Very few dealers are both aggressive and effective in selling Extended Service Agreements (ESAs) after the new or used vehicle has been delivered. If you are so fortunate to be among this minority, you don’t need to read any further. Since most F&I departments don’t seem to have the inclination or motivation to work these post-delivery opportunities, let’s explore an alternate strategy…structuring a process to have our service advisors aggressively and effectively sell ESAs in the lane.
How many of our service department customers are opportunities for ESA sales? Consider that only the best F&I departments achieve a 50% ESA sales penetration at the time of sale; that means the service department has an opportunity for a “second swing” at at least half of our owners. Consider that a large percentage (industry experts claim 40%) of our Service customers didn’t purchase their vehicles from us; how good a job did their selling dealer do with ESA penetration at the time of sale? Our best chance for ESA sales will be to customers whose manufacturer’s warranty will soon expire. However, any customer without an ESA should certainly be considered an opportunity!
Why don’t service advisors currently take maximum advantage of this opportunity?
1. There is no sound process or structure in place for post-delivery ESA sales.
2. If and when the customer acknowledges an interest in an ESA, there is often no one available in the F&I department to handle the turn over.
3. Service advisors are not effectively trained or incentivized to concentrate on ESA sales.
4. Service managers are not effectively trained or incentivized to promote and manage ESA sales.
There is no accountability for service department sales of ESAs.
How do we quantify this service department opportunity? If you want to perform a similar analysis for your store, here’s an example of how the math works:
A service department with 3 service advisors will “face off with” an average of 195 customers per week (3 advisors x 13 customers per day x 5 days per week = 195). Keeping the math simple, that means approximately 10,000 customer interfaces per year (195 x 52 = 10,140). With a minimal ESA sales penetration of 2.0% we would sell an additional 200 service contracts. At $700 gross per contract and 70% incremental net profit retention, this performance level produces $98,000 in annual net profit improvement (200 x $700 x 70% = $98,000) for the service department. And that’s with each of our service advisors selling ONLY 5.5 ESAs per month. That’s just slightly more than 1 per week. This same example, with a 5.0% ESA sales penetration, would bring an additional quarter million dollars to the bottom line!
What needs to happen to make this net profit improvement opportunity a reality at your dealership?
1. Develop, implement and execute your plan.
2. Implement a systemic structure.
a. Accounting and reporting (Service gets 100% of the revenue)
b. Advisor training (ESA provider becomes a training partner)
c. Contract preparation (performed by Service personnel)
3. Establish compensation parameters.
a. Service manager (3% - 5% of Net Income)
b. Service advisors (15% - 20% of Net Income)
c. Other service department personnel (1% - 3% of net income)
4. Define and communicate your expectations.
5. Measure what you need to manage and inspect what you expect. (Score-keeping and score-boarding)
Sounds a lot like Accountability Management, doesn’t it?
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