A chart by NADA shows the continuously rising labor costs to operate a franchised automotive dealership (Minus COVID). This human cost to produce sales and service vehicles coupled with a reduction in operating gross profit margins creates a precarious position for the modern automotive dealership that needs to be addressed through new automated processes that create sales and operational efficiency through excellent customer experience while working alongside existing human-driven dealership processes.
A new approach to maximizing business labor productivity is by leveraging workflows to enable a more productive employee and boost revenue generated per employee, which helps dealerships become more competitive in this aggressive marketplace. Dealerships who embrace consistency through workflow automation are seeing improvements across all departments.
Carvana, Vroom is already benefiting from workflow automation in their businesses. It shows in their per-employee financial contribution compared to a typical New Vehicle Franchised dealership based on the NADA 2020 financial report data. As you can see Carvana, and Vroom both are generating over 60% more revenue per employee.
$5.6B in Sales
$1.45M generated per employee
$1.1B in Sales
$1.47M generated per employee
Average New Car Franchised Dealership
$59M in Sales
$922,000 generated per employee
Today a new series of metrics are emerging that move past the simple cost per lead or profit per vehicle retailed. These new terms include the understanding of CAC (Customer Acquisition Cost) to truly understand your north star of marketing spend and let’s not forget your customer growth and MER (Marketing Efficiency Rate) to measure your revenue against your marketing spend and one of my favorites in the SaaS world but rarely spoken about in Automotive retail and that is the dealerships customer churn rate. These metrics and more will redefine how we manage the operational effectiveness of the dealerships.
ADVANTAGES OF TECHNOLOGY-DRIVEN DEALERSHIPS
There are three types of revenue workflows that dealerships can implement to build and maintain a long-term successful strategy. They are acquisition, retention, and expansion.
The first one is the dominant focus of the average franchised automotive dealership yet not the most powerful for financial gain.
*** Acquisition Revenue ***
Dealerships focus 90% of the effort on driving new sales/service into the dealership through aggressive marketing tactics yet the costs associated with new customer acquisition continue to rise in automotive retail.
As you can see from this NADA graphic, the cost of acquiring a new customer has continued to rise and sits at over $640.00 per vehicle minus the interruption of the pandemic on the industry, while gross margin per vehicle retailed has continued to erode, making this an unstainable business model.
So, the question becomes how do you fix it? At 360Converge, Inc. we believe that answer lies in improving the dealership’s CLTV (Customer Lifetime Value), where a dealership can tightly control the experience throughout ownership through consistent customer conversational engagement driven by text automation.
Building a more efficient and profitable dealership begins and ends with the dealership’s capacity to consistently interact with more of their customer base more frequently than the competition.
Here is the second way that workflow automation can generate revenue for your dealership.
*** Retention Revenue ***
Retention is an often-overlooked portion of the automotive business, as many dealerships, I spoke with assumed the dealership was marketing to the best of their ability to their existing customer base.
Unfortunately, the data told a different story. Many dealerships are using email as the primary marketing channel to attempt to engage their current customers. With many emails getting caught in SPAM and the average email delivery rate at just 80%, and with the average open rate is 18% deliverability continues to be an issue.
This means a dealership with a DMS Sold Customer file of 50,000 records, on average, only 7200 people would even open the email. So, in any shotgun marketing initiative, a typical dealership only reaches 14.4% of its available audience.
Data supports that finding an effective way to retain more customers impacts your bottom line. Acquiring a new customer cost five times or more than retaining your existing customers and increasing your customer retention by just 5% can increase profits from 25%-67%. If that isn’t a reason to build workflows that keep your relationship growing with your existing customer, here is another fact. The success rate of selling to a customer you already have is 60-70%. In contrast, the success rate of selling to a new customer hover at just 5%-20%.
The secret to success is building workflows that drive retention through meaningful conversations. Texting is now the most effective communication channel with an open rate of 98% within 5 minutes and response rates at over 40% with an effective offer.
Now is the best time to start to leverage workflow automation to connect with more of your customers more consistently and drive more revenue into your dealership.
To finish off the post I started earlier this week about workflow automation at your dealership. Workflows are all about increasing the productivity and profitability of your dealership. Today I wanted to focus on the third type of revenue from creating workflows at your store that very few dealerships are achieving but the ones who can set this in motion create sustainable revenue.
*** Expansion Revenue ***
Expansion is rooted in the concept of a flywheel that was first featured in the book “Good to Great” by Jim Collins, an untapped opportunity in the automotive industry.
A quick summary is designing workflows that will inspire your existing customers to become a catalyst for new customer growth through conversations or even direct referrals.
Dealerships should now begin to look at their DMS database as an asset that should be nurtured and monetized. Another advantage of tapping into your existing customer database and creating workflows to move them to become advocates of your dealership can completely change your business. I am sure you can recall a customer who steadily keeps referring people to you and its impact.
In my automotive sales career it was Mrs. McCook, who, because of her, I sold seventeen vehicles through her family, friends, and church group. I am sure it was more but these were the ones I tracked. It left a lasting impression on me of the power of referral marketing. Now with technology, this can be automated using a combination of a loyalty program, specialized customer coupons, reviews, and surveys.
Using text to drive this type of engagement is the most effective way to build a dealership that lasts the test of time. In fact, this is the secret that Jim Collin wrote about in his book.