Rarely does a certified public accounting firm share information about clients. Public accounting is cloaked in confidentiality and privacy is of the utmost importance. As a general rule, CPA firms also keep their client names confidential, too. But sometimes, our clients develop solutions and innovations so good that we request permission to share with others. With full permission from our client, we are sharing this case study that was the subject of a recent trade publication article.
The Vaden Automotive Group is a southeast dealership group that was established almost 50 years ago by patriarch Dan Vaden. Since his passing, his daughter, Jane, has taken the helm and successfully steered the group, which now includes eight rooftops. Jane insists on proactive performance from all of her staff. This proactive approach to business has resulted in an interesting solution to a problem that most dealerships face – boosting finance and insurance revenues.
Vaden has always had a strong performing sales operation. But CEO West Beaver knew there was still room to improve. In 2012, he hired Michael Barrett as Finance Director. Barrett implemented a few strategies, the most successful being the development of an innovative system that integrates a dealership’s service departments with its variable operations. This system has generated significant financial results for the Vaden dealerships, and now has a life of its own. With its own unique software and sales process, it has owners outside of the Vaden group, and is now being installed and implemented at non-Vaden dealerships. The system is being marketed under the name Revlink, and plans are underway for the system to be fully operational in 200 stores by the end of 2015.
“For years, the factory has been pushing us to retain customers,” Beaver explained. “They are now tying incentives to our ability to retain customers in service after the sale. Fundamentally, we know that having the customer come back to us for service makes good business sense. The question becomes, now that our service drive is full of low-profit maintenance-oriented customers, how do we convert them?”
The obvious answer, according to Beaver, is to sell them another vehicle. The problem then becomes how to create a sustainable prospecting process with accountability and measurable results.
Most dealers, either as a good business practice or after being prodded by the manufacturer, have attempted to create some process to increase sales-to-service retention. Vaden did the same for its eight dealerships, mandating a sales-to-service introduction, scheduling first appointments and conducting follow-up with their Business Development Center. It worked quite well, but as they started to look at the group’s raw data from customers coming to the dealerships’ service department, they discovered a profit center that was painfully obvious.
Over 70% of service customers are either “orphaned” (their salesperson has left along with the relationship) or they are “conquest” opportunities (they purchased the vehicle elsewhere). Vaden might provide these customers service for years, thank them for the business then bid them farewell. But that all changed quickly and dramatically when management introduced a system that specifically targets sales opportunities before they arrive at Vaden’s service departments and subsequently notifies the sales team in real-time of their arrival.
EXAMPLE: Mrs. Smith didn’t know she needed an Extended Service Contract. In fact, she hadn’t thought about it since she purchased her vehicle two years ago. Fortunately, Vaden’s sales team knew, because they had just reviewed over a dozen scheduled service appointments for the day of Mrs. Smith’s appointment to target prospective sales opportunities. When Mrs. Smith arrived 15 minutes late for her appointment, two sales managers, the F&I Manager and a handful of salespeople received text alerts letting them know she was at the dealership. With 34,000 miles on her Suburban, someone needed to have a conversation with her about an Extended Service Contract. That conversation resulted in a sale.
Through the process of targeting and engaging service customers, the Vaden Automotive Group has been able to consistently convert at least 1% of repair orders into vehicle sales… and another 1% into service contract sales. These additional sales increased the group’s variable operation gross profit over 10% per month with lower incremental expenses, such as advertising. The majority of these customers might not have purchased a vehicle with from Vaden without the group’s utilization of the process to identify and prequalify customers. In addition, Vaden was able to rely less on purchasing vehicles at auction, which saved on average $800 per vehicle, for a total of $323,000 on 404 trades. The benefit of additional sales, lower incremental variable expenses and more efficient vehicle acquisition has led Vaden to change its culture about prospecting retail customers out of the service drive.
While most dealers are focused on retaining sales customers for service, perhaps dealers should be actively focused on retaining service customers for sales. Because tomorrow, there’s a Mrs. (or Mr.) Smith coming in for service at your dealership… is someone going to be ready?
For more information about Revlink, please contact Barrett at 877.882.8861 or visit the Revlink website at www.carcarepeople.com By Travis M. Horton, CPA, MBA, Partner in Charge of Dealership Services.