retention | rəˈtenSHən | noun
- the continued possession, use, or control of something: the retention of deposits by landlords remains an issue.
- the action of absorbing and continuing to hold a substance: the soil’s retention of moisture.
In the case of car dealers, retention is the measurement of how well one dealership’s customers make multiple transactions over time.
We tend to measure how well we retain customers by department solely, but I believe it is more important to look at it on the whole. My favorite retention measurement is conquest from the service drive… A.K.A. creating new sales customers from service’s good deeds!
How to measure service conquest:
- Establish the percentage of service ROs without sold history (simple VIN lookup).
- Establish the percentage of trades had service history at your store within the last six months.
- What percentage of those trades with service history were cars you did not sell?
How many service customers did not buy that car from that dealership?
In 2023, we continuously (daily) looked at closed service repair orders to find opportunities for our dealers. While hunting through the data, we saw a nationwide average showing that most service customers did not buy the car they were servicing from that dealership. The average was 63%. This average got as low as 41% in low-volume markets, while high-volume markets (think of Washington DC and Houston-like markets) were as high as 84%.
These customers already give your dealership money, and all you need to do is ask them to buy their next car from you instead of shopping elsewhere. They’re probably servicing with you because you’re closer to their home or work. And you probably lost their last deal because of a sales process mishap.
How many customers buy a different model than the one they traded?
Fortunately, I had a wise used car manager when I began selling cars. He had all kinds of sayings that have stuck with me over the past 30 years. One was “most people buy something different than they set out to buy.” He was right! Google studies have shown approximately 80% of car shoppers change the vehicle they originally began searching for.
In 2023, FRIKINtech recorded a change of vehicle model owned 85% of the time within DMS data. 85% of people who bought or serviced their car at that dealership bought a different model than what they traded.
This leads me to ask why do most equity offers start by showing the customer the same car they’re already driving? Do they lack the capability to show more?
How many repeat sales customers are there?
This is the metric most sales departments chase when they keep up with retention rates. Unfortunately, too many dealerships don’t track retention/loyalty.
On average, 19.3% of monthly sales in 2023 were to customers who traded a vehicle they bought from that dealership. This number may be slightly higher as it does not include lease turn-ins. However, the lease penetration rate was around 6% last year, so it couldn’t have impacted it much.
Brian Pasch told me that one of his favorite consultants pushes for a 35% retention rate in his clients’ stores. That’s not a bad number to strive for, in my opinion. 1/3rd of monthly sales should be from people who have spent money with you before. That’s a fantastic baseline for customer service. And these people typically don’t negotiate on price as much because they have a higher level of trust in you. But take it a step further and look at these customers over the years, as their lifetime value to your business is HUGE!