Show Me Your Pay Plan
Pay influences behavior. We see this statement validated every day in the car business. Want more units sold? Hand out a unit spiff. Want higher customer labor per RO? Pay your advisors a bonus on hours per RO or give the technicians an opportunity to use a “pull board.”
Do these incentives help address the current business realities we face? Yes, but only partially. They stimulate the generation of gross, but there comes an inflection point where higher and higher grosses will, over the long term, influence and possibly shift consumer choice. The reality of our business is we have in most cases too many dealers chasing the same customers, while selling the same product or slightly differentiated products in close proximity to one another. In addition, we must now contend with the Internet, leaving us no real geographical boundaries to protect us as we move forward in an attempt to gain market share.
In working with a large dealer base here at NCM, we are exposed to a broad cross section of name brands and dealer practices and processes within those brands. It is an ongoing laboratory – something to take in, but more importantly something to learn from. The best of the best dealers have in one way or another enunciated a clear long-term strategy to improve market share and they have worked hard to implement it. Diving deep into this strategy and stripping away the hype, we are left with a simple business model that calls for the following elements to be firmly in place:
1. An adequate sales and selling system allowing the dealership to get its fair share of traffic and business, whether it be through the traditional sales channel or the Internet.
2. An organizational capability and customer contact blueprint to retain your current sales customers as service customers and then to convert them to a repeat sales customer.
3. Constant fine tuning of customer retention capabilities either through a process or newer technology revolving around a process.
There are compelling reasons why loyal customers are so profitable to your dealership. Take the variable side, for example. We see that repeat customers have…
• Higher closing ratios than walk-in traffic. It’s something close to 70 percent, while walk in traffic is closer to 20 percent. This is the difference between having a large check vs. a small check at the month end.
• Higher grosses. No need to lure them into the dealership with a loss leader. Also, repeat customers feel comfortable in a familiar environment.
• A lower cost of sales. You spend less money getting repeats into the dealership because you merely have to stay in touch.
• An inclination to patronize your service department.
If this is reality, then how does your business model reflect it? We all sense that we need to stay in touch with our customers, do a great job of meeting and exceeding their expectations, have a welcoming and attentive staff at all customer touch points and make every effort to gain their loyalty. Then, the simple question to ask is, “What steps are we taking at the dealership to achieve the above and make the organization live and breathe customer retention?”
I believe that there are two ways to move the dealership along this path. First, we must change dealership culture so all staff members think and act cohesively with regard to customer retention. This is extremely difficult, but the truly successful dealers have done so. It starts at the top with senior management who must show leadership and continually champion this cause. There is no magic bullet—it is slow going and complicated with a number of challenging dynamics, but the end result makes it all worth it.
The second way to change our staff’s behavior toward customer retention is through pay plans that are designed to reflect this bias toward customer retention. We are all in agreement that repeat and loyal customers are wonderful guests, so why are we not recognizing and rewarding our salespeople for nurturing these repeat clients? Our computer systems can capture the necessary data and this becomes an important operational capability going forward.
Seriously consider fine tuning your sales staff’s pay plan to include an element that rewards them for selling the same customer or his family member another vehicle. Whether it is a flat fee or a higher percentage for repeat sales is your call. All I know is that as your customer retention rate increases, your marketing costs taper off and your profitability improves. Not bad! It also moves the dealership toward a change in the culture of the personnel.
Let me throw this out to you as I look around the corner. I think repeat customers are so important to the OEMs that one of these days one of the manufacturers, once it masters the database nuances needed to track retention, will switch its focus from CSI to what really matters, customer retention. When a great open point becomes available, it will lean toward those dealers who succeed in keeping their customers. Be there. Start linking operations to strategy—start with a stroke of a pen!
Jeff Sacks, president of Jeff Sacks & Associates, is an auto industry speaker, consultant and trainer and is actively involved with dealership and OEM consulting and training.
His website is www.jeffsacksauto.com and his phone number is 800-867-2160.