Thanks to the wealth of data captured by the typical enterprise system, key performance indicators (KPIs) and the dashboards that display them are becoming very popular. Any dealership that can’t monitor its metrics in real time is falling behind the curve.
For the most part, KPIs are a good thing, and the dashboards that serve up the information in an easy-to-use format are an appropriate tool. Much like speedometers in cars, good KPI analysis can tell you when you need to know about when to press the pedal and when you can lighten up on the gas. If you fall into the trap of measuring the wrong metrics through KPIs, however, you could be missing important information that will help lead your dealership processes and staff to greater profits. Here are five ways that the best of measurement intentions can go bad.
It’s easy to confuse metrics and KPIs because although all KPIs are metrics, not all metrics are KPIs. A metric is just a measure. A KPI, however, measures success, and that means you have to know what success means. For each KPI, you should have an objective that not only indicates the metric, but defines the success being measured.
The “key” in key performance indicator means that the activity or result being measured has a significant impact on success. The rule of thumb is that you should have no fewer than four KPIs, and no more than a dozen. Dealers who don’t choose their KPIs carefully may drown in data. There are, of course, different sets of KPIs in a dealership. There will probably be a set for sales, one for service, one for marketing, one for F&I, as well as one that provides big-picture information to management.
Often, people want to measure things that are just activity. For instance, an article once suggested that a good KPI (among others) for a sales manager was the number of sales team meetings per month. Because what’s measured matters, this would probably ensure that the number of sales team meetings would increase. It wouldn’t, however, ensure that these meetings were useful. The clearer KPI measurement would be the results of what was expected to come from these meetings: better conversion rates, higher customer satisfaction, etc.
Sometimes measurement is a matter of convenience. For instance, when dealerships buy time for television commercials, the metric is typically cost per thousand (CPM). That number doesn’t answer the more meaningful question: cost per thousand of what? The short answer, of course, is viewers, but that still doesn’t tell you how they relate to your objective; it simply tells you that consumers watch TV. Similarly, advertising cost per car is not a good KPI.
Simply dividing advertising expenditures by the number of units sold does give a rough measure of effectiveness month over month, but it provides no help in rebalancing the marketing budget to favor more efficient media. A more meaningful measurement would be advertising cost per car per source; that is, the return on investment for each marketing medium. For any metric, the test is whether it correlates directly to the objective.
This one should have probably been first because if you don’t act on the information provided by the KPI, it doesn’t matter how good it is. If your objectives are written properly, however, and the KPIs are good, your action — at least the first step — should be obvious. KPIs can be a powerful management tool. They can tell you in real time what is going well and what is not going quite so well. But, like any other business tool, they have to be used properly and with a good deal of skill to be useful to your dealership. Take a look at your current KPIs and see if they map to any of the five situations described here. If they do, it’s time to rethink your metrics for a better overall picture of dealership health.
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