Do You Know Your Most Profitable Customers?

Articles | June 6, 2018

Author: Scot Eisenfelder

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June 2018

Do You Know Your Most Profitable Customers?

Not All Customers are Created Equal

Did you know that the top 20 percent of customers produce 69 percent of a dealership’s gross profits? These are your most profitable customers (MPCs). Meanwhile, the bottom 20 percent of customers are unprofitable. If you could replace just half of that bottom 20 percent with new MPCs, your gross profits would increase 40 percent!

While many dealers do have programs focused on customer retention, not all have clearly identified their MPCs. And most dealers don’t have marketing programs designed to identify and attract potential new customers in their primary market area who have similar profiles to their MPCs.

The fact is, not all customers are created equal, and not every lead is a good lead. To boost sales and thrive in any market, you need a strategy to find, attract and retain MPCs. To create such a strategy requires investing in your customer data.

Invest in Your Customer Data

The data you have right now in your database is worth more than your real estate and your fleet of inventory. Yet many dealers don’t know exactly what they have. For example, what percentage of the households in your PMA can you contact right now? How much do you know about your MPCs? At a minimum, I’d want to know their physical address, phone number, email address, income range, media preferences and what cars are sitting in their garage: year, make/model.

When you have this type of data on your customers, you will never have to buy broadcast media again. You will simply engage in a dialogue with these customers and send them the right offers at the right time.

If you don’t know or don’t have this information, it’s worth investing in resources so you do know. Do you have a budget for increasing knowledge of your local market? If not, why not? You have a budget for maintaining your real estate and your inventory, why not your customer database?

The other part of this equation involves ascribing value to this information. We’ve always struggled with having salespeople collect email addresses, but do we even know how much that email address is worth? Is it worth $10 or $50? Is a phone number worth more or less than an email?

Identify the Most Profitable Customers (MPCs)

Your customer data is important because it can be used to identify not only the current MPCs you have in your database, but other MPCs who live in your primary market area (PMA). These are the best customers to target because they:

  • Trade in their vehicles every few years for better equipped vehicles
  • Drive lots of miles
  • Buy into the franchised dealer proposition
  • Frequent your service department for repairs
  • Are willing and able to pay for a better selection of vehicles and services

The vast majority of your MPCs are “created,” meaning they exhibit their behaviors and affinity towards dealerships regardless of any specific input from you or other dealerships. When they show up at your store, all you have to do is treat them right. If you lose these customers, they will not defect to independents; they will become another dealership’s MPC.

Many dealers believe that their best customers are “made.” That is, they can turn any customer into a good customer with the premise, “If I treat this person well, they will come back.” Data shows this is not necessarily true. Most customers are price conscious, and it’s difficult to graduate a customer of average profitability to a customer of high profitability. Thus, it may be a better strategy to identify and court MPCs versus trying to increase profitability from a segment of your customers that won’t be likely to respond in the way that you want.

Grow Your MPC Market Share

Once you have an awareness of how important your customer data is, and you have invested time and money in building it, and you have identified both your MPCs and the customers you’re losing money on, you can create a marketing strategy that leverages all this knowledge.

In general, MPCs respond better to value proposition marketing than to discounts and coupons. Focus on improving their customer experience. Don’t think about loaner cars as an expense; think of them as a strategic tool and retention driver. Additionally, focus your team’s efforts on generating and capturing more data from these valuable customers.

To find new customers with profiles similar to your current MPCs, try curating new audiences on social media, buying third-party leads and investing in local community events. Additionally, make the most out of manufacturer programs to partner with schools and other organizations in your PMA.

Most dealers today spend heavy on traditional and digital purchased media, not because they want to but because they don’t know any other way to reach consumers. Imagine if you knew every household in your PMA. Imagine if you knew their contact information, media preferences and vehicle and service needs.

Armed with this knowledge, you could engage in meaningful, regular dialogue with the few thousand households who drive your business. The more knowledge you have, the greater your success and the lower your marketing budget.

To view this article in Car Biz Today Magazine, click here.

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