How To Turn CRM Strategy Into A Profit Center

By Ralph Paglia For many dealers and car companies the concept of Customer Relationship Management (CRM) is more about Customer Satisfaction, Concern Resolution, Ownership Experience and other “warm and fuzzy” objectives. Although these areas are improved during most CRM strategy and system implementations, many dealers have found that there is a much more effective way to design, implement and evaluate CRM programs and their effectiveness… The CRM Profit Center. Although the practice of tracking CRM as a profitable business function has been around since the first Internet departments cropped up, developing the concept into a “CRM Profit Center” came to me while I was at a dinner meeting in Toronto with the largest Chevrolet dealer in Canada. I was describing the evolving approach to dealership CRM installations that I had been working on when he coined the term. What he said was “So, it sounds like you are proposing that CRM be treated like any other profit center in the dealership…” And, that is when it hit me… Yes, CRM technology, people and processes should be held accountable for expenses and associated revenue, all of which must be tracked on a monthly basis just like an F&I department, or any other profit center in the dealership. Most dealers would agree on the issue, but what are the actual best practices that make it happen? So, if you care at all about these things, you have got to be wondering how, exactly, can this be done. After designing, installing and participating in several hundred dealership CRM implementations, many under partial OEM program funding, and quite a few that were 100% dealer funded, I can share with you that tracking expenses is something most dealerships are actually pretty good at… So, for the purpose of this article, let’s focus on what needs to be tracked relative to CRM processes and results. Basically there are 5 things that must be tracked for all CRM customer contact activities: (figure 1)

The Five Key Retail Automotive CRM Measurements # Metric Title Description of the measurement 1 Customers

Contacted Refers to the dealerships total contacts received from, or made with customers within that process category

2 Appointments How many appointments resulted from those contacts 3 Shows How many customers contacted showed up on the showroom floor or in

the service drive 4 Sales How many cars were sold, or Repair Orders written 5 Profits How much total profit on sales, F&I, parts and labor was generated from

customers contacted within each CRM process category who showed up at the dealership

The first process that should be installed is one that tracks the 5 numbers above, and the activities of people assigned to execute CRM-related customer contacts, whether inbound or outbound… BY PROCESS CATEGORY! That’s right, if it is an unsold showroom visitor follow-up call, then it has to be counted along with every other time an unsold customer is contacted. If it is an incoming sales call, then it must be counted… Fresh showroom ups must be counted, along with Internet Leads and all sales and service customer contact activities.

Here’s the list of what we have found must be counted as far as customer contacts within the following CRM Process Categories: (figure 2)

The Eight Primary Retail Automotive CRM Process Categories # Metric

Title Description of the measurement

1 Incoming Showroom Visitors

Refers to the dealerships total floor traffic that was not a sales appointment or a “Be Back” in other words… “Fresh Ups”

2 Incoming Sales Calls

How many incoming sales calls did the dealership receive for both new and used vehicles departments (did not request a name)

3 Incoming Internet Leads

How many electronic leads did the dealership receive from all sources, including the dealership’s web site, the OEM and all third party lead providers and online listing services

4 Incoming Service Inquiries

How many people contacted service by just walking in, without an appointment, or made a phone call for service, or tried to schedule service online or make a service request by email

5 Outbound Unsold Follow-Up

How many prospects did we contact after they came to the dealership and left without buying? Includes Internet & Phone appointments that show up, but leave without buying

6 Outbound Sold Follow-Up

How many previously sold customers that bought a car from us at any time within the previous 3 years did we contact?

7 Outbound Prospecting Contacts

How many prospective customers that have not done business with us during the previous 3 years, if ever, did we contact by phone, email or letter to tell them about what we offer?

8 Outbound Service Follow-Up

How many customers that have ever had a Repair Order opened and closed within our Service Department did we contact?

You probably noticed that there are 4 inbound, or customer initiated categories and there are 4 outbound, or dealer initiated categories… Within each of these broad based CRM process categories there may be several subsets. (Continued on next page)

For example, within Outbound Sold Follow-Up we have frequently tracked and measured the results from the following CRM process activity categories: (figure 3)

Outbound Sold Follow-Up Sub-Categories (4 Examples) # Metric Title Description of the measurement 1 Lease

Renewals Refers to the total number of customers who were contacted by the dealership because their Lease is coming due soon

2 Retail Retention

Refers to the total number of customers who were contacted by the dealership because their Loans are paid down to an equity position (finance contracts now in Equity)

3 Sold Customer Referral Mining

How many previous sold customers did we contact for the specific purpose of finding out if any of their relatives, friends or co-workers might be interested in a new or used car?

4 Sold Customer New Model Introduction

These are customers that we contacted because there is a new generation of the vehicle they currently drive being introduced and they are a VIP customer (such as next generation “SL”)

Within the Inbound Service category there are three distinct categories of customer initiated contacts that must be counted: (figure 4)

The Three Inbound Service CRM Categories # Metric

Title Description of the measurement

1 Service Drive Walk-ins

Refers to the service department customers who “walk in” or arrive at the dealership without prior notice or appointment

2 Incoming Service Calls

These are the multitude of incoming phone calls to the dealership that request the service department. There are a wide variety of reasons for these calls, but the majority are seeking an appointment

3 Online service inquiries

These are inquiries regarding parts and service that come in via the Internet. There is a wide variety of web based forms used by customers, but the majority are seeking a part or an appointment

Likewise, there are quite a few outbound service processes that fall into the overall Outbound Service Customer Contacts… In fact, when you really analyze the separate and distinct Service CRM processes, it is the OUTBOUND, or dealer initiated contacts that drive the most direct incremental profits. In many dealerships, the same team that has been created to execute Outbound Service CRM processes also handles the incoming Service inquiries via telephone and the web. This results in additional profits from increased average Repair Order revenue resulting from Service Advisors being freed from telephone inquiry duty and empowered to focus completely on the customers already in the service drive. Once freed from the tyranny of the telephone, Service Advisors will have the time to use the phone for more effective customer contact regarding vehicles already in the service department, thereby gaining more approvals for additional needed service work discovered after diagnostic procedures are completed.

Above and beyond the efficiencies provided by a dedicated CRM Team handling inbound service inquiries, it is the Outbound Service CRM Processes that drive dramatic uplifts in Fixed Operations revenue. A few of these outbound service CRM activities that should be considered, and must be counted (even if zero) for an effective CRM profit Center are: (figure 5)

Outbound Service CRM Categories # Metric Title Description of the measurement 1 Completed R.O. Follow-Up &

Service Reminders Customers who are contacted after completing a service visit, with next visit pre-scheduled

2 Special Order Parts Customer contacts made after special order parts (SOP) have arrived for their vehicle

3 Recall Appointment Contacts These are customer contacts made for the purpose of scheduling appointments as a result of an OEM recall or campaign

4 Unsold Additional Needed Repairs

Service CRM follow-up to encourage or empower customers to get repairs made that they turned down while their vehicle was in

5

Unsold Additional Needed Maintenance

Service CRM follow-up to encourage or empower customers to get declined scheduled maintenance completed at a convenient time

6

Unsold Service Contract Follow-up/Prospecting

Contacts initiated as a result of a vehicle approaching end of eligibility for a Service Contract when not previously purchased

7 Unsold Body Shop Estimates Follow-Up

Service CRM follow-up to encourage or empower customers to get collision repairs made using genuine OEM parts

8 Lost Service Customer Recovery These are contacts made with customers who have not been in our service dept. for over 6 months and are probably servicing elsewhere

9 Service Marketing/Prospecting Contacts with people who may be likely prospective service customers

10 New Vehicle Sales-to-Service Transitioning

Ensuring that new car buyers are personally and directly guided to our service department

11 Used Vehicle Sales-to-Service Transitioning

Ensuring that used car buyers are personally and directly guided to our service department

So, all in all, there are 20 distinct CRM process categories with customer contact activities (if there are any) that should be counted and tracked on a daily basis. Although many CRM applications will count these contacts, activities, appointments and results, it is recommended that manual “tick sheets” be used for a period of time and compared with the automated reports out of the CRM application to determine whether or not the manual tracking validates the CRM software. I usually recommend at least 6 months of manual tracking, and have found that the best dealerships continue with manual logs as a backup to the automated reports, due to the ease of getting basic “counts” and the importance of these raw metrics.

Why is it so important to tally up the activities, appointments, shows, sales and profits? Because this is how a dealer, general manager or CRM director can begin to apply the management principles of a CRM Profit Center. First and foremost, we must be able to measure the value of each customer contact opportunity. By tracking what happens when we execute our CRM processes within each category, we can determine a value for each part of the process. Once we can see the relative values of each type of CRM process, we can then manage our resources to ensure that the most profitable activities are the ones that get done first. Ideally, at the end of each day we will have some incomplete activities, but they should be the lowest value ones from a profit generation perspective. This is where dealers and their CRM professionals can use a basic Microsoft Excel Spreadsheet that becomes a critically valuable tool in managing the CRM Profit Center. By dropping in the 5 Key CRM Metrics for each process category, we can rank and compare them to each other to see where to focus immediate efforts that will pay off right away. This analytical approach shows us where there is the most room for improvement through process training, CRM tools, or additional resources if the value is there. Here’s what the Sales CRM spreadsheet I use looks like with dealership CRM process metrics filled in as an example: (figure 6) Inbound and Outbound Sales CRM Metrics

What the above numbers and measurements allow us to do is to analyze the value of each type of CRM activity… After all, we need to know where the money is so that we can decide whether or not it is worthwhile to pay people to do these CRM activities. So let’s take a look at the rest of this Sales CRM spreadsheet and get some idea as to how we can make management decisions in regards to our CRM Profit center. (figure 7) Sales CRM Profit Center Metrics

Let’s fold the above image so we can better see the Green, Yellow and Red “Analytic Cells” and take a look at how they can be used to better manage a CRM Profit Center.

(figure 8) Sales CRM Process Analytics (raw data folded under)

We can now see (in this example) that the most valuable Sales CRM customer contacts, or business opportunities are the customers who are coming close to their Lease Termination… They are worth $803 per customer contact. So, it would make financial sense from a Profit Center perspective that we make sure we have the resources, then train them and assign them to Lease Renewal opportunities. If nothing else, at least have people assigned to contact these customers and arrange for them to come in on an appointment basis to take a look at their options. Next we see that Showroom “Ups” are worth $272 each, which puts a whole new spin on making sure that showroom processes are followed, customer info is captured, and we log all the ups. Internet Leads are worth $262 to the store in this example. But, would better processes make the results turn out better, increasing the net returned value of our Internet Leads? That’s where the Green, Yellow and Red shading come into play. In this spreadsheet tool, the analytics cells all use “Conditional Formatting” that is based on industry Benchmarks as performed by several hundred dealers whose data was automatically sent in by their CRM applications on a daily basis. These are for the ratios (percentages) only, the dollar values turn Green, Yellow or Red depending on how they compare to the average for their category. As you can see, there are no Red cells within the Internet Lead CRM

Process row, and until we address the other Red cells, we have better opportunities within other processes, as evidenced by the Red cells in Unsold Follow-Up and Retail Retention. Basically, what the CRM Profit Center methodology delivers is an objective, or facts based approach to managing CRM activities towards objectives focused on increasing both profits and process results. These improved CRM process results mean more traffic into the showroom floor and the service drive. Let’s take a look at the same approach described above for Sales CRM process measurements applied to Service CRM processes: (figure 9) Service CRM Profit Center Metrics

As you can see in the report above, there were 8,950 Service CRM Customer Contact Opportunities within the reporting time period… But, what if the dealership simply does not have the resources, or even the willingness to complete 100% of those 8,950 Outbound Customer Contacts? That is when the management principles within the CRM Profit Center methodology become most valuable. Because we have measured our key CRM Metrics over time, we now know which process activities generate the greatest value to the dealership… So, how many customer contacts CAN we handle? If we have a staff of 4 people who are capable of averaging 60 direct outbound customer contacts each day, and we have those 4 people working an average of 22 days per month, then we have an Outbound

CRM Process Execution Capacity of 88 resource days per month multiplied by 60 customer contacts per resource day, which means we can handle 5,280 planned Service CRM Outbound Contacts. With 8,950 Service CRM Outbound Opportunities available, and a capacity to handle 5,280 it becomes clear that we will need to manage those resources so that the 5,280 customer contacts they complete, are the ones that will yield the most profits. How is this done? First of all, let’s isolate the lowest handing fruit, or the unquestionably most profitable Service CRM Outbound Customer Contacts. In the above example we see that Special Order Parts (SOP) and Recall Campaigns have historically delivered a contact value of $80.19 and $73.72 respectively. So, we know those 2 are “in” the mix, and then we have Unsold Body Shop Estimates follow-up activities that have previously generated a profit value of $220.47… Can we get a few more of those?!?!?! Alternately, we see that Service Marketing activities yield a value of only $6.92 per customer contact, and there are 865 of those activities available, which from a CRM Profit Center perspective will simply not make the cut. Neither will “Lost Service Customer Recovery” contacts which, in this example are historically yielding a value of $7.34 per customer contact. So, what if we have a Service Manager who simply wants Service Marketing Lost Customer Recovery activities to happen? Since the basic strategy around a CRM Profit Center is to deliver the most profitable customer communications at the right time, then there is one of two ways top go; either we increase the number of CRM Profit Center resources, or we outsource the customer contacts using a Virtual Business Development Center (vBDC) vendor. Let’s take a look at Service Marketing for example. Even though at $6.92 it is the lowest performer of all the Service CRM activities tracked, it does bring in unquestionably INCREMENTAL business. So, if a CRM Profit Center Resource can make 60 Service Marketing customer contacts each day, those contacts are worth 60 x $6.92 = $415.20 of incremental Parts and Labor Profits. If hiring an additional CRM Profit Center resource costs $10 per hour, times 8 hours, plus additional employer expenses means that the daily expense is [8 x $10] x 1.33 = $106.40 Which, when subtracted from the $415.20 yields a profit of $308.80. Or, as previously mentioned, we could outsource the Service Marketing and Lost Customer Recovery efforts to a vBDC vendor. Regardless of which way we choose to resolve the issue, we will know how to calculate our expectations, measure our results and we have historical CRM Profit Center Metrics with which to compare those results. The real key to the entire CRM Profit Center strategy is to measure the 5 Key CRM Performance Metrics across each of the various CRM Process Categories and then compare the results by looking at the Profit Yield for each activity within each category. About the Author: Ralph Paglia has been working in the automotive industry for 24 years and during the past 8 years as a consultant. He has designed various CRM, Internet Lead Management and BDC implementation programs for several car companies, including Ford, Jaguar, Mercedes-Benz and Honda as well as large enterprise level dealer groups, such as UnitedAuto Group and individual dealerships. He can be reached by email at CRM@RalphPaglia.com or by phone at 505-301-6369.