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Agora Data’s Steve Burke on Creating Customer Lifetime Value

A new customer walks into your dealership. They’re ready to buy, and one of your cars is the perfect fit. You can look at this deal’s profit in one of two ways:  1) As a “one and done” gross profit today that you must repeat tomorrow, or 2) as a “first payment” on the lifetime value of that customer.

Let’s also remember the passive income that results from a customer’s exceptional buying experience. Not only do you have one happy customer, but your initial marketing efforts will now pay dividends for years to come. That buyer will likely come back for another car, and in the meantime, they will probably tell friends and family about their positive encounter. Even with conservative estimates, the investment you make in a single customer can return to you tenfold over that buyer’s lifetime.

Customer Lifetime Value (or CLV) is one of the biggest benefits of a Buy Here Pay Here (BHPH) model. Instead of selling the contract to a finance company that will cross-market your customer for years, you as a BHPH dealer keep the CLV for yourself. So, you may as well max it out. Here’s how:

Reduce your customer acquisition costs (CAC).

You must start with how much it costs to get that customer on your lot. Include your advertising, website, community partnerships and any other marketing or relevant expenses. How can these costs be reduced or, better yet, avoided altogether?

Know what your customer needs before they tell you.

The best sales process anticipates your buyer’s needs and plans for them ahead of time. Technology can help as there are various options to consider. Understanding these needs first-hand, I am impressed on how technology when combined with artificial intelligence and millions of data points can be used to determine the cars that sell best in a market, as well as which ones are a solid financial fit for customers. Starting with selecting the right cars at auction – well before a prospect walks through your door – will help you avoid unnecessary hiccups in the buying process.

Speed up sales.

Delays, unnecessary wait times and an antiquated process can wear out your customer. The most profitable BHPH dealers streamline the experience for everyone. As a result, buyers are happier, and your team can focus on what matters – like explaining features of the car and reviewing the loan terms. Your current team can also serve more customers in a day when the overall process is more efficient.

Treat your customer like a person, not a commodity.

Maximizing gross profit is great, but not if it’s at the expense of CLV. Adopt a long-term mindset with each customer and focus on delivering a fair transaction. One of your greatest advantages as a BHPH dealer is the one-on-one, personalized approach you can take to ensure your buyer is served well. The referrals and future business will make it worthwhile.

Originate wisely.

Be sure you’re doing business with the right customer, and they get the right car with the right terms. BHPH dealers with decades of experience have an uncanny intuition about these things. Combine that with sophisticated tech, and your ability to put together the most profitable deals will skyrocket and most profitable is not the maximum gross profit per sale. For example, a loan origination tool that can leverage machine learning and big data to help set prices for your inventory, as well as ensure each customer selects a vehicle they can successfully pay off over time. Customer success is your success.

Take advantage of leverage.

Using “other expertise” – or outsourcing – is a crucial step in scaling your business. BHPH dealers often wear many hats but should consider offloading the areas bogging you down. You’ll then be free to concentrate on what you do best – buying and selling cars. Outsourcing also allows you to benefit from experts’ scale and decades of experience in an area outside your wheelhouse.

Lower your cost of funds.

Let’s not forget about the other type of leverage – “other people’s money.” For BHPH dealers, this typically comes in the form of floor plan financing or a specialty lender with high interest rates. If you can lower this cost to the competitive rates achieved by franchised dealers or national dealer groups, then imagine the savings you could redeploy to grow your revenues. At Agora Data, we address this challenge with our low-cost line of credit, which includes a reducing interest rate and unlimited capital for BHPH dealers. Regardless of how you lower your funding costs, it’s crucial to find creative ways of keeping more money in your pocket.

I encourage you to read up further on CLV and CAC. Your business must master these two metrics to have real staying power even during uncertain times. It helps to remember this philosophy: You only pay the CAC once. The CLV is like recurring revenue that lasts a literal lifetime, so invest in your sales process accordingly.

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Steve Burke is a 45-year industry veteran of the non-prime auto market and CEO of Arlington, Texas-based Agora Data. Agora Data offers auto dealers highly competitive, ample, and affordable financing and the ability to construct loan portfolios with high predictability and performance so they can safely grow their businesses and offer fair lending terms to non-prime customers.