hard costs and my dealer regularly reminded them of this cost. Of course on the financial statement, we take the total advertising cost and divide by sold vehicles to come up with an advertising cost of $150 per sale, ignoring the lost sales.
To make matters worse, with a gross profit average of $1,200-$1,300, those 800 lost opportunities cost the dealership almost a million in unearned gross profit monthly. Again, this was an amount that we heard regularly from the dealer. In order to bring that number down or increase closing ratios, sales managers would often neglect to enter a deal into the “up” log until it was close to becoming a deal.
Fast forward to today. Every “up” is carefully logged. Internet “ups” and CRM tools have dramatically changed the game and drastically changed closing ratios. During the past month, I have been logged into the CRM software of many of my clients to determine which CRM company would be a good integration partner for our clients. As I go through my dealers’ wish lists, I can’t help but notice the closing ratio reports and the low closing percentage – some in the single digits! If only 5-10% of your leads are buying vehicles, that means 90-95% lost sales. It is the complete opposite of parts and service departments that don’t pay anything for their leads or have special CRM software.
I recommend that controllers get a login for their CRM software and start learning it – at least the reports it provides. They should ask these questions of the salespeople:
- Is this software effective and does it sell more cars?
- What features do they like or dislike?
- What is the monthly price?
- Is there a way to reduce expenses by finding duplicate lead costs?
- What reports do you get daily or monthly?
- If you get a gross profit report – do you compare the gross on this report to your F&I summary or Journal gross?
- Do the total units sold last month by model match your financial statement totals?
I’ve been advocating for many years the dream of a single software product for both your DMS and CRM, but as time goes by, I’m finding that a combined DMS/CRM provider is similar to my multi-function printer. My printer can scan, fax, and print – but doesn’t do any of these very well. There is a price for this simplicity in the loss of features, thus I’m changing my mind and looking for the best CRM providers to interface with a DMS. If you have any thoughts on this topic, please email me; your help is always welcome. I’m excited to attend the next Digital Dealer Conference this April 11-13th in Tampa to learn more from over 120 exhibitors and hopefully find the perfect CRM provider that can truly help increase sales while reducing expenses; the true keys to “profit or perish!”
Author: Sandi Jerome
Sandi Jerome is the owner of Sandi Jerome Computer Consulting. Sandi founded DealerStar, a web-based DMS. She is a former CFO, System Administrator, Fixed Operations Manager, and Controller with over 30 years experience in the auto industry.