Want to sell service plans? A process helps
Aberdeen Chrysler's Toby Doeden: “We couldn't have done what we've done without a process.”
Paragon Honda, Paragon Acura and Aberdeen Chrysler Center have managed to do what many dealerships cannot: consistently sell extended-service contracts to customers whose factory warranties are expiring or have expired.
Their success has hinged on finding and reaching out to customers who fit the expired-warranty profile.
"The biggest thing in contacting a customer is having a plan and a reason to contact them," says Brian Benstock, general manager of Paragon Honda and Paragon Acura in New York.
Many dealerships struggle to sell extended-service contracts to customers whose factory warranties are up. But these three stores do it well in part because they have invested in software that combs their databases for customers who are coming to the end of their warranty or are already out of warranty. They also have hired or assigned employees whose only job is to make these sales happen by approaching customers either when they're in the service department or through follow-up phone calls.
"We couldn't have done what we've done without a process," says Toby Doeden, general manager of Aberdeen Chrysler Center in Aberdeen, S.D.
It helps that these dealerships have the resources to implement a process that includes software and a special team. Not all stores can afford to do that.
One reason dealerships often fail in selling extended-service contracts in the service drive is because they rely on service managers to pitch the contracts at the point of service, dealers and service contract providers say. Often service managers lack the needed sales skills. And even if the dealers offer spiffs on each sale, service managers still lack the focus to sell service contracts aggressively and consistently.
Benstock's stores sell an average of 18 extended-service contracts a month at an average retail cost of about $1,600, he says.
It might not sound like much for a business that sells about 10,000 new and used vehicles annually for both stores. But five years ago, before Benstock bought the software and implemented his process, he was haphazardly selling one to three extended-service contracts a month, he says. "We were getting those customers through happenstance," Benstock says. "That certainly doesn't replace a business plan."
So in 2007 Benstock bought software from AutoAlert in Irvine, Calif. The software scours his database to generate three kinds of alerts: sales, equity and warranty expiration.
Benstock expanded his business development center and today has 21 employees to monitor the alerts. They call the customers identified by AutoAlert to pitch service contracts and other products.
The software costs Benstock about $2,000 a month, and he says it's worth it. "It really gives us a reason to contact the customer," Benstock says. "The service contract and loyalty go hand in hand. It's a great retention tool."
And compared with the cost of TV advertising or full-page newspaper ads, Benstock says, this delivers more guaranteed customer response.
Zero to a dozen
About eight months ago, Aberdeen Chrysler Center agreed to pay a $150 installation fee and $85 a month for the Service Drive program from EasyCare of Norcross, Ga. It was more than just the software Doeden bought. Doeden says he also got extensive training from EasyCare Midwest in Lakeville, Minn., an EasyCare authorized representative, on setting up a process to make it all work together.
In that time, Aberdeen Chrysler Center's sales of extended-service contracts have gone from "virtually zero" to 12 to 15 a month, Doeden says. His store sells about 3,400 vehicles annually.
Doeden's process centers on software that searches the dealership's database of upcoming service appointments to identify customers who are close to warranty expiration or are out of warranty. Doeden appointed a person to focus on selecting customers who might be interested in buying an extended-service contract.
Jump on paperwork
That person can use the software to print out a pitch of various plans to be presented to the customer when he or she comes in for service.
"We'll have the paperwork prepared before they get here," Doeden says. The employee then follows up with the customer after briefly meeting and giving him or her the paperwork at the service appointment.
"About 75 percent of the total contracts we sell through the service drive are follow-up phone calls or Internet e-mail sales," he says. "Typically, either the husband or wife is here. Rarely will one spouse commit to it without consulting the other."
Doeden also devised a pay scheme that pays a base salary plus commission based on the volume of contracts sold.
Bart Wilson, production manager of DrivingSales University in Salt Lake City, says to make the process work, employee compensation and training are critical: "Put them through the sales training and make sure they have phone skills. You want to give them the opportunity to have some bonuses above their normal pay."
Service contract providers estimate on average that dealerships make about $700 in profit on a contract they sell to a customer for $1,500. So the initial profits from increasing the sales of extended-service contracts are there, but Doeden and Benstock agree there is more value to it than just short-term income.
"We like it for the repetitive business aspect," Doeden says. "If a customer has a service contract with us, they're way more likely to come back to us for service. It's a retention tool."
Benstock says smaller stores should invest in a similar process to generate extended-service contract sales for the loyalty reasons, even if it is a bit pricey. "It's even more important for the mom-and-pop stores in order to compete with the big guys," he says. "Many of the big guys don't do a good job at this. And that's the mom-and-pop's edge, that personal service."
Even so, for some smaller stores, implementing a sophisticated process would be a luxury.
Kelleher Motor Co. in Ellensburg, Wash., sells about 350 new and used vehicles a year. General Manager Phil Kelleher sells extended-service contracts by relying on his service advisers to monitor customers who are approaching warranty expiration. He doesn't sell many contacts that way, two to four a month. Yet he can't justify spending thousands on software or a business development team. His less-structured approach yields less revenue, but it costs less, too.
Says Kelleher: "We don't have the volume to hire a person to just focus on that."
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