Measuring the Performance of Your Sub-Prime Department
By Steve Hall
I have always believed that the mark of a great salesperson is their ability to recognize at any given time where they are in the sales process. They know when to sell, when to probe for more information, when to listen and when to close. The same holds true for managing a sub-prime department. You have to know at any given time where you are in the performance of your department.
The first step is to identify benchmarks for performance. These are minimum operating levels you will accept. Then you have to set goals above your benchmarks. These benchmarks and goals should include such things like the number of deals delivered for the month, average gross profit, average turn of inventory (days in stock), cost per lead, cost per sale, average time of funding, etc. Once these numbers have been determined, you then must put in place a tracking system that can help you identify how you are performing on a daily basis.
Most departments are only evaluated on a monthly basis. This is too late. Your month is over and you can do nothing to improve it. If you measure performance monthly, the worst you can do is have a bad month. If you measure your department weekly, then the worst you can have is a bad week. However, if you measure your department daily, then the worst you will ever have is a bad day.
Measuring your performance on a daily basis allows you the time early on in the month to make any necessary adjustments in order to get the department back on track. For example if your gross profit is below your benchmark on the fifth day of the month, you have enough time to react and make the adjustments to get the grosses back up before the month is over. Maybe you need to get more money down from the customers, structure deals on different cars that book out better or work on payment closing. Looking at the department's performance daily will prevent whatever is causing the grosses to decrease to be corrected immediately, before too many cars get delivered at a low gross.
It works the same way with advertising. Say your average cost per sale is $175 and on the 10th of the month you have 12 cars delivered with $3000 spending in advertising. You can see that the advertising methods you are using are costing you $250 a delivery ( $3,000\12 units =$250). This tells you that if you continue this advertising strategy for the month on a $9000 budget, you will deliver only 36 cars instead of the 51 you projected ( $9,000\$250 =36 cars; $9,000\$175 = 51 cars). This also shows you that if you can get advertising costs back to $175 per car, you will deliver 15 more cars. But what usually happens is we wait until the end of the month to find out our volume was low and our advertising costs were too high. The point is, this knowledge was available on the 10th of the month but because we did not have the proper performance measures in place, we failed to make the necessary adjustments to prevent this problem. This could have been a problem for a couple of days instead of a problem for the entire month.
The difference between a good month and a bad month is how often and how effectively you measure the progress of your departments. The steps are easy:
Have benchmarks with goals set above them.
Design a game plan to reach your goals.
Get the commitment of all necessary personnel (this includes general manger, sub-prime manger, bank reps, buyers, used car manager, sales staff, office staff, etc.)
Measure your performance DAILY!
Make any adjustments to your strategy to get you back on track.
Steve Hall is CEO of PriceDrive.com, the leading provider of B2B Web-based applications which help automobile dealers manage and turn their used vehicle inventory more efficiently. Mr. Hall is founder and Chairman of Custom Finance Services (CFS), a management and consulting company that develops and manages sub-prime finance departments for automotive dealers. shall@dealeronline.com
