You know how many cars you sold, but do you know your customer retention numbers? What is your dealership focusing on?

Memorial Day Sale! Huge Summer Extravaganza! Labor Day Sale! Put a Bow on a Shiny New Christmas Vehicle Holiday Specials! Take a selfie with your new car and win $100 of free dealership swag!

If it seems like the sales, promotions, and attempts to attract new customers to your auto dealership never end, you’re not alone. Other dealerships are caught spinning the same revolving door, trying to bring customers in and increase their sales.

Why Customer Retention Matters

While all your focus is on bringing new customers through the door, have you considered the cost of failing to retain the customers you’ve already earned? Common business knowledge says that it costs five times as much to attract a new customer as it does to retain a current one. This makes the new customer revolving door not only an exhausting one, but an expensive one.

While a business should always look for ways to bring in new customers, the fastest path to profitability and continued growth is by retaining the customers you already have. Is your auto dealership doing a good job of this? To find out, you’ll need to calculate your customer retention rate.

Calculating the Customer Retention Rate

Quite simply, the customer retention rate of any business comes from looking at (A) the number of customers at the end of a specified period, (B) the number of new customers obtained during that period of time, and (C) the number of customers you had at the beginning of that period. The customer retention rate can be calculated by subtracting B from A, then dividing that number by C and multiplying it by 100 to get a percentage.

Auto dealerships are complex, however, and you’ll also want to understand specifics around which customers return to purchase vehicles, who returns to have their vehicles repaired or serviced, and how these customer retention numbers impact your bottom line.

Performance Administration Corp. Current State Retention Report

For dealerships who are just getting started with creating a customer retention strategy and calculating customer retention rates, Performance Administration Corp. can help. We use data mining tactics to accurately identify franchise dealerships’ current retention rate. Using data from a dealership’s DMS, we can generate a Current State Retention Report.

This customer retention study measures:

• The percentage of Customers that transition from Sales to Service after vehicle delivery.
• Customer service activity within the first year of vehicle ownership (Specifically, the number of customers with 0 CPROs in first 12 months of ownership and the number of customers with 1 RO in first 12 months ownership)
• CP labor gross profit for all visits
• Number of customers who repurchase from your dealership over time. (measure multiple vehicle purchases against those customers with just one vehicle purchase)

Once we have collected these numbers, we are able to determine factors such as the current retention rate for all cars sold. What happens once a customer buys from your dealership? How many of them remain loyal to your service department? Over the first 12 months of ownership, how many customers fail to return to have their vehicles serviced? How do these numbers translate in terms of lost service income? How do these numbers affect the amount of factory warranty and campaign work that is performed? What’s our actual ROI for bringing in new customers? What could that ROI be if the service and repurchase retention rates were higher?

Compiling Customer Retention Numbers Isn’t Enough

Analyzing and understanding your dealership’s customer retention rate data offers a useful measurement tool, and the next step is to take action and make changes. In Part 2 of this series on customer retention numbers, we look at what auto dealerships can do to maximize customer retention once you know where your business stands with your current customers.