Baseball season is in full swing (pun intended) and there’s an interesting controversy swirling around the league. Players are on pace to hit nearly 500 more home runs this year than ever before. Coincidentally, the league’s strikeout rate is also on pace to set a new record high.
Baseball statisticians have offered up several theories as to why this is happening. From juiced balls and better-conditioned players to faster pitches and more fly ball attempts by hitters, there’s only one thing for certain. Homers make the crowds–and team owners–happy.
It’s sort of like how selling a lot of cars makes you happy. It’s natural to measure success by results. We ask questions like “How many cars have we sold this month?” or “How much revenue have we generated?” But are these really the right questions to ask?
Everyone defines success differently, but most of us agree that profitability is an important component. After all, you can sell a lot of cars but if you’re not making a profit, is that really successful? Likewise, the number of home runs a team hits is not a good predictor of whether that team will win the World Series.
The book (and then movie) Moneyball illustrates how the recent evolution of statistical analysis has turned the baseball industry on its head. Historically, coaches, managers and scouts placed more value on statistics such as a player’s batting average that, as it turns out, were not the best predictors of a team’s success.
In dealerships today, we are also discovering that desired results are not arrived at in the way you have always believed. Consider this question: If you want to increase profitability, is selling more cars the best way to get there?
The answer is, probably not. Which begs the question, what is the best way to increase profitability? To answer that, a paradigm shift in the way you manage may be necessary. Instead of focusing on results, focus on activities that produce results. Only by performing an in-depth evaluation of your key performance indicators (KPIs) will you be able to identify the best predictors of your dealership’s success.
To help illustrate how this works, let’s review examples from each department in a dealership and ask what happens when you drill down on activities vs. results.
Sales
Historically you may have judged a salesperson’s success by looking at total number of cars sold. If you want to see how that was accomplished, you might look at the number of appointments that showed and at the closing ratio of those appointments.
But are these the right KPIs to be looking at? Dig down deeper and you will find that better predictors of success are the number of appointments made and ratio of appointments confirmed by a manager. In our experience, the most successful salespeople set an average of two appointments per day and have at least 75 percent of their appointments confirmed by a manager.
F&I
Traditionally you might evaluate your F&I manager’s success by looking at total revenue or revenue per deal. Evidence indicates it may be better to look elsewhere.
One of the best predictors of F&I success is to find out how many of your customers are being offered a full-menu presentation. In dealerships that still don’t use electronic forms, you can discover this by pulling up the last 25 deals and looking at the declination forms. If the customer signed the declination form you have a good indication the customer was given the full presentation. If those declination forms are unsigned, you’ve got a problem.
Another KPI to review is the average products sold per deal. Let’s say you have a goal of selling three products per car deal. If a F&I manager is averaging 3.5 products per deal, that tells you your process is being followed. If an F&I manager is only selling 2.5 products per deal, chances are your process is not being followed.
Parts
A simple way to track success in the parts departments is to look at the average sales per employee. That gives you a result, but it doesn’t tell you how you got there and it doesn’t tell you how many sales are being lost due to poor phase in/phase out criteria.
Let’s say you get a request for a set of brake pads for a 2010 Range Rover Sport. You don’t have the part in stock so your employee marks it as a lost sale. Now what? Do you order the part or stick to your decision not to stock it?
Perhaps you could set up a phase in/phase out algorithm in your DMS that goes something like this: if you have three requests for those brake pads and end up marking three lost sales in three months, then you order three sets of the brake pads. If those don’t sell in the next three months, then you won’t re-order.
The bottom line is you’re shooting for 27 to 32 percent return on every part. If more than 20 percent of your inventory is over 12 months old, your phase in/phase out criteria is probably weak, and you’ve got too much cash tied up in inventory.
Service
Want to know how busy your service department is? One way to find out is to look at technician hours turned. However, a better KPI to review might be the ratio of ROs opened vs. ROs closed. This ratio should be approximately 1:1 and it should be reviewed daily.
If a service writer opens 15 ROs per day, that same advisor should be closing 15 ROs per day. If more ROs are opened than closed, that tells you there may be a problem in the shop. If more ROs are closed in one day than opened, it may indicate that business is slowing.
Accounting
In accounting, we always want to see what the running totals are for posted expenses and car deals. But even more important is to track how quickly everything is being posted. Is it on a daily basis?
If a bill is received on the 29th, that expense should be posted no later than the 30th. Car deals should be posted within 18 hours of completion. When postings aren’t done on a timely basis, it leads to miscalculations in forecasting and a month-end crush with a lot of stress.
These are just a few examples of how focusing on activities instead of results can reveal areas where inefficiencies and lost opportunities are occurring.
In baseball, statisticians have discovered that the best predictors of success are not always obvious. Home runs may be crowd pleasers, but winning the World Series requires digging into hidden statistics that incrementally add up to a big competitive advantage. You can do the same in your dealership by identifying which activities are producing the biggest results.
Join Josh Blick’s session Stop Reporting Fake News! at the Digital Dealer 23 Conference & Expo this Sept. 18-20th in Las Vegas, where he will walk you through looking past the traditional ‘reactive’ KPI measurements to drilling down to the ‘actionable data’ that will insulate you from changing markets and improve your profitability now!
Register now and start building your agenda by choosing from more than 100+ educational sessions!
