Innovate to Build Net Income

Sign up for Adam's webinar: “3 Big Ways to Build your Net Profit in 2015.” It’s free to all WardsAuto readers. Register here.

Off-lease vehicles are returning to the market like so many relatives seeking a place to stay “just for a few days.”

But instead of relatives eating all of your groceries and sleeping on your sofa, these used cars and trucks swell dealership inventories and potentially eat away at net profit margins.

What we will do with them all? And how will recent market-based pricing impact dealer profits?

Don’t wait for the market to dictate how much you will make next year. This is the first of a three-part series on what moves dealers can make to build net income in 2015. First, we’ll cover advertising, then sales best practices and finally creative inventory choices.

Next year will bring shrinking new-car margins. Inflated inventory will push down used-car prices and trade-in values. Car buyers will be more upside down with trades.

Do I have that about right? Let’s not move with the herd. Instead, let’s innovate, beginning with advertising.

Do you plan your ad budget using a per-vehicle retailed cost or a percentage of your gross revenues? Should you even look at advertising this way?

The correct ad budget drives net income the highest. If your net income moves up with your ad budget (as it should), then the cost per unit means nothing. Instead your real cost of sale is the factor. We’ve had chief financial offers tell us that they don’t even worry about the PVR anymore. It’s a tracking number, not a planning number.

The percentage of people in your market buying a vehicle this week is fractional, a tiny slice of the local population. It’s your job to reach the maximum amount of potential buyers for the least amount of money.

Many dealers miss out on massive scale in their advertising. And that’s impacting how profits either grow or shrink.

Here is an example. When I consulted a West Coast dealer, his net income was far too low at a $60 gross per unit. Something was very wrong. I began by looking at his “person-reach” cost, or is paid to reach one person in his city.

When we ran the numbers, he was spending $21 to reach one potential buyer. That’s too much to say hello to too few people. The model we built for him was much more cost efficient. Know your per-person-reached numbers.

While working for Disney, I was surrounded by smart people who use asset leveraging, merchandising and marketing to build net income.

Some additional points:

Mash that data and adjust your advertising plan accordingly. If all advertising works to some degree (it does), then it’s not really all about advertising to buyers the same as when they used to buy cars.

Instead, advertise to buyers with massive scale at the time, in the place and on the screen they are staring at as they are about to press the click-to-call button or about to drive to the dealership. That’s what we call AdverTiming.

It’s real-time marketing. It’s what works today when consumers have a 20-second memory when it comes to advertising. Expect to see some innovative TV and mobile-marketing tactics in your market.

All of the information you need to adjust your ad plan to build net income is already in your dealership.

My next submission will be on the topic of internal sales to build income. Stay with me.

And consider joining a March 20 live webinar entitled “3 Big Ways to Build your Net Profit in 2015.” It’s free to all WardsAuto readers. Register here.

Adam Armbruster is a senior partner in the auto dealership advertising and sales-growth firm Eckstein, Summers, Armbruster & Co. He can be reached at 941-928-7192 or [email protected]