What is more important ROI or ROE?

[shaughnessy2323]

ROE: Return on Employee, NOT return on equity…. I just made it up. But not on a whim, a lot of thought went into this and a lot of time too.

You see, a friend of mine had a lease come due and he went truck shopping. He was less than impressed. We were at a wedding and sat at the same table and he was telling me his recent car shopping horror story and I couldn’t believe my ears. He told me about his Mercedes G63 which was $2,500/mo and how he couldn’t get a Mercedes dealer to give him a straight answer, 3 different ones! So, he switched to Land Rover for a $135,000 Range Rover and sent web requests to 5 different dealers across 3 different states and called 4 different stores in two different states and more of the same…. Now, I know what everyone is thinking, so let me be clear with what I confirmed and saw with my own eyes, we have solid credit, solid income, the truck is a lease turn in which is also an equity positive trade in between 5k and 10k in true dollars, not his numbers and he’s looking at in stock vehicles, willing to pay sticker as he did on his 63 and just wants to get it over with as he’s a busy guy. Beyond legit, and by our standards!

As we’re friends and our wives are friends, I couldn’t say I didn’t believe him, but I honestly didn’t believe him. So, over the course of this wedding reception he let me read emails on his phone and I sat there in disbelief. I just sank deeper in my chair for 3 hours believing every single word he said. How could the industry I spent my entire career in have turned so wretched? Highline dealers asking MSRP for trucks really sending garbage to customers and the days of escalated autoresponders just meaningless without any thought or consideration to the individual situations, had the post pandemic business really started booming so much that you could justify treating people like this? MSRP paying customers? Any customers? Really?

I included “ROI” (Return on Investment - traditional) here because this is the one that always makes me laugh as a vendor. It’s as if dealers are conditioned to ask it and a vendor is conditioned to answer it but the reality is neither of us are really asking (or answering) the question behind the question, i.e. the real question. I’ll break the “vendor code” and give you the real question and the real answer: Any product is only as good as how you deploy it! No matter what it is! For example, I represent a great company that really does make a marked improvement for dealers and it’s sustainable long term. We drive results through focusing on the root cause. I tell dealers this about my product when they ask me this very question, “Our service is like a gym membership, just because you have it doesn’t mean you’ll see results…. You actually have to embrace it, use it and stick with it. The sooner you make the commitment the sooner you’ll see the results!”

With over 15 years on the retail side and just hitting my 6th year as a vendor we all have fallen into the habits of falling for and using cliché “buzzwords” which sound good rolling off the tongue but do they really mean anything at all, or are we so immersed in wanting to walk and talk like the rest that we lose sight of what’s truly effective? Or, equally as bad, we lose sight of what’s truly important? I opened with my friend’s experience that I honestly didn’t believe but a lot of us (most of us), just like me, have become so desensitized to these interactions that we don’t believe that “40 car Fred” could really be that terrible. Well, I’ve got some bad news for you, while we’re focused on the latest and greatest acronym or the latest and greatest make-believe thing that really doesn’t do much of anything, we’re doing what’s happened above. I also saw emails from the GSM, the GM and at one store all the way up to the owner. I find it hard to believe that everyone is so busy that they rely so much on automation for a stone-cold buyer. I took it upon myself to check the stock numbers he submitted his requests on for each web lead. I’m sure all their “stats” show they’re “blowing up” but after 6 weeks they’re all still in stock…. Weird? They had a buyer that just didn’t get handled properly. And, for those of you that are thinking it, I can assure you he didn’t get profiled away from his vehicle or out of a deal because they engaged him, they just couldn’t get out of their own way.

So, what is ROE and why is it important for every Dealer Principal, General Manager and check signer to learn this? It’s because of what it stands for. Return On Employee is critical as it’s the stopping and starting point for everything else. Every dollar is either invested or spent and it’s that employee that makes that difference. Whether you call yourselves “associates” or “team members” or “cast” or “partners” or what have you, at the end of the day a single thing stands between success and failure and it’s not software, it’s not hardware and it’s not money. It’s a person. If that person doesn’t feel confident, comfortable and capable then all is lost.

Even now, as we slowly climb out of the latest “crisis” our industry just faced, it‘s currently more important than ever to make sure the people are confident, comfortable and capable. I still remember hearing my managers when I was fresh selling Toyotas say “business is slow, call the newspaper and get more liners for the weekend” or “we need to make sure we have our oldest cars priced to sell with good pictures for Autotrader” and no I’m not talking about the website so our VDP’s increase, I’m talking about the old magazine that we used to see at the local gas station or convenient stores that, as a child, was my comic book. But enough of a trip down memory lane, anyone who wants to talk more about that we can “take that offline,” see what I did there and how smooth that buzzword worked?

To this day, I talk with dealers who feel this is the best way to sell more and make more money, vendors too. But damn if that wedding reception didn’t really hit me hard! We also now have those out there who preach “spend less and make more, buy our software and we’ll show you how we save you money by spending with us” but I have to ask: (Does that really work long term? Because I know a ton of people will jump on me and defend it but show me a 12-month trend based on bottom line manufacturer-audited statement savings.) Here’s the real question, the important one: How does that help our ROE and the answer is IT DOESN’T! There are so many things out there being sold to get the upper hand on the competition or have the latest and greatest technology when the real answer is simple, invest your dollars effectively, not on new products that don’t solve a customer issue but on those individuals you have working for you. Continuing education, coaching and training, personal development, things that really make it easier for your customer to make a purchase, solve the problem they’re really facing.

We all want better ROI, right? We won’t realize a better ROI until we first invest to realize a better ROE

 

[Chris Vitale]

Dead on! Unfortunate too....

 

[Alexander Lau]

I'd say that you bring up a good point and something I have been barking about with the lack of proper leadership at the HR level (ultimately that lies on GM and owner / principal). Just in general, the piss poor nature of dealership HR is astounding. They don't hire the right people, especially in marketing. This is why dealerships are picked apart by rogue, dirty agencies. The marketing people have no clue. I'm not speaking about the folks that frequent these waters, but still. Soooooooo... in your head the ROE, which is what the f*ck am I getting out of my employees and again, they HAVE NO CLUE at the top. It's laughable and that comes from working with one of the Top 50 dealer groups in the US of A. Ta da, it's magik!!!

I'd also throw in what is more important, ROI or ROAS? https://www.adexchanger.com/data-driven-thinking/roi-vs-roas-which-is-the-better-metric-for-digital-advertisers/#:~:text=ROI measures the profit generated,the cost of those ads.&text=In contrast, ROAS measures gross,effectiveness of online advertising campaigns. but that's a discussion we've already had here.

 

[Chris Vitale]

I'd say that you bring up a good point and something I have been barking about with the lack of proper leadership at the HR level (ultimately that lies on GM and owner / principal). Just in general, the piss poor nature of dealership HR is astounding. They don't hire the right people, especially in marketing. This is why dealerships are picked apart by rogue, dirty agencies. The marketing people have no clue. I'm not speaking about the folks that frequent these waters, but still. Soooooooo... in your head the ROE, which is what the f*ck am I getting out of my employees and again, they HAVE NO CLUE at the top. It's laughable and that comes from working with one of the Top 50 dealer groups in the US of A. Ta da, it's magik!!!

I'd also throw in what is more important, ROI or ROAS? https://www.adexchanger.com/data-driven-thinking/roi-vs-roas-which-is-the-better-metric-for-digital-advertisers/#:~:text=ROI measures the profit generated,the cost of those ads.&text=In contrast, ROAS measures gross,effectiveness of online advertising campaigns. but that's a discussion we've already had here.

Brilliant point about HR!

 

[Alex Snyder]

After the 2008 recession layoffs, we put the GMs on an ROE (I like that Shaughnessy - stealing it) pay plan at Checkered Flag. It was a pure headcount to profit number that was set for each department. Parts had a different profit per employee number then sales for example. But porters and detailers fell into this statistic too.

It forced the GMs to be diligent about who was on the staff and that also invested them in making sure the people were able to do their jobs. Obviously, it did not last, but it was a helluva neat experiment.

I Love the article @shaughnessy2323 and can tell you the national average for engaging with internet leads (email response from the customer, "contact made" phone calls, and even floor ups) is less than 16%. If the average dealer received 100 internet leads they speak to 16 of them. They close 20-30% of those making the REAL (not cherry-picked) internet lead closing ratio closer to 5%.

If you think that 5% number is low, I agree. In my opinion, the issue is in what is being sent back to these leads and what is being communicated over the phone. Customers want two things from dealers:

1. Can I buy THIS car (is it available)
2. For how much

The latter question "for how much" is where dealers fuck things up. It is so difficult to get an actual out the door number or payment (yes, that's what the customer is after - out the door numbers) the person working directly with the customer creates BS excuses as to why they can't provide it. The customer translates it into two things: 1) you're expensive and 2) you have terrible customer service. If dealers can make it easier for their staff to answer those two questions for every customer they'll see improvements in... well, everything.

 

[Chris Vitale]

After the 2008 recession layoffs, we put the GMs on an ROE (I like that Shaughnessy - stealing it) pay plan at Checkered Flag. It was a pure headcount to profit number that was set for each department. Parts had a different profit per employee number then sales for example. But porters and detailers fell into this statistic too.

It forced the GMs to be diligent about who was on the staff and that also invested them in making sure the people were able to do their jobs. Obviously, it did not last, but it was a helluva neat experiment.

I Love the article @shaughnessy2323 and can tell you the national average for engaging with internet leads (email response from the customer, "contact made" phone calls, and even floor ups) is less than 16%. If the average dealer received 100 internet leads they speak to 16 of them. They close 20-30% of those making the REAL (not cherry-picked) internet lead closing ratio closer to 5%.

If you think that 5% number is low, I agree. In my opinion, the issue is in what is being sent back to these leads and what is being communicated over the phone. Customers want two things from dealers:

1. Can I buy THIS car (is it available)
2. For how much

The latter question "for how much" is where dealers fuck things up. It is so difficult to get an actual out the door number or payment (yes, that's what the customer is after - out the door numbers) the person working directly with the customer creates BS excuses as to why they can't provide it. The customer translates it into two things: 1) you're expensive and 2) you have terrible customer service. If dealers can make it easier for their staff to answer those two questions for every customer they'll see improvements in... well, everything.

That's pretty cutting edge, so you guys took the dollars generated per person metric and watched like Silicon Valley Tech Companies and applied it to the stores? Why'd they do away with it? I would say it's a fantastic metric to stick with as you emerged and continued to grow as there's no historical and nobody else doing it (that I know of) in the industry. So if you started it then when a situation like this arises you now have a baseline as to what's acceptable, etc.

I want to understand the lead closing as I'm not following. I do agree with everything said on it with reasons and believe it is literally that simple. So, 100 leads in, speak with 16 of them then close 20 - 30% of the 16 or you're saying closing 20 - 30% of the 100 leads and separately they're actually verbally "talking" with only 16% of the 100?

We both know how the reports are manipulated and nothing makes me more upset than studying solely for a grade than to acquire knowledge.... Kind of defeats the whole purpose of paying tuition, doesn't it?

 

[Alex Snyder]

That's pretty cutting edge, so you guys took the dollars generated per person metric and watched like Silicon Valley Tech Companies and applied it to the stores? Why'd they do away with it? I would say it's a fantastic metric to stick with as you emerged and continued to grow as there's no historical and nobody else doing it (that I know of) in the industry. So if you started it then when a situation like this arises you now have a baseline as to what's acceptable, etc.

The right people to ask would be the CFO and VP of sales at Checkered Flag. I'm not sure why it went away. I can only recall each General Manager making store/brand-specific arguments as to why they needed more money. It led me to hypothesize it was too much to manage.

I want to understand the lead closing as I'm not following. I do agree with everything said on it with reasons and believe it is literally that simple. So, 100 leads in, speak with 16 of them then close 20 - 30% of the 16 or you're saying closing 20 - 30% of the 100 leads and separately they're actually verbally "talking" with only 16% of the 100?

We both know how the reports are manipulated and nothing makes me more upset than studying solely for a grade than to acquire knowledge.... Kind of defeats the whole purpose of paying tuition, doesn't it?

Traditionally, the closing rates on internet leads have been stated as 7%. That's been the number for nearly 2 decades. "7 out of 100 leads will buy a car from you" is what we've been told.

Now, let's look at learnings that have not been as publicized over the past 4 years, but we are fortunate to have @jon.berna at Driven Data to help us out with (using CRM & DMS data):

• 70% of internet leads are responded to
• 16% of internet leads communicate after the initial form submission
• 5% are closed

Out of 100 leads, 70 get an email or phone call from the dealer that is logged in the CRM, 16 of the customers attributed to internet leads show an email response, phone call connection, or meeting in the CRM, and 5 out of the 100 show as sold. That's pure data.

Now, let's look at what probably happens:

Out of 100 leads, 30 are deemed not worthy of a call or email immediately due to some sort of fictitious data entry by the customer ([email protected]). Another 30 are eventually marked lost because they're nonresponsive. So now we are down to 40 leads that are actually worked. And this is where we hear about internet departments doing 12%+ closing ratios because they'll sell 5 of those 40. It is still 5 out of 100 leads being sold. Does this logic make sense?

As for the 16% conversations, here's another way to look at it: 20 to 30% of the internet leads we talk to are closing. It stands to reason the best way to move the needle is to have more conversations.

 

[Chris Vitale]

I don't believe people are submitting fake leads. Who has that kind of time, honestly. I really love the "unlock your price" text message which forces you to give in order to get. That way, we know you're legit. However, I can accept the 100 down to 70, I lived it. But, of those 70, I myself make 90% of my large and small purchases online and base it on two factors other than availability, they're ease and education. Are they making it easy for me, saving me time, etc. And are they telling me something I didn't know, perhaps even swaying me to spend less/more based on my own ignorance as I'm not the professional on said topic, an example recently would be a new outdoor grille. I still can't wrap my mind around accepting those closing percentages and somebody not saying "maybe it's us?" 100 leads to 5 deals? I can't get there. That screams broken process, broken prices, broken people, etc. Plus, like in the wedding story above, it's no wonder why. I asked @shaughnessy2323 about the current status and his friend lost interest and then I asked about follow up. None. So all those stores stopped following up after two weeks or whatever it was? I don't know what it takes to buy something like that but I sure would follow up longer than two or three weeks on what I can only imagine is a 200k car! Maybe that's part of the issue? No GM picked up the phone? No owner? Shit, if I can't close a deal right now I'm asking my boss to pick up the phone, ego out when it comes to earning a customer!

 

[Alex Snyder]

I don't believe people are submitting fake leads.

Here are a few sources for fake contact information:

• OEM leads are notorious for this as they're usually giving something away at a car show.
• Unlock the price leads are too.
• Digital retailing leads.
• Any dealership that can no longer show a price below a manufacturer threshold aside from a specific 1:1 conversation.

" 100 leads to 5 deals? I can't get there. That screams broken process, broken prices, broken people, etc.

I agree! It is a broken process that continues to get worse and worse as time goes on. When the first internet leads were coming in we did not know what to do, so we answered the customer's questions and gave them a plethora of information. We had closing ratios above 25%.

Then we discovered the desk was tired of giving us numbers, so we developed ways to not answer the customers' questions. Our closing ratios fell. So we pushed our vendors to get us more leads because our pay plans did not change.

• Spend more on SEM
• Spend more on SEO
• Spend more on social
• Turn our websites into the Vegas strip with pop-outs, pop-unders, chat this, chat that, text us, get your ePrice, check availbility, unlock your savings. and whatever call to actions someone can come up with
• Try anything that brings a lead in

More leads, more leads, more leads. And our closing ratio fell further. But we still have the same pay plans. And we still have the same reluctance from the desk to provide the customer with answers.

We blame it on not being able to hire good people. We blame it on the lead sources. We blame it on the vendors. What we are missing is a simple single truth: we are not putting the customers first.

 

[Chris Vitale]

Here are a few sources for fake contact information:

• OEM leads are notorious for this as they're usually giving something away at a car show.
• Unlock the price leads are too.
• Digital retailing leads.
• Any dealership that can no longer show a price below a manufacturer threshold aside from a specific 1:1 conversation.

So wait, you mean to tell me face to face they're saying "hello, my name is John Doe" and giving a fake name and number literally lying to someone's face? So that only impacts auto show season. I guess but damn, is a free candy bar that important? What a bust out. And WTF is the OEM doing this for anyway? Can't the dealer just buy the snickers and say get lost?

We use Unlock the Price with great success, how are you seeing these being faked? I can't think of a way to spoof them.

I agree! It is a broken process that continues to get worse and worse as time goes on. When the first internet leads were coming in we did not know what to do, so we answered the customer's questions and gave them a plethora of information. We had closing ratios above 25%.

Then we discovered the desk was tired of giving us numbers, so we developed ways to not answer the customers' questions. Our closing ratios fell. So we pushed our vendors to get us more leads because our pay plans did not change.

• Spend more on SEM
• Spend more on SEO
• Spend more on social
• Turn our websites into the Vegas strip with pop-outs, pop-unders, chat this, chat that, text us, get your ePrice, check availbility, unlock your savings. and whatever call to actions someone can come up with
• Try anything that brings a lead in

More leads, more leads, more leads. And our closing ratio fell further. But we still have the same pay plans. And we still have the same reluctance from the desk to provide the customer with answers.

We blame it on not being able to hire good people. We blame it on the lead sources. We blame it on the vendors. What we are missing is a simple single truth: we are not putting the customers first.

I don't disagree but wouldn't it be easier to just respond to the questions being asked? And I hate to be "that guy" but anyone that says every single second of their day is packed with constant productivity is full of shit. If the day ever came when I heard one of my desk guys say he was tired of giving numbers that would be the same day I started my search for a new desk guy. I don't see how giving numbers is an issue when that's your job?