Why Dealers Need to Pay Attention to Claims Yield

What is your dealership’s claims yield? This metric measures the percentage of paid service claims that your dealership gets from vehicle service contracts (VSCs) and some other products sold by your F&I department.

Some dealers I talk to know this metric right off the top of their heads. Others don’t know it at all. Claims yield is a metric that’s very important to a dealership’s profitability, but very often nobody is paying attention to it.

And as we know, what gets measured gets managed. The higher your claims yield percentage is, the more revenue from service claims goes directly to your bottom line. How much more? This metric can significantly impact profitability.

How to Measure Claims Yield

It’s important to note that claims yield should only be measured on vehicle service contracts, prepaid maintenance (PPM) contracts, tire and wheel and key replacement services. In short, anything that gets repaired or replaced in your claims yield measurements.

Do not include F&I appearance products such as Scotchgard in your claims yield calculations, because appearance products don’t generate any service claims.

Our data at APCO Holdings indicates that about 48% of sold contracts have service claims paid out. The average dollar amount per claim is $650, which is typically split 50/50 between parts and labor.

Let’s say that over the course of one year, your dealership sells 1,000 service contracts. If 480 of those contracts have one service claim, each averaging $650, that’s a minimum of $312,000 in potential revenue (assuming only one claim is made per contract, which is unlikely). The more customers that return to your dealership for service and the more service claims your customers make, the more claims yield revenue your dealership gets.

Using the above scenario, if your dealership’s claims yield is 20%, then you only make $62,400. If your claims yield is 60%, then you make $187,200. That’s a difference of $124,800! Each situation has variables at play, but this example demonstrates just how important it is to monitor this metric for optimal profitability.

Variances in Claims Yield

Scot Eisenfelder, APCO Holdings

What Is the Ideal Claims Yield Percentage?

To determine an ideal metric for your store, start by measuring your current claims yield percentage and use that as a benchmark. You may want to check your benchmark against benchmarks from peers in your market or in your 20 Group if you belong to one.

Once you have your benchmark, set a goal to improve it every year, e.g., 10% per year. As a dealer, you may be surprised to learn how much control you have over this metric if you’re paying attention to it.

Scot Eisenfelder (pictured, above left) is CEO of APCO/EasyCare, a product of APCO, a provider and administrator of F&I products for the auto industry.