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June 4, 2007: Before spending more ad bucks, consider your closing ratio

June 4, 2007
Filed under Columns

“Hey Boss, we really need to do more advertising. I think we should have a TV commercial, and maybe get a billboard or two,” the salesperson says to the dealer principal.
“Really, how many showroom visitors did you have last month, and what was your closing ratio?” the dealer principal responds.
The salesperson replies with a puzzled look, “What do you mean by closing ratio?”
To calculate a closing ratio, divide the total number of showroom visitors by the number of customers that purchased a unit. For instance, if a sales department had 100 showroom visitors and 10 of them purchased a unit, the closing ratio would be 10 percent. A showroom visitor is defined as a person with whom you had the opportunity to present and sell a unit to. It’s easy to dismiss parts and service customers, but many of them represent a genuine opportunity and should be logged.
According to a recent RPM Group Composite Report, the average closing ratio is 19 percent, or 19 out of 100 showroom visitors purchase a unit. To determine your true closing ratio, it is necessary to track not only the number of units sold but also the total number of showroom visitors. Here are a few common strategies utilized to measure showroom visitors:

  • Use a traffic log, daily sales planner or digital Customer Relations Management (CRM) and ensure that your salespeople enter the information of each showroom visitor they speak with.
  • Install a Swing Counter that electronically counts each person that enters your main entrance. They are very affordable, easy to install and a great tool to quantify the accuracy of your traffic log.
  • Have someone greet visitors as they enter your dealership. They can keep a running count of everyone that enters the dealership, note which department they go to and track the number of sales department opportunities.
    By having an accurate count of showroom visitors and sold customers, you can determine a lot of valuable information:

  • A high number of showroom visitors paired with a low number of sold customers might indicate that marketing is strong but selling skills need improvement.
  • A low number of showroom visitors and a high number of sold customers could indicate that marketing needs improvement, or the sales team isn’t motivated, or performing to its potential.
    This valuable information also can be used to quantify the skills of individual sales team members. For example, a high number of showroom visitors and a low number of write-ups might indicate additional training is needed to convert presentations into write-ups.
    There are several ways to improve closing ratios, which lead to more unit sales. By educating your sales team on best practices, individual closing ratios can improve by more than 10 percent. Best practices include: properly welcoming customers; interviewing; building rapport; performing effective presentations; asking for the sale; writing-up more customers; and the ability to handle common objections.
    Another way to increase closing ratios is through effective follow-up with unsold customers. Let’s take a look at some closing ratios for the different types of customers:

  • First-time visitors, or visitors who haven’t been in for a while, have less than a 10 percent closing ratio (walk-ins).
  • Visitors who return to the dealership after their first visit have a 65 percent closing ratio (be-backs).
  • Customers who have purchased before and return to purchase another unit have a 70 percent closing ratio (repeats).
  • A visitor who was referred to your dealership by a recent customer will purchase 60 percent of the time (referrals).
  • When a customer calls before showing up to the dealership, the closing ratio is between 50 percent-70 percent, depending upon whether an appointment was set (phone-ups).
    Often times closing ratios will drop because the emphasis lies solely on walk-ins, which yield less than a 10 percent closing ratio. Walk-ins require immediate attention, so utilize the time between walk-ins to follow-up with unsold prospects and sold customers. Consistent follow-up will generate more be-backs, repeats and referrals, which in turn will increase closing ratios. There are call centers available that will follow-up with your showroom visitors and provide a detailed survey.
    The good news is that even with a 25 percent closing ratio, 75 percent of your visitors are still hot prospects. Before assuming that your dealership needs to do more advertising, consider all the leads that are already in the pipeline. Besides, this is a lot less expensive than TV commercials and billboards.
    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: A dealership’s closing ratio
    National average for closing ratio:
    19 percent

    Tory Hornsby, general manager of Dealership University, has worked in nearly every position in the dealership before becoming a general manager. He welcomes your e-mail: thornsby@dealershipuniversity.com.

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