Repeat Customers Increase Close Rates, Decrease Dealer Expenses

Wouldn’t it be great to have a solid previous customer base about now? Wouldn’t it be great if all of those customers you’ve sold to in the past who are ready to trade today would come back in to see you? Your lot would be filled with traffic, and the best part, repeat customer traffic closes at 70 percent - with gross profits 40 percent higher than your typical walk-in prospects.

It gets even better because you have almost no expense in generating these extra sales and the higher gross profit on each of these types of sales. Repeat customers pay you more because they already know, like and trust that you’re a good dealership to purchase from. Plus, your expense drops from the $500 or so per sale range in advertising and other expenses to just $25 to $50 per unit from a continuous follow-up and retention process.

With retention, you sell more units and raise the gross on each one, with no added expense. To see that in numbers instead of words, let’s take a look at the typical 100-unit dealership with $2,500 gross front and back that is spending $40,000 to $50,000 on advertising (or more in today’s market).

The breakdown of the typical dealership’s sales is 70 percent from high-expense, low-gross, tough-to-close walk-in traffic, while only 30 percent of its business comes from low-expense, high-gross, easy-to-close repeat, referral and dealership customers (service, parts and employees).

Now: 100 units x $2,500 = $250,000 in gross profit

If you are typical and if this is your 100-unit dealership, you end up with a $2,500 average per unit because 70 percent of sales (70) come in at $2,232 per unit and only 30 of your sales come in 40 percent higher at $3,125 per unit:

• $156,250 (70%) from walk-ins (low gross)
• + $93,750 (30%) from repeat customers (high gross)
• = $250,000
• ÷ 100 units
• $2,500 average

Now, let’s go back and look at the difference retention would have made if that had been your focus instead of spending your money and time trying to draw a crowd of tough-to-close price shoppers.

If you had been focusing on building your repeat business over the years instead of advertising, and were now doing 70 percent of your sales from higher gross customers and only 30 percent from walk-ins, the numbers would look more like this instead:

• 70 repeat units @ $3,125.00 = $218,750
• 30 walk-in units @ $2,232.14 = $66,964
• Total Gross = $285,714

"Good Gross" is gross you generate without spending extra money to generate the sale or the gross. Because there are no other expenses, good gross sends all but sales and management compensation (about 40 percent) straight to the bottom line.

So at $285,714, because you didn’t have to spend any more money to generate that extra $35,714, about 60 percent would become bottom line net profit. That’s $21,428 to the net.

And that’s just the first benefit; the second is the money you’ll save because the cost-per-sale drops from $500 per unit in ads, etc. to $50 per unit to retain those customers. That means you save $450 per unit on 40 additional repeat sales for another $18,000, which is 100 percent bottom-line savings (pure profit).

$39,428 Extra Net Profit per Month with No New Expense

A common question is whether those repeat customers will still come in if the market has changed. The answer is: absolutely! Even if buying cycles lengthen, someone in your repeat customer base...

• Is paying too much in maintenance and needs a car now.
• Needs a car now for his high school/college kids.
• Just wrecked her vehicle yesterday and needs a car now.
• Has to trade now because his lease is expiring this month.
• Just wants a vehicle and can afford to get one now.

Even if you didn’t increase volume by a single unit, if you focus 95 percent of your attention on retaining your customers, you’d still be netting an extra $39,248 per month ($473,136 per year). Unfortunately, instead of learning how to manage consistent growth year after year, most dealers and managers focus on filling their lots with expensive, hard-to-close, low-gross, walk-in, price shoppers.

Oops, we have a problem: you can’t manage what you don’t monitor. Too often there’s no tracking in most dealerships to give you the breakdown of floor traffic (opportunities) by type of customer (walk-in, repeat, referral, be-back, service customers, phone and Internet).

Why does it matter? Because if every dealership just tracked their sales and gross by each group, they’d immediately realize that walk-in traffic is their worst source of business, and all of the other groups are their best sources of business.

If they don’t track and don’t understand these differences, they have no goal on increasing their business to their least expensive, easiest to close, most profitable sources of business who will continue to buy in any type of market.

My book, A Dealer’s Guide to Recovery and Growth in Today’s Market, provides ways to add extra units by improving salespeople’s selling skills. Real dealerships are featured that have experienced

• Unit sales increases
• Gross increases
• Four times as many be-backs
• Dozens of extra sales through phone and Internet appointments, prospecting, retention

These dealerships have improved their businesses while many others are just hanging on or closing their doors.

You can grow any time you want to! But you can’t grow at all if you aren’t willing to make changes to how you manage and how you sell.

A Dealer’s Guide to Recovery and Growth in Today’s Market is free and includes much more information than I can cover here. I can’t imagine why anyone who relies on sales for a paycheck would put off thumbing through or reading a free book on how to improve their sales and profits 20 percent to 30 percent overnight.