There are only five ways to increase the bottom line of a business: Sell more vehicles, practice price elasticity (get more gross profit per sale), create more repeat customers, increase the speed of the buying cycle for your current customers, and create continuity programs by getting the customer to continually do business with you (service, add-on selling etc.). Although all are important, one can be obtained instantly and with a huge impact - price elasticity and the ability to increase gross profits.
There are four critical areas to increasing your gross profit. The first stage is in the sales process. There is an old saying that “sales people control numbers and managers control gross profits.” I definitely disagree with that saying. You must create rapport, find the customer’s real or perceived problem, identify the customer’s hot buttons, communicate and listen to the customer, find the right vehicle, give a tailored presentation/ demonstration that creates an emotional bond, encourage a proposal and have a positive and enthusiastic attitude towards your customer and the sale before gross profit can occur. The best manager cannot help a sales person create gross profit if those things have not occurred.
The manager must act as a check point to make sure that all these things occur before giving a proposal. Have you ever been in a meeting where the manager is talking about selling value and not price? I’m sure you have been in one of those meetings where, after you left, the first thing you were asked when you brought a customer proposal sheet to the manager was “What payment do they want to be at?” and “How much money do they have down?” Obviously these questions are based upon money, not value.
Try developing 10 questions that double check the sales process before you discuss figures. The following is a potential list:
1. Has the customer driven the vehicle?
2. What does the customer like or dislike about the vehicle?
3. Does the customer live/work near here?
4. Has the customer done business here before? Service or Sales?
5. Describe the customer’s trade-in
6. What does the customer like or dislike about their current vehicle?
7. Does the customer have a current or past payment on the vehicle? If there is or was a payment, how much? If the customer paid cash for the vehicle, how much did they pay?
8. If the customer has a payoff, how much is it and how many payments are left?
9. What is the customer’s Hope For Gain (HFG) in this purchase?
10. Who is the primary driver? Are there any secondary drivers? If so, will the secondary driver be involved in the selection?
The second way to create higher gross profits is in the deal proposal stage. Disclose all figures to the customer: price, trade, difference, payoff, total balances, payments, down payments and terms.
Preferably, you should show three payment options for every customer. You may give two payments at the same term but with different down payments and then one payment as a lease or with a different term. This proposal will allow a perfect alternative choice close at the end that allows the customer to save face if they don’t like either of the proposals. This will also allow customers to focus on what matters to them most. For most customers, this is their budget.
Difference negotiating, trades or price leads to lower gross profits and lots of negotiating on things that won’t ultimately matter to the customer. When you negotiate solely on price, trade or difference, often the customer is not really closed even after agreeing on a figure because the budgets aren’t agreeable.
When you give a proposal using budgets, make sure you are asking at least 25 percent down for one of the proposals. Down payment is a key to deal structure, gross profits and getting deals approved. People also will react better if you show down payment amounts and relate that to percentages. Percentages allow people to understand where the figures come from. Remember that between price, trade, down payment, payment or term, down payment is the only one that the customer controls 100 percent.
The third area that will improve gross profits is to understand what to do at the customer’s first objection. You must know what to say and write when the customer objects to price, trade, down payment, payment, term or anything else. You must be prepared to the point that you don’t have to think or blink about what to do next.
When the customer objects, never ask them what they were thinking or what figure they would like to be at. At best, this lowers gross profit but usually keeps the customer from buying because it creates a shopping mentality in the customer. When you ask a customer to give you a figure they will buy at, they either give you a low-ball figure or tell you that you are the sales person and you should tell them. At first objection, you must always verify and validate your original proposal. Otherwise, you invalidate yourself, your dealership and your proposal.
Used vehicles are also the key to increasing your overall gross profit. Most used cars are under-priced from the beginning. Practicing price elasticity allows you to ask more than you currently are asking and finding that you almost always under-price your vehicles versus what people will pay. Gross profit is a state of mind, and price cutting is a self-inflicted wound.
Creating higher gross profit also becomes much easier with good lender relations and a thorough knowledge of each lender’s buying parameters. Knowing which bank to send the deal to, how to structure it and asking the bank for maximum values are essential.
The ability to obtain higher gross profits is part science and part art. You must understand the mechanics, but you must have the belief system to support the mechanics. One without the other will lead to the failure to obtain higher gross profits.
To find out how Tewart Enterprises averages over $4,000 per vehicle per sales event, email me at firstname.lastname@example.org with $4,000 in the subject line.