Dealerships looking to increase their profits in their sales department have traditionally focused on two key areas – increasing the prospect conversion rate, and increasing gross profit per sale. 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 probably 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 get 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 or so 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 them 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 programs.  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 program can buy the tyres in bulk, which keeps the cost down and makes the programs 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 traditional advertising.  That represents something of a sea-change.

The motor trade is less good than some other industries – companies like Apple, Dell, EasyJet and Ryanair spring to mind – at marketing additional products to their customer base.  On a regular basis these companies 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 your used car stock offers you a considerable opportunity.  A dealership database is perfect for marketing to.  Who’s to say that of the 5,000 or so customers you have on your database, 200 aren’t going to be interested in a new used car right now? It is good CRM.

The key of course is a clean, up to date database. If you have that in place you can market additional service products, you can market to lapsed service customers, you can market to lost sales prospects….. the list goes on.

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.

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