It’s no secret to you that customer retention is a vital aspect of your business. After all, the longer a customer is retained, the more visits he or she makes, usually at an increasingly higher value with each visit.
The problem is, it’s tough to keep customers coming back. For most dealerships, customer visits decrease like radiation’s half-life, with the likelihood of an additional visit decreasing by half at each visit opportunity. Keep taking away half and you get close to 0% probability pretty quickly. In fact, only 5.8% of dealer customers even reach the fourth visit, which is crucial for the service-to-sales repurchase rate.
Despite the need for retaining customers, many dealers are still utilizing old-school metrics that provide an incomplete picture of their customers’ spending and servicing habits. Traditional customer-retention rate metrics show only an average of the overall dealer customer population, measuring the percentage of customers who return for another service visit within 12 months to 18 months.
The problem many dealers face with classic metrics is that despite reportedly increased retention, service revenue is on the decrease. Sound familiar? Classic metrics are general, painting all customers with the same brush. But all customers are not alike, nor is their revenue potential.
Using a breakthrough concept called gross revenue optimization (GRO), dealers can create plans that will increase their GRO score, and therefore increase revenue and retention. GRO is a statistically significant (adjusted R2 = 82%) model to predict and measure the future value potential created by changes in retention rates across the customer life cycle.
GRO starts by understanding the probability of each service visit occurring over a period of 10 service visits. This is called the GRO curve, and it measures the half-life. It’s a depressingly downward-sloping curve that you likely won’t believe the first time you see it.
Your GRO score, the measure of how much customer lifetime value your store is capturing, is calculated by dividing the realized revenue (revenue over 10 service visits multiplied by the probability of that visit) by the potential revenue (total revenue available during vehicle life cycle).
Using GRO, not only can you predict service behavior, but also forecast incremental vehicle sales generated through improved customer retention and loyalty. Yes, you read that correctly. GRO correctly predicts financial performance of dealers based on RO dollars and the increase of four-year repurchase rates, predicting the number of vehicles sold.
In a study of GRO’s effect, we found that the four-year repurchase rate for the targeted range (with an average GRO score of 21%) resulted in 75 more units sold than the majority of dealers (who had an average GRO score of 6.2%), by increasing customer retention as measured by GRO.
Your focus from this point is to increase your GRO score—the single metric you need to understand the health of your fixed operations. But how? The following five practices will help you increase that score:
- Make it easy: Have an after-hours call service, provide loaner vehicles, complete most services the same day, and allow customers to order parts through your website.
- Stay connected with customers: Offera mobile app, and actively collect and use customer email.
- Be transparent on pricing: Have prices for common parts and services on your website, and provide printed quotes for declined services.
- Provide timely and relevant savings opportunities: Send seasonal and holiday promotions, and mail a declined services reminder with an offer.
- Encourage long-term relationships: Enroll all customers in a loyalty program and offer additional maintenance plans.
By using these practices to guide you to a better GRO score, you can increase your customers’ presence in your service lane, and increase customer retention and purchase rates.
Mike Martinez is chief marketing officer of DMEautomotive, the industry leader in science-based, results-driven automotive marketing that provides a range of marketing services to the biggest and most innovative automotive organizations in the industry. For more information, email [email protected].
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