Is your service operation truly Customer Retention focused?
by: Charlie Waters
I often hear managers talk about finding a balance between customer retention and profitability, as though they are complete opposites of one another. Customer retention and profitability should be thought of as one and the same. Here’s an example:
Dealership A has a prepared menu that recommends all of the factory requirements plus various flushes and alignments, etc. at 7,500, 15,000 and 30,000 mile intervals.
- The basic 7,500 mile service averages $50 (.7 labor - $35.00 labor - $50.00 effective rate)
- The 15K averages $150 (1.5 labor - $100.00 labor - $66.67 effective rate)
- The 30K averages $450 (4.5 labor - $325.00 labor - $72.22 effective rate)
The dealership writes 100 RO’s per day. 17% are within 1000 miles of a needed maintenance (mathematical average). The advisors sell 20% or 3.4 of these customers a day the needed services. When asked why such a low number of menu sales, the advisors respond by saying “We’re too expensive.” or “The customers don’t believe in all that stuff.”
Dealership B has a prepared menu that recommends all of the factory requirements and only additional items that are necessary due to the local area conditions.
- The basic 7,500 mile service averages $50 (.7 labor - $35.00 labor - $50.00 effective rate)
- The 15K averages $50 (.7 labor - $35.00 labor - $50.00 effective rate)
- The 30K averages $150 (1.5 labor - $110.00 labor - $73.33 effective rate)
This dealership also writes 100 RO’s per day. 17% are within 1000 miles of a needed service (mathematical average). The advisors at this store sell 60% or 10.2 of these services each day, which is the industry standard. The advisors believe in the menu and feel that it is easier to sell.
By this example, which dealership is more customer focused? Obviously, the customers at dealership B are more loyal to the dealership and feel that they are treated fairly. You can tell that by the vote of their wallets.
By this example, which dealership produces the most income? Did you guess dealership A? Let’s do the math:
Dealership A sells 3.4 services a day. 64% of these services will be 7,500 mile services, 18% will be 15K services and 18% will be 30K services (mathematical averages)
- 3.4 X 64% X .7 = 1.5 hours X $35.00 = $52.50 labor sales
- 3.4 X 18% X 1.5 = .9 hours X $66.67 = $60.00 labor sales
- 3.4 X 18% X 4.5 = 2.8 hours X $72.22 = $202.22 labor sales
Total Daily FRH’s = 5.2 Total Daily Sales $314.72 Annualized 1326.0 FRH’s Sales $80,253.
Dealership B sells 10.2 services a day. 64% of these services will be 7,500 mile services, 18% will be 15K services and 18% will be 30K services (mathematical averages)
- 10.2 X 64% X .7 = 4.6 hours X $35.00 = $161.00 labor sales
- 10.2 X 18% X .7 = 1.3 hours X $35.00 = $ 45.50 labor sales
- 10.2 X 18% X 1.5 = 2.8 hours X $73.33 = $205.32 labor sales
Total Daily FRH’s = 8.7 Total Daily Sales $411.82 Annualized 2218.5 FRH’s Sales $105,014.
This is just one example of many that demonstrate how a dealership can think of customer retention and profits as one and the same. If time and space permitted, I could give you more. In this example the technicians are producing almost 900 additional hours each year, the service department is producing $25,000 more labor sales a year and the customers aren’t defecting. It’s a win-win! This example doesn’t even take in account the additional traffic that your store might generate from phone shoppers and referrals. The actual numbers in the example are not far off from what we typically see. Customer retention must be the focus of what we do. We must think of it as method of increasing profitability not an alternative.
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