As new vehicle sales and gross margins decline, it's natural to look for ways to cut expenses. But I've never understood the logic behind cutting service marketing budgets.
If service marketing is not working, by all means, change it—but if it does work, shouldn’t you increase service marketing when sales are slow? How else do you expect to maintain profits during challenging times?
According to NADA, fixed ops is responsible for 48% percent of dealership gross profits, yet most dealers don't have an annual service marketing plan, and their service marketing budgets are 10% or less of the overall marketing budget.
The logic behind this allocation is that new vehicles sales feed service. That may have been true 40 years ago, when you were guaranteed a substantial amount of warranty work and in-warranty customer pay business just from your new vehicle sales.
However, today’s franchise dealers only capture 20-25% of revenue potential from their Units in Operations (UIO). That means dealers are leaking 75-80% of service work from the cars they have sold to their competition! For many years now, independent aftermarket chains have slowly but steadily been increasing market share.
Additionally, today’s vehicles are higher quality and require less maintenance. For dealers, this means less warranty work, less standard maintenance work and more replace-than-repair work. So, as new vehicle sales decline, your service work is bound to decline at an even more rapid rate, unless you become more aggressive with service marketing.
For the dealer principals reading this, do you know why your GMs yank the service marketing budgets when sales slow? Because their pay plan incents them to increase this month’s profit at the expense of long-term growth. But that's a topic for another day.
It's funny how on the sales side, principals and GMs alike are loathe to cut the marketing budget, believing they need to stay competitive. What they don't realize is that sales marketing in a contracting market is a zero-sum game.
As more dollars chase fewer sales, conquest efforts become more expensive and less effective. It’s not unusual to see incremental marketing costs exceed gross margin net of commissions for conquest sales, with dealers hoping that service and repeat purchases will justify their initial acquisition costs.
The bottom line is this. As long as new vehicle sales and gross margins continue to decline, your best bet for revenue growth potential is in fixed ops. If new vehicles sales don't feed service, then where is that service revenue going to come from?
New service business comes from service marketing. Recommendations include:
Set a budget similar to sales. Most of you can name your market PVR target in your sleep, but do you have a service marketing PRO? The disproportionate spending on sales marketing vs. service marketing makes no sense. The old argument that sales feeds service does not hold water in today's market. Today it's equally, if not more true, that service feeds sales.
Prioritize spending. Engage all active service customers regularly across multiple channels; especially digital channels as that's where your customers' attention is. Keep brand awareness high and send highly targeted, relevant offers.
Conquest. Inevitably some of your service customers drop off every month. While some of these can be replenished through new vehicle sales, most of them have to be replenished through conquest campaigns. Establish an aggressive, multi-channel service conquest strategy to find and bring in new customers on a regular basis.
Allocate budgets in advance. Seasonal service campaigns are highly effective and proven to deliver high ROI, so plan ahead to make the most out of campaigns such as spring tire, fall tire, summer road trips and winterizing vehicles.
Market all service profit centers. Don't get stuck marketing basic maintenance and repair work. Do your customers know that you have a collision center? Do they know about your tire program, or about your aftermarket accessories? Dealers are notoriously bad at educating service customers about all available options.
Historically dealership service marketing budgets have been an afterthought, with no rhyme or reason given to how budgets are allocated or spent. For proactive dealers willing to think outside the box, this presents a huge opportunity to steal service work from your competition who remain stuck in their service marketing ruts.