Many auto dealerships see their mission through one lens: find a strategy that piques the interest of new customers in order to bring them through the front doors. This strategy could be paying for clever TV or radio ads or throwing a tent sale extravaganza. Once they’ve grabbed the customer’s attention, they’ll usher them through what the dealership has to offer and hopefully sell them a new car. Rinse and repeat.
This works well as a short-term strategy, but over the long-term, the constant search for new customers can get expensive.
Make Your Dealership More Valuable Through Recurring Revenue
The most successful dealerships look beyond this transactional approach. They realize that in order to maximize their return on investment per customer, they must have a strategy to bring the current ones back – for oil changes, for new tires, for repairs, and finally to purchase their next vehicle. They utilize software to help them keep track of current customers and remind them to return for complimentary maintenance visits. These dealerships also train each of their employees to build foster a good relationship with customers so they’ll feel comfortable returning when it’s time for a new car.
Are happy customers really more likely to purchase another car from their current dealership? According to the Auto Dealers Association, they are. In fact, statistics show that customers are 60% more likely to make their next purchase from the dealership where they get service.
This recurring customer strategy does more than save money on marketing to new faces; it makes your business more valuable should you ever decide to sell it.
How do you track those returning customers, though? What data would you show to a potential investor to demonstrate recurring revenue and show how it ties into the overall valuation of your dealership?
Tracking the Numbers to Estimate Valuation
That’s why Performance Administration Corp. developed the specialized software that connects into the dealership DMS to help you easily track large amounts of data. One glance at the Vehicle Repurchase Report, for instance, gives you valuable analytics about the number of contracts sold versus number of dealership visits as well as repurchases by year. It also compiles in-depth data on individual customer purchases, allowing you to see the average amount of time each customer held onto their previous vehicle and what sort of vehicle they purchased next.
These analytics give you a way to know if the certified maintenance program you’ve put into place is working, but they also do something even more important: they clearly demonstrate the loyal customer base and recurring revenue stream you have coming not only into your service department, but into your showroom for new sales.
The Active Contract Reserve Report is another useful tool in calculating your business valuation, as it clearly shows the amount that is currently being held in reserve to pay customer Maintenance Claims for your certified maintenance program. If, for instance, your store has paid $294,000 into that reserve, and due to the actual number of customer visits you’ve only paid out $101,000 in claims, this leaves $193,000 in that account. The reserve account balance will figure into negotiations should you ever decide to sell your dealership.
Dealerships that have an in-house plan often struggle when trying to identify the asset and liability when selling a store and sorting through all of this data in a dealership’s record systems would be exhausting and time-intensive. Performance Administration Corp. software combines it all in a detailed report that provides a clear picture of the dealership’s growth, direction, and valuation at any given time.
Long-Term Growth for an Auto Dealership
Focusing on and monitoring recurring revenue isn’t an overnight strategy; it takes time to see results. One dealership, for example, may start out with an average of 200 new car sales a month based on seeking out new customers and scoring the occasional returning one. Implementing the new focus, the numbers begin to shift. Five years in, they can see that they’re now selling 1,000 new vehicles each year to customers who have been returning for oil changes — this plus the original 200 sales a month to mostly new customers.
If 20 percent of your customers decided to buy their second, third, or fourth car from your dealership, what would that do to your sales numbers over the long-term? Using tools such as the Vehicle Repurchase Report, you’ll not only be able to track them; you’ll have concrete tools to show a potential buyer the real value of your business.
To be clear, investing in a certified maintenance program and tracking customers through the Lost Opportunity Transformer and Vehicle Repurchase Report software won’t generate the same overnight results as a tent sale. However, over the long-term, it’s a winning strategy for dealerships to increase their bottom line and the overall value of their business.