5 Ways to Maximize Your Dealership’s Service Revenue
Consumers head into dealerships to not only buy cars, but to service the ones they own. This is stating the obvious, but many dealerships may be losing out on potential service revenue by not giving the service department the attention it deserves. According to Wards Auto, vehicle-service is a $215 billion a year industry and it’s expected to reach $247 billion by 2017. Service departments can also be a great way for OEMs and dealerships to build brand loyalty and retain existing customers.
However, many dealers are losing business after a customers’ warranty expires. According to Steve Finlay at Wards Auto, “Dealerships lose 60% to 78% of customer service revenue for cars 3 to 6 years old. Revenue losses rise to as much as 92% for 7- to 8-year-old vehicles. Eighty-six percent of vehicles on the road today are out of warranty.”
This is a huge loss in potential revenue when you consider that as much as 44% of a dealership’s income can be derived from its service department. Customers can’t negotiate the hourly fee for maintenance or the cost of parts. However, dealerships are often more than willing to negotiate on the initial car price for the potential new revenue streams in service.
Prepaid Maintenance (PPM) programs have proven themselves to be a great tool for customer retention and service up-sell. In fact, PPM programs are boosting service revenue by 15% and customer retention to 60% and even higher for some dealers, according to research by Performance Loyalty Group. In one specific example, Ancira Winton Chevrolet in San Antonio, Texas generated an additional $635K in service up-sell revenue during program service visits, and have boosted service customer retention to 50%, said the dealership’s Parts and Service Director Jim McAfee.
A study by LoyaltyTrac found that those customers that were engaged and joined a dealership branded loyalty-rewards program:
- Visited their service department more often, every 2.87 months compared to every 5.95 months for customers who did not join the program.
- Spent $982.34 in retail service annually compared to $384.55 for non-loyalty members.
- Retention of members – those customers who voluntarily opted to use the program — is 56.98%, compared to the NADA average of 20%.
Follow the Car Strategies
Follow the car strategies are an ideal way to continue to maximize service revenue when a car has been resold or traded. Third-party vendors who specialize in auto marketing intelligence can tell a dealer when a car they sold changes owners, who the new owners are, and how to contact them. Working with a dealership that knows a vehicle’s history is appealing to most consumers. Targeting the new owners with personalized offers is an ideal way to ramp up service center profits.
Consumers who are looking for a service repair center usually turn to the internet for their research. Local shops and chains spend big on paid search, SEO, and online advertising. Dealers on the other hand only show up 5% of the time. This leaves dealers at a huge disadvantage when consumers are considering repair centers. Dealerships have embraced online channels as a way to target consumers searching to purchase a car, but more resources should be attributed to online promotions for the service center.
Digital advertising is also a highly effective method to reach consumers who may be in need of service. In addition to online search strategies, digital ads can be targeted by a range of criteria such as vehicle type, make, model, year, vehicle history, and in-market consumers.
Transparency and Changing Perceptions
According to a Cars.com study, many consumers cite high price as the main reason for not considering a dealership. However, according to the study, “when shoppers were provided more information about actual price ranges and quality of dealership work, many were willing to pay 10% to 15% more.” Dealerships should advertise the fact that they employ master mechanics, as well as post actual prices for basic services to show prices are competitive.
Service departments represent an important revenue stream for auto dealerships. Dealerships must work to grow these revenues by building loyalty and repeat business from current customers as well as attracting new customers in the face of strong competition from independent service centers.