What's the REAL Cost of a Bad Salesperson?

| by David Metter

If you think good salespeople are expensive, try bad salespeople. In 2017 alone, dealership employee wages totaled over $66 billion and “auto retail continues to boast one of the highest average salaries of any industry,” according to NADA’s annual report. Combine infamously high turnover rates with a decently-compensated workforce, and I’d argue the ACTUAL cost of a bad salesperson in the car business is a lot more than you think. As someone who spent my first seven years at a dealership on the selling floor, I was always frustrated when it seemed like our comp plans served the worst salespeople, not the best ones. 

To attach a dollar amount to what a bad salesperson could be costing your dealership, we first have to define the value of a good salesperson by doing some simple math. According to Automotive News, last year’s average retail gross profit per new vehicle sold was just over $2,000. Let’s call it $1,500 to be on the conservative side. So, a good salesperson selling 15 cars a month at an average gross profit of $1,500 a car is generating $22,500 in gross profit a month for your dealership, or $270,000 a year.

But that’s really not their true value, and this is why…

A salesperson selling 15 new cars a month equates to 180 customers a year. Then you have to factor in the lifecycle of the vehicle and the potential service revenue associated. Let’s say out of those 180 customers, half of them serviced with you. And, of those 90, each returned for service five times over the car’s lifespan. That’s a total of 450 service visits. According to Urban Science, the cost of an average service RO is $128.88. Do the math, then add it to the gross profit and you get $327,996. (My math is below for anyone in question).

·      450 Service Visits x $128.88/RO = $57,996 + $270,000 = $327,996

So in reality, for a year’s worth of customers, we’re talking a value of over $325,000.

That number sets the stage for what a bad salesperson could be costing you – because you can apply the same logic to 15 lost sales, or defections to competing dealers. If you have someone you think is one of your top performers selling 15 cars a month, but they lost 20 quality opportunities, that’s the equivalent of $30,000 a month, or $360,000 a year in LOST profit. Are you willing to lose a third of a million dollars from employing just one faulty salesperson?

If that cost isn’t enough for concern, there’s also the fact that there could be multiple people under your rooftop disguised as your “best” performers. But when you overlay all the opportunities they touched that we know defected – or purchased from a competitor – on top of what they sold, the story shifts and their actual sales effectiveness comes into focus.

The takeaway here is it’s not just about the 20 cars you could have sold. It’s about the dollars attached to those sales and the potential future profit in service revenue and repeat buyers. We all know the closing ratio on a customer is higher if they’ve already purchased from you. Selling a second and third car to someone who already knows and trusts you is a lot easier than selling the first. It becomes easy to watch the total worth of a single good salesperson exponentially expand when you know their number of closed opportunities consistently exceeds what they’re losing – but you need that defection data to get the REAL story.

Do You Have the Power to Know What You’re Losing?

by David Metter

The number of automotive reports dealership managers receive in a typical month drastically differs from the number of reports that empower them to take immediate action based on sales data only hours old. It’s as if dealers in today’s world have to excavate through mountains of analytical ruins in hopes of uncovering a single data-driven insight that may or may not impact their sales goals. Not to mention the hurricanes and natural disasters that have further obstructed an industry in its ninth month of national decline.

Auto marketing leader, Brian Pasch recently compiled a list of all the individual reports General Managers running a franchise dealership could typically get each month. “For auto dealers, the count is over 20 reports! All separate. All with different metrics. Lots of data, not many actionable insights,” says Pasch.

The overarching problem with most reports is that they only show one perspective of a much more dimensional, much more compelling story. A lot of vendors and their unique reporting methods tend to be biased in how they present results. In other words, they focus on what they’re helping your dealership win - whether it’s more clicks, more website traffic, or more leads.

But what about all the other pieces needed to complete the story? What about all the sales opportunities you didn’t win? What about the customers in your CRM your salespeople didn’t close? What about the active leads in your system you’re wasting time, money and effort chasing when in reality, they’ve already purchased from somewhere else? Wouldn’t having that knowledge save a lot of wasted energy and marketing dollars? Wouldn’t it be helpful to know as of yesterday how many sales you lost, which competitors you lost them to, and the reason why you lost them?

Furthermore, dealers need systematic visibility into the true outcomes of in-store customer interactions. We can’t solely rely on CRM data as it can be subject to human error. So the question is, does a report exist that accurately depicts the end result of every living, breathing, human-to-human exchange that physically takes place in your showroom? Did those personal interactions result in a vehicle sold or was the opportunity lost?

AdWeek published the following statement addressing this same issue:

“Over the past 20 years, analytics for digital ad measurement have focused on digital results (including web traffic, ecommerce conversion and data collection). But even though we live in an Amazon world, 92% of commerce still happens in physical brick-and-mortar locations, so measuring digital impact is nowhere near sufficient.”

For every digital action, there should be an equal and opposite reaction. What I mean by that is that all aspects of your digital marketing should strictly be evaluated based on their effectiveness or ineffectiveness of increasing vehicle sales that occur in the showroom. What we need now more than ever is a way to accurately discern if the money we’re spending on our digital marketing AND our in-store processes results in a closed sale or an opportunity down the drain. Those are the numbers dealers need to zero-in on to know the absolute best way to spend their marketing budget moving forward.

But wait! The good news is that a report currently exists that is capable of all of these things and more. This particular report defines attribution in a way this industry has never seen before. I will openly admit, there are few aspects of this tool that others out there have the potential to imitate. However, their numbers are based on 90-day old data, not near real-time sales match data. They also don’t provide a 360-degree view of your lost sales tied to a specific salesperson, lead or traffic source, model, or top competing dealer or brand in your market (all in one single report). How do you put a price on THAT?