While it’s difficult to measure, a store with an ever-improving system and process is going to grow on its own merit.  -  IMAGE: Getty Photos

While it’s difficult to measure, a store with an ever-improving system and process is going to grow on its own merit.

IMAGE: Getty Photos

When I work with independent dealers for the first time, one of my first questions is: What is your ambition?

Do you want to rapidly grow sales volume, increase your profitability, or both? Let’s talk about improving sales volume.

First, a few disclaimers. Some of these principles were built in a normalized market. During the past two years, I’ve found them to remain true in the volatile COVID market, but keep in mind, 24 months is not an ideal data set. Second, while increasing volume and increasing gross profit are not the same conversation, they cannot be completely separated from each other. I have seen the volume-related basics I’m going to unpack here dramatically increase net profit along the way. More sales, faster turn, lower holding costs, reduced floorplan fees, and curtailments — all are byproducts of best-practice inventory levels and management.

I must state the obvious: Your profitability — and in some respects your turn time is made or broken at acquisition.

I’ve honestly never met a dealer who’s admitted he or she is a bad buyer, but I’ve certainly interacted with many dealers who were bad buyers.

It’s a very hard thing to admit you can’t buy cars well when you own a car dealership. But if this is you, there is a back door, and that’s simply hiring a buyer to compensate for your weakness. Trust me, it’s OK, and it can save you from filing bankruptcy.

With that said, inventory is indeed the beginning of a beautiful thing, but what prevents most independent dealers from smart and rapid growth is fear and access to capital. Yes, fear is the primary culprit that slows a dealer’s growth. Having the mojo to roll out of bed and start thinking about doubling your floorplan causes many dealers unbearable anxiety. Fear of an increased floorplan and having access to it are two different animals. Don’t confuse your capability with your willingness.

There are many dealers with a lot of unused floorplan or major assets who say they want to grow, but in fact, haven’t grown in years. If they’re honest with themselves, they’ll realize they’re afraid to buy cars in almost any market. But buying more vehicles is certainly the only way to significantly grow your sales count.

Here’s a bit of supporting math: Assume you’re an average dealer. You sell 50% of your inventory each month. Anything less means you’re not operating correctly. It’s a sign something is broken, and you must fix it immediately. If you’re turning 75% to 100% of your inventory every 30 days, you’re a rock star. It’s arguable as you approach 100%, you could increase your vehicle pricing for the first 30 days to increase gross profit, but there are peripheral factors to consider when making that decision.

So here’s the takeaway. If your turn is above 50%, you can work on improving it while growing units. If your turn is less than 50%, I’d recommend identifying and fixing some operational issues before attempting to grow your inventory and increase sales, because doing so could really hurt your business.

How much inventory do you need based on the number of salespeople you have? Forget that it doesn’t matter. The real question is how many salespeople you’ll need once you identify how many vehicles you’re going to hold. I’ll unpack the math on that in a bit. But first, for brevity’s sake, let’s move to the second factor in increasing your sales volume once your inventory is increased.

That factor is lead count. You can’t sell more vehicles if you don’t have them, or if you don’t have anyone to buy them. Your lead count best practice is eight to 10 times your inventory level. Now, that number is not known by many dealers, and when I run the calculation for them during consulting or in a 20 Group, it’s often the first “aha” moment.

Take all the vehicles on your website and multiply that number by 10. Did you get that many leads last month? Now let’s make it painful and run the same calculation against all your inventory in stock. That will begin to expose the cost of a poor time to line.

Many dealers tell me, “Justin, I have 200 vehicles in stock.” Then I show them the 120 units on their website, and they quickly have 80 excuses. It’s all frozen capital – frozen stacks of $100 bills. But that’s a conversation for another day. Let’s focus on lead count.

I would assume well over 90% of you reading this will be amazed to see you’re surprisingly malnourished on your lead count. Here are a couple of things to do if your lead count is suffering:

  • First, don’t tell your sales team. They’ll use it as an excuse to under-perform.
  • Second, you must keep the number in front of you each month. Learn to run a lead tracking equation so you can measure a few times per month whether you are on or off track to hit your lead count.
  • Third, if your leads are off, start a marketing meeting — about an hour long — once a month minimum. Have someone on your team prepare a list of all your marketing sources, the money you spent on each one, how many leads they resulted in and your ROI for each source. Cut the bottom 10% and try something new.
  • Finally, if your marketing plan is being executed and leads are still down, your vehicles might be priced too high. I recommend an aging-inventory meeting — or an asset meeting — once a week, minimum, to review every single vehicle and its pricing history, VDPs, and so on.

This is an important but lengthy topic, so I’ll save it for another day. But the short version is those four steps will lead you to a marketing plan that will provide the lead count you need.

OK, so we’ve touched two of the four critical areas for increasing sales volume – inventory and leads. Next is the last objective metric of the four: the number of sales professionals. This one involves the easiest math of all. Average the number of sales per salesperson your team has made over the past 90 days and divide your new sales goal by that average. That will provide a baseline for what you can expect from them.

Let me give you a quick example. Let’s say you have three salespeople who have sold a total of 180 vehicles during the past 90 days. That means they’re averaging 60 vehicles sold each per 90 days, which is about 20 per month.

Now, say you want to sell 100 vehicles next month. Divide that by 20 and you get five. So the only way you can expect to sell 100 vehicles next month is if you have five salespeople, because five times your store average of 20 sales per salesperson per month equals 100.

I know this seems basic, but please, think about your store. Do you employ enough salespeople to reach the number of sales you want to hit this month? Or next month? Probably not. So, as you increase your inventory and lead count, you can expect the lack of salespeople to hold you back from achieving your goal.

All three of those metrics need to be monitored together and throttled up appropriately. If you’re closing 10% of your leads, each salesperson needs 200 leads a month to sell 20 vehicles. If you’re closing 50% of your showroom visits, each salesperson needs 40 customers a month on the lot to close 20 vehicles.

The fourth and last piece of this puzzle is something I’ve coined as “sales processes.” This is a subjective topic in that it’s difficult to measure, though I’ve been working on it for years. To explain this, let’s use an exaggeration and say next week you hire Grant Cardone, Justin M. Osburn, Joe Verde, Howard Bullock, Andy Elliott, “3K” Cory Collins, and Jackie B. Cooper to come into your store and train your salespeople full time for the entire month. Do you think you would sell more vehicles with that firepower in your store? Sure you would.

But what if your leads, inventory and number of salespeople remained static? What if you had the same factors to deal with as the month before? Do you still think you’d sell more vehicles? Of course you would. How did you sell more vehicles? Simple — the sales process became stronger.

Look at it from a different angle. If you don’t implement any organized training or improve your sales process or your F&I process at all from month one to month two, is it fair to say all things being the same you’re going to have a similar sales number? The answer, of course, is yes. So, while it’s difficult to measure, a store with an ever-improving system and process is going to grow on its own merit. Developing selling skills and systems will absolutely increase your volume.

So those are the four foundational categories that can help you increase your sales volume – and do it in a hurry. How fast can your volume spike? How much can your volume increase? Well, I’ve helped stores hovering at 25 vehicles and $30,000 in net profit jump to 60 vehicles and more than $100,000 in net profit in less than 60 days.

This is simple, but it’s not easy. It’s hard work. It certainly takes consistency. It takes learning how to identify which of the four areas are lagging and cranking them up. It’s a constant chore to elevate each metric in harmony.

But I can assure you if you have faith in yourself and in this simple-but-not-easy outlook on volume, you can double your sales in the next 60 days.

ABOUT THE AUTHOR: Justin M. Osburn is founder and CEO of Automotive Reinsurance Concepts and SmartGroups™, a dealer educator and industry speaker.

Originally posted on Auto Dealer Today

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