When I started my retail automotive consulting practice in 1987, I chose to state as my unique value proposition, "Guaranteed 1,000% Return on Investment." During my first few years as an independent consultant, I was shocked to learn that very few of my potential dealer clients had a clue about what this meant. So I would explain that, for example, if the dealer would invest $2,500 in professional fees with me, I would provide a money-back guarantee that I would assist in increasing the dealer's net pre-tax profit by at least $25,000 over the next twelve months.

Now in the 60s, 70s and 80s, a lot of vendors were famous (or infamous) for claiming their dealer clients would recover this $2,500 investment by selling only one more car.  As a dealership manager and dealer principal, I had personally heard that claim too many times to count.  My guaranteed 1,000% ROI was way better than that.  But in reality, most dealers who became clients never tested my claim even though I was always prepared to demonstrate that I did what I said I would do. And you know what? The ROI was always far greater than 1,000%.  The bigger question, though, is why some car dealers are not holding themselves and their managers accountable for proving the ROI of their incremental investments or expense increases, much less the ROI of their day-to-day activities.

There is one dealer, however, who always has, and always will, hold my feet to the fire. During each consulting session, if I don't bring up the 1,000% ROI guarantee, he will invariably say something like, "So what's my '10:1 profit takeaway' from this engagement?" No matter if the primary agenda items for the engagement are hard to measure (corporate strategy, compensation planning, accountability management, etc.), I must always have at least one measurable takeaway in my pocket that will produce my 1,000% ROI guarantee.

In my last engagement with this client we covered a robust agenda of mutually-agreed upon issues.   As his 10:1 profit takeaway on my $12,000 fee, I showed him how to implement the Used Vehicle Value Folder process (the subject of my January 5th Up To Speed blog post). Here is how I calculated the profit takeaway for this client:

• I selected only five of his stores; the YTD average used vehicle retail volume for the 5 stores was 47 units per month; the average YTD combined front and back $PUVR was $2,350. Current YTD average retail gross per store per month was $110,450 (47 x $2,350).  Current YTD Used Vehicle Variable Selling Expense (Salesperson Commissions, F& I Commissions, Supervision Bonuses & Incentives, Delivery Expense, and Policy Expense) is reported at nearly 30.0% of Retail Gross.

• The NCM® Retail Operations team typically produces a minimum 10% increase in retail volume (no change in $PUVR) with the effective implementation and execution of the Used Vehicle Value Folder process.  I decided to hedge with a 25% safety factor and used only 7.5%. The per-store gross should then increase by approximately $8,275 per month ($110,450 x .075). Assuming a 70% net profit retention (after above-defined Variable Selling Expense), the average store's monthly pre-tax net profit should increase by $5,800 ($8,275 x .70).

• The annualized pre-tax net profit increase then calculated to $348,000 ($5,800 x 5 stores x 12 months).

• On the five-store group the anticipated ROI was 2,900% ($348,000 ÷ $12,000 x 100%), or a 29:1 profit takeaway. (I didn't need to mention that there were A LOT MORE than 5 stores in my client's dealer group.)

Clearly, the profit takeaway target objective was greatly exceeded and more importantly, the dealer could see that the value folder process will make a significant contribution to increasing his stores' profitability.  The numbers are so convincing that I'm certain he will expect the used vehicle value folder process be adhered to religiously in all his stores going forward. 

How about you?  Are you calculating the ROI of your contemplated investments or expense increases and finding profit takeaways?  If not, how do you know if your investments in your personnel, technologies and processes are giving you the returns you expect and need? 

Our 20 Group moderators, Retail Operations coaches and NCMi® faculty members accept the challenge to be measured and accountable for the return on our clients' investment.  We are proud that the services and products offered by NCM Associates often result in an ROI far in excess of 1,000%. 

Give us a call or email info@ncm20.com and let's open a dialogue to help you target and measure meaningful returns on your dealership investments.