March 12, 2007: F&I sales: the key to improving customer loyalty and profits
March 12, 2007
Filed under Columns
What’s the most profitable square footage in your dealership? If it’s not your F&I department, then you have an incredible opportunity at your fingertips.
Let’s do the math. If we take a dealership that sells 500 units per year and averages $100 per unit sold in the F&I department, that would equal $50,000 in back-end gross profit. If that same dealership were to increase their average to $300 per unit sold, their F&I gross profit would be $150,000. That’s an additional $100,000 to the bottom line each year.
The F&I department is a separate profit center that offers valuable products that every customer is entitled to take advantage of. It is actually a disservice when a customer is not given the opportunity to take part in these entitlements. By offering these products you can actually increase customer loyalty to your dealership and improve your Customer Satisfaction Index. These products include, but are not limited to the following:
Become an expert on each of the products your state laws allow you to sell, and make sure your dealership has the ability to sell them.
Let’s continue with how to specifically increase your back-end average. As always, you must begin tracking it. Make sure your DCS (dealership computer system) is reporting your front-end gross separate from your back-end gross. Put first things first and print that report out at least weekly, if not daily.
As far as selling more products, I recommend menu selling. Create a menu that has different packages of product to choose from, and present that menu to every customer. By presenting 100 percent of the products you offer to all of your customers all of the time, more customers will take advantage of the products. This is based on the fact that you won’t make 100 percent of the sales you don’t ask for.
While menu selling is great, there also must be continual training. If you don’t use new information you learn, you lose it, so be looking for new ways to build rapport and handle objections. Have your F&I staff write out a script for their presentation, and memorize how they will handle objections. If customers can tell you’re using a script, you’re doing it wrong. Don’t wing it. The presentation is where 80 percent of the buying decision is made.
Don’t forget that F&I staff members are in the position of offering financial advice. Make sure they are well groomed and neatly dressed. By looking professional they will be able to earn the customer’s trust more easily.
A recent RPM Group Composite Report showed the national average for back-end profitability for metric dealers is more than $450 per unit sold (It’s much higher for American OEM dealers). So, that 500 unit per year dealership would now be generating more than $225,000 in gross profit each year from its F&I department alone. Not bad for a 10x10 office.
With nearly a quarter of a million dollars on the line, you can’t afford to not take a closer look at your back-end Profit Ability.
About this column
Series goal: Each Profit Ability column will focus on one key measurable found in most dealer 20 Group’s composite reports and offer tips on improving those measurables.
This edition: Back-end F&I profitability
National average for this measurable: More than $450 per unit sold
Tory Hornsby, general manager of Dealership University, was drawn to the powersports industry more than 10 years ago. Hornsby has worked in nearly every position in the dealership. He welcomes your e-mail: email@example.com.