What is a "Lost Sale"? Is it confined to the Parts Department? Can we put a value on it?

Lost sales resulting from missed opportunities happen almost daily in the parts department largely due to stocking issues. A customer on the phone, in the service drive, or at the retail counter wants to buy a part from you that you do not have on hand. They go elsewhere and you lose the sale because they do not want to special order it or have you purchase it via a trading partner or aftermarket company in the form of an "emergency purchase." These lost sales are recorded in the parts inventory section of the DMS system posting a demand to that part number which could potentially generate a phase in situation and an order would be generated based on history of demand. A dealer or a General Manager will periodically ask a Parts Manager to see his "Lost Sale Report" to make sure this is being done to avoid future lost sales or unnecessary expenses associated with not stocking a part in demand.

Now sales are lost due to missed opportunities all day long in all departments of the dealership, but who is paying attention? Some examples are outlined below:

The receptionist leaves a potential buyer on hold too long and they hang up and dial the next dealer.
The Service Advisor get a declination on recommended services due to poor word tracks and the value of the maintenance item was not explained in a manner comprehensive to the consumer.
The Internet department did not follow up a lead, leaving it up to the automated response system and the potential client bought from the first dealership who personally responded.
The salesperson on the lot is not aware of the various trades coming in this week and a prospective buyers leaves because we currently don't have on our lot what they are seeking.
The closer on the floor irritates the prospect by not understanding and respecting their personality and their buying habits and his/her high-pressure tactics causes the prospective buyer to leave and buy elsewhere.

The above-mentioned examples are just some of the multiple acts committed each day by all dealership employees in all stores due to lack of proper training. The sad part is we don't always monitor these lost sales; hence, using it as an opportunity to evaluate and possibly revise the steps or processes taking place in all aspects of client relations in every department! If we could put a value on these lost sales based on missed opportunities and plug it in as an expense item on the financial statement, we definitely would be alarmed at how much lack of proper training is costing a dealership on a monthly, quarterly and annual basis!

Would love to hear your thoughts on this...What are some other hidden effects of a lost sale? Do lost sales affect Customer Satisfaction and Customer Loyalty? Employee Morale and Employee Retention? How do we fix this?

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Replies to This Discussion

Permalink Reply by Tod Collins on July 21, 2011 at 11:19am

Nancy,

Keep in mind that the recording of lost sales in the parts department is an incredibly valuable tool designed to "test" parts inventory, not to determine a loss of revenue although it certainly does in some instances. (In the background, I can hear a service manager or technician screaming, I don't need your test I need parts!) The average domestic vehicle manufacture has over 300,000 SKU's. We all can agree that it's neither possible nor financially effective to stock every part and therefore we must use a phase in criteria based on a 'statistical probability" of sale in the future to determine what we purchase and put on the shelf. Remember, this is typically the largest out of pocket investment a dealer principle has in the dealership as all other purchases are financed in some way. The phase in criteria is driven directly off both sales and lost sales or "hits".

The value of lost sales recorded each month should not be viewed negatively, in fact the service manager/general manager should view this very optimistically as the parts manager is doing his best to test everything that comes through the parts department and ultimately "feed the techs". If you combine this with a very high fill rate you have a very effective parts department.

The second point I would make is every lost sale isn't necessarily a loss of revenue. We record every "request" for a part that isn't in stock regardless of reason. Some of those we might have gotten the part down the street or from another dealer to fill the immediate need. It might also be something that a customer had no intention of buying for various reasons or a customer that has an older vehicle that he is restoring that we certainly would never see again. We still record these as a lost sale. By testing everything, we are able to customize the inventory to the immediate market conditions. The goal should be to keep the fill to the shop as high as possible and to reduce the amount of out of stock issues to an absolute minimum; but it will never be eliminated.