When it comes to measuring success, dealerships often point to the most obvious indicator on the lot, car sales. But measuring success goes much deeper than totaling up the number of cars sold in a particular week, month, or quarter. Reading and interpreting reports with a variety of metrics is a critical step to catching the hazards that threaten your dealership’s bottom line. For instance, inefficiencies are usually small enough to fly under the radar but over time are large enough to cause a significant drain on resources. Identifying metrics that reflect the health of your dealership will reveal the KPIs (Key Performance Indicators) you need to measure and track.
The beauty of KPIs is their ability to show you what is and is not working. It is important to ensure your analysis is relevant and pertinent to your business. A few words of caution;
- Your KPI’s need to represent the health of your business and provide indicators when something is off track without having to be involved in every minute aspect of the business.
- Your business determines your metrics. For instance, social media and online word-of-mouth are powerful tools and part of marketing for many dealers; however, your dealership is unique and may not be as visible on Yelp as on Facebook. It is up to you to choose what you measure and what will give you an accurate pulse on your business.
Below we have listed 4 metrics common in dealerships that you may consider for inclusion in your KPIs.
- Lead Response Time (Quantitative)
According to a Digital Air Strike study of more than 1,500 U.S. automotive dealerships, when it came to responding to internet shoppers, “more than 18 percent of the stores never responded to shoppers.” “Only 16 percent responded within 15 minutes, and the overall average is more than 24 hours.” The same study shows that bringing your average response time down to 10 minutes or less increases the likelihood that an internet shopper will physically visit your shop by 300%. Sounds like a good metric to track.
- Vehicle Demand vs. Inventory (Quantitative)
Make sure the vehicles that receive a lot of traffic on your website are the same vehicles that populate your lot. Site traffic has the potential to rightly align your inventory compass, pointing you in the direction of profitability and away from the wasteland of markdowns.
- Relationships (Qualitative)
Your dealership, from sales to service, should be focused on inviting, retaining, and referring business. Your dealership should be able to measure the experience of a customer from their first interaction to their last, which is hopefully not due to a service issue. Be sure you track 1) the percentage of sales customers that use your service department, 2) the percentage of service customers that went on to become first-time sales patrons, 3) the percentage of customers that come back, and 4) the percentage of sales that come from referrals. The fact of the matter is, even in a digital age – perhaps especially in our digital age – experience is everything. An overlooked part of relationship management is the relational distance between the sales and service departments. Be sure you nurture these connections and while you’re at it, keep your finger on the pulse of your online reputation. Numerous studies have shown that it takes FIVE positive interactions to override just ONE negative interaction. Do not neglect your negative press. Bad experiences will happen, and sometimes, they are even outside of our control. But when they do happen, make every effort to reconcile them.
- Personnel Efficiency (Quantitative)
When you track personnel expense to gross revenue, you may be tempted to reduce staff. Do not follow that light! Tracking these metrics opens the door to a better functioning dealership by revealing the areas of your business that suffer under the weight of inefficiency. It is an invitation to explore cutting edge training, tools, and technology that can help your staff perform at their very best.
Best Practices for Better KPIs
Indicators of good business can only go so far without a few guiding principles.
- Make sure the data you review is up to date and accurate. Errors happen – human input sometimes results in bad information. As an owner, you have a responsibility to look at raw data, at least on a semi-quarterly basis. A system of checks and balances will keep opportunity loss at a minimum and hold every person on the floor accountable.
- Ask for the story behind the numbers. Many times, data reflects what is being done, not what could be done. Ask your team to tell you how they came to their conclusions, challenge them to find areas of missed opportunity, and require them to come up with at least one improvement per meeting. Your team may be presenting numbers that support a compensation plan. This practice doesn’t necessarily represent wrongdoing, but it does obscure the big picture.
KPIs can help you keep a pulse on your business. Reviewing accurate reports, consistently and with a healthy dose of skepticism and curiosity, is the key to identifying trends.
If you need help determining which KPIs best fit your business, the professionals in our office can help! Give them a call today.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.