One of my favorite quotes from Yogi Berra is “If you don’t know where you’re going, you may wind up someplace else.” If you’re managing a dealership, you know this is true. You manage with a goal in mind, and the way you know you’re on the right track is by looking at your key performance indicators (KPIs).
But how do you know which KPIs are the best indicators of the results you want? How do you know what your benchmarks should be?
Many dealers turn to 20 Groups or recommendations from NADA. The problem with 20 Groups is that often their benchmark recommendations don’t take into consideration all the local and regional differences. For example, in Florida there is no cap on doc fees, so a dealer might get away with charging the consumer $750 in doc fees, which is pure profit. In New York doc fees are capped at $75. So it’s difficult to break down profit per unit when you’re comparing your KPI to a national average.
Additional regional differences may also include vehicle brand preferences, average consumer income or urban vs. rural locations.
When I managed a large, multi-line Chevy store the best solution I found for establishing benchmark KPIs was to hire a consultant. Consultants should be able to give you benchmarks that are an accurate reflection of what other dealers are doing in your area. You can hire them for this purpose only; just let them know what you’re looking for. You may have to hire different consultants for fixed ops and sales.
Another potentially good source for benchmark KPIs is your OEM. Do they have recommended KPIs that take into account regional differences?
Once you have your benchmark KPIs it’s helpful to review them on a daily basis. At the dealership I managed, I always had an issue with reporting. On the sales side, I would get the daily DOC and one of the first things I’d look at is gross. Where are we with gross? I’d get the report from the office manager at 10 a.m., and at 10:02 a.m., I’d be in her office asking, “What’s in this number?” So now she’s running more reports so I can see why we are where we are.
Fortunately today dealers today have the option of using an interactive dashboard to display key metrics, along with the ability to drill down into any number you want. Your DMS vendor may provide this, or you may decide to try a reporting solution from a third-party vendor.
With an interactive dashboard you can immediately click on the visual representation of that KPI when you see a number that’s out of whack and find out what’s happening. If gross is down, is it units sold or margins? If it’s units sold, is it inventory or is the sales team behind goal? If it’s the sales team, who specifically on the sales team is setting you back from the goal?
Once you’ve identified the problem it’s easy to come up with a solution. When I was running a dealership I was always amazed—not in a good way—that 70 percent of our sales business was done in the last two weeks of the month.
I had a theory as to why this was happening so I reviewed my pay plans. My theory was that since salespeople get paid after the deal and they do plenty of business at the end of the month, they were getting large checks at the beginning of the month. So they weren’t all that motivated because they had money sitting in the bank.
As a result, I set up a sales forecast and sat down with each salesperson and asked them how many units they were going to sell this month. If someone told me 10, I said OK. That means you should sell five cars by the middle of the month. If we get to the middle of the month and you’ve sold five cars, you’ll get a $200 spiff.
All of a sudden we were selling 50 percent of our goal by the middle of the month. You know what else happened? They still sold more cars at the end of the month, so our overall sales went up.
This is just one example of how you can use a KPI to get to where you want to end up. When you set a benchmark KPI it’s best to involve team members from each department so they are all on the same page and know what numbers they are looking at. That way they all know if they’re going in the right or wrong direction.
Another advantage of managing based on benchmark KPIs is that it caeal process problems. Whenever a number is askew, ask yourself if it’s a people problem or a process problem. The ability to drill down into the KPI through an interactive dashboard will reveal the answer to that question pretty quickly.
Get wherever you want to go by reviewing benchmark KPIs in your dashboard or daily DOC. The key to success is to first establish realistic KPIs for your region. Then, use an interactive dashboard so you can keep your eye on critical metrics at all times. It’s difficult to get to a destination without knowing where you are along the way.
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