#58 - Customer Lifetime Value

Hello and welcome to this episode of the Independent Dealer Podcast. We appreciate and thank all you guys for tuning in week after week. Really just so impressed with the growth of the podcast. It's been awesome. Luke, are you happy?

Hey, man, I'm always happy. This is so much fun doing this with you. Welcome to the Independent Dealer podcast, the.

Podcast for auto dealers to learn and grow together.

Here are your hosts, Luke Godwin and Jeff Watson.

You know, it's been on my mind. We always have the conversation and the argument of, like, where are we gonna get more leads? You know, is it gonna be Cargurus? Is it gonna be cars.com? is it gonna be Facebook ads? Is it gonna be giant gorillas in the parking lot? And what I've come down to, and I keep coming back to this is, man, our most valuable customer is the one we've already got, right?

100%. And if you look over anything, any industry, no matter what it is, your lowest cost to attain a customer is the one you always have, right?

Yeah. You've got them now. What we need to do, Luke, is we've got to turn them from customers into what we call raving fans. Super fans. People that are not just gonna come and say, hey, I had a pleasant interaction at Godwin Motors. They're gonna say, I love those guys. That's where I buy my cars. That's where I'm gonna send anyone to buy my cars. Because X, Y and Z reasons, right? Luke, let's talk. Let's get a little bit into why these current customers are so valuable. And I want to walk people through a calculation here. So we're going to talk about the customer lifetime value, right? So when you sell a car, Luke, what is your average gross profit on a car?

So, you know, we're.

Or the group average, let's say.

I think if you look over. Over industry average. You know, if you're in retail, I think you're gonna probably, you know, if you're not a crazy V Auto person, and I'm not downgrading V Auto people, so don't. Don't send me hate mail. But if you're a normal retail company that does it, you're probably gonna average. Let's say a good one's gonna average into 24 or so grows, and then hopefully they're making, you know, 15 or so on the back end. So let's, you know, look at that. But, you know, in the buy here, pay here industry, I think you're probably, you know, on the bottom end at three grand and up to, you know, five grand, depending on what your model looks like, right?

Definitely. So for the, let's say $3,500, just kind of land in the middle of all that, your typical gross profit. Now, obviously, buy here, pay here, people gonna be a little bit different. We're gonna have some finance income as well. I'd like to account for that as well, because obviously we've got interest, we're taking the payments, we're doing that whole process. On top of those two sources of profit, you're also going to have things like late fees. If you're doing buy here, pay here, you're going to have service income, Luke. Right. I think you get a lot of service income there.

We do. And that's a big thing to look at as well. That service income is a big piece of the pie. And if you. You looked at a franchise dealer, they would tell you it's the biggest piece of the pie. So you cannot underestimate the amount of the service income is important to this.

Yeah. And if you have something like a CPI product that you offer, you know, that's going to be another huge one that will add up over the course of that lifetime. So. For me.

Or warranties, too, you know, if you're selling, if you've got your own reinsurance company, not just the cpi, you could talk about, you know, the gap and the, you know, the service contracts that you're selling to these customers as well.

Yeah, yeah, yeah. So for me, I look at my averages, and then I'm going to take out my repo rate too, because I know that I got about, you know, I think anywhere from 20 to 24% of my loans go south. So I want to be kind of realistic, but my calculations say that customer, over the lifetime of their loan and their purchase is gonna make me somewhere in the $6,000 area, right?

Yeah.

That's pretty decent.

Like one customer, and that's without service for you.

Yeah, yeah, that's what. That's. With minimal to no service, a couple of late fees, maybe here and there, six grand. You know what I'm saying? Not. Not bad. Where this really gets interesting, though, Luke, if I have a raving fan, if I have a super fan, how many cars am I going to sell that person?

So you're going to always sell that person cars, and you're going to probably sell that person's kids cars. You're going to probably sell their sister and brother's car. You might sell their mom and daddy cars, and everybody else that they talk to Every day. So that number can be exponential really fast.

It can be huge. So say I sell them five cars over the course of our relationship, right. Every three to five years, they come in, trade in, upgrade. So for the next 20 to 25 years, I'm selling this one person car. So let's just focus on the one person. I'm making about 30 grand right over our. Over our relationship. And like you said, Luke, what happens now? If they're sending me only one or two people a year, their friends and family, I mean, that's small. If you've got a superfan, they're gonna send you a lot more business. But if they're only sending me two people a year, that's an additional 60 grand because I'm making about the same on them as I would on their friends, right?

Oh, yeah.

So that's. So between that customer and the two that they sent me, I'm making another 60 grand on them.

Adds up fast. Yeah.

If you times that by the five years, we're talking $300,000. Right? If I have one super fan buying a car from me every five years and sending in two of their friends every year, that customer is worth 300 grand. That relationship, that lifelong friendship is worth about 300 grand to my business. In bottom line profit, I'm not talking about, you know, sales. I'm talking about gross profit.

That is a. That is a big number. And it's not an unreal number.

No, no, no. A very conservative. So, Luke, why. And how do we get these people from being just customers and just, hey, you know, Four Seasons, it's a great place to go. I like them. The people are friendly. Two, this is the only place I'm going to buy a car, and this is where I'm going to send all my friends and family.

So that's the key. How do we do it? And so it's all about wowing that customer, is my opinion. There are some people in the industry who are just amazing at this. You know, one, that one of the people that. That really sticks out is Tracy Myers. Now, we all should know Tracy Myers, and we've had him on the podcast before. But that guy gets it. He understands how to annoy a customer, you know, on the front end. And he would even say that because of his advertising. But he also knows when the customer gets there. You know, what do you do? What do you do now? I think we try to wow our customers with experience. We don't go through the process at the time of the sale. I mean, well, I think we wow them, but we don't. We make sure that we continue to give them top level experience over and over and over again. And we encourage reviews, right. We want to make sure that that customer is getting on Facebook or getting on Google and putting that review out there. You know, just yesterday, I'll share this with you because I, it was, you know, great experience, but looking back and what my sales staff did, we had a person who, who went on the Facebook and said, you know, and gave us a recommendation, which was, which was great.

You just called it the Facebook.

Oh, well, I say stupid things. I call, I call Instagram, Instaface, and I really get people laughing at that. And then Snapchat.

He's really old. He's really old. He remembers when it used to be called the Facebook.

Yeah. And I call it Snap face and all this.

Anyway, okay, this person went on the Facebook, on the Facebook, on the interwebs.

And she explained, I mean, seriously, she wrote a freaking paragraph, right? How great of a time she had. Well, you know, that, that's all well and good, but this is what's, this is what's better. We've had two of these superfans comment off that. So the first one goes, amen, well said about my sales staff person. Right? Then the other one, who I've sold a couple cars to, it looks like I remember her name. Love me some Godwin Motors. I'm getting my next car from them. That's what you gotta have, right?

Huge.

So not only did the person we sold a car to yesterday go on Facebook and recommend us. Now that's part of our sales process. We train ourselves to do that and we pay him to do it. Not only did she go out and put that, but you've got two super fans that not only liked it, they felt a need to comment on it. And as soon as that comment starts, that's where your superfan goes. Not only did a person write a review, but we had two people comment of how great we are. And man, that is, that is how these super fans are developed is encouraging this and getting people to not only lead the review, but to respond to reviews.

Yeah. And these people, what they're doing is they're finding a common thread between them. And they may not know each other. They may know each other and no chance here. People want to have connections, they want to have that community. I mean, think about any popular pop culture social thing. You rally around people that are like minded and it builds your confidence. You know, when you get into some Political conversation with like minded people. You're building that connectivity. So when they're able to get in there and, and either defend you because of their great experience or even better, when they can build upon other people's great experience, it endears them, it connects them to you. It creates a stronger fan.

You know what's funny is I didn't even think about the part where people defend you. I remember about two years ago I had, we had something go wild with a diesel truck we sold and the customer videoed, had an injector, went bad and videoed it going bad and tagged us, you know, and then as soon as that happened, I had these super fans getting on Facebook going, oh, what did you call them? Because I'm sure they, I'm sure they gonna take care of you. And you know, and the guys like, oh, why I should have reached out to him. I just already had it fixed. And I go, well, you should have called them because they're the best, you know, and getting that customer evangelism and getting those super fans not only means that, that you're gonna get more customers from that customer, but, but you're also going to get that backup when you need it. Mm.

So a couple of ideas and things that I've seen or that we've tried here is like Luke said, having them leave that review at the time of sale, it lets them put it out there. Start, start feeling comfortable with, hey, you know, like, yeah, I'm okay letting people know that I bought here at Godwin Motors. I'm comfortable letting them know that I'm on their team. Part of it is making sure the experience is good. When they're in the dealership, are they treated well? Is the time, I mean, the purchase time, is it a two hour process or are you getting them in and out in a reasonable experience? So much is about the customer experience, right? It's about how is the customer feeling when they're at your dealership, when they're interacting with your staff, when they're leaving? You know, we can all race to the bottom and try to give someone the lowest price. But having a good experience and a good interaction and enjoying the purchase process is huge.

I think, I think it's more important than price, honestly, to a vast majority of customers. I know that if I've got to pay a little bit more to get a better experience, I'm going to do that. I do not, I will not walk into a Walmart, go to the, I'll go to the Target, I'll drive across Town to go to Target because I know my experience at Target is gonna be better than my experience at Walmart. You know, people may say, well, that's elitist, you're stuck up. You know, this, that another.

You are.

I am.

But, you know, but no, it's true in any situation. I mean, that's just the way it is. We know we're gonna go pay a little bit more at the fancy restaurant. We know we're gonna go pay a little bit more to have the better seats at the event because we're gonna get treated a little bit better. We're willing to pay for that, you.

Know, and everybody should be, you know. Yeah. In my opinion.

And that's probably the biggest or some of the concern with the race to the bottom or trying to be the best price on car gurus is you've got to be careful that you're not shooting yourself in the foot. You're dropping your prices so low to get people in the door to try to sell that. Then you feel like you can't over deliver because you've already under promised and you've got no room to over deliver or give them a little bit more at the time of sale or have a little bit nicer showroom or follow through on that one thing you said you should have done. You know, it just doesn't leave you any room to what they say, surprise and delight. You know, I love that. Extra, a little bit extra, a little bit different, you know, step up, be out of the box, be a little bit more of a fun thing. You know, I've talked to my salesman before about this, but if instead of spending the money that we spend on advertising, which I think we run around $300 to 500 depending on the channel, to get a customer in the door. Right. Or get a sale, let's say if instead of spending that, we took that, say $300 and my salesman had the ability to spend that money on the customer after the time of sale, on something unique to them. Like, you know, your kids said that they played soccer. Here's this Pele jersey that I found. I hope he enjoys it. Or, you know, I know that you're really into motorcycles. I saw this, you know, set of saddlebags that I thought would be cool for you, you know, and you just send it to them, even just a thank you card with a gift certificate to their favorite restaurant after the time of sale, with a handwritten note, takes you about 10 minutes.

Part of our sales process is 15 days after the car sold. You write A handwritten thank you note. And it's important. You know, some people may say, well, we do something different, that's fine. But you do need to do something. You need a follow up. And what you said, talking about, you know, doing something that you promised the customer, it goes back, delivering what the customer expects. If you said you were going to do something, make sure you do it. The worst. The worst type of customer and the one that you're never going to get to evangelize for you, is someone who feels like they didn't get something they were promised, right?

Mm. Oh, yeah, yeah, yeah. I mean, everyone says a good deal. What's a good deal? We all know a good deal isn't the lowest price, right?

Sure.

You know, good deal is getting it from someone you trust on someone that's gonna follow through and have integrity and do what they said they were going.

To do for sure. And that's the art of attentiveness. Let me get this out. Artful attentiveness that you give to your customer. Ask what you're talking about. Hey, I know you like to go to a football game. Well, here's two football tickets. You know, we've got leftovers. Here you go. Whatever it is that you do, make sure that you deliver that to your customer. Cause if you make time to deliver that to your customer, they're gonna deliver you something in return probably 90% of the time.

Yeah, yeah. So true. And being able to go a little bit above and beyond, look at what you're doing now and say, hey, what can we do a little bit better? What can we do that would maybe delight them a little bit more? And what's so huge is being in a proximity with those customers. You know, we need to be having. I look at buy here, pay here, and over the last three to five years, I see less and less of my customers because we push more towards ACH and automatic payments. So I'm not seeing them every two weeks to a month when they come in and make their payment. And I felt that over the last few years, where I only have a small handful of customers that I see regularly, that I even know their names and I recognize people by name on the accounts. But if I ran into them at the grocery store, I wouldn't know who they were. They would look familiar, but I wouldn't know who they are because I don't have that reputation I used to. So we've got to create opportunities to be in front of them, to see them, and whether that's through customer Appreciation parties or better yet even being involved in our community. Right. Sponsoring local events, local sports, being involved in their community. Yeah.

And I, you know, a lot of times, you know, the owner of a buy here pay here store and their customers, they don't typically cross pass in the community, honestly. And some may. But if you are making sure you're reaching out to their community and giving to their church calls or their baseball league, like you're talking about arch of the football program or buying those girl Scout cookies or letting girl scouts come set up at your, at your dealership to sell whatever it is and that's going to pay off huge dividends in the long term. Given, you know, given to your calls is great and you should do that. I'm not discouraging that. But you should also give to the people who give back to you.

Yeah. Be involved. It just reminds me of that. I don't remember who posted it, but it was maybe a billboard that said something like, you know, buy local because Carvana won't sponsor your kids baseball team.

And that's the way it goes. I know Dan real up in Ohio, you know, he's in a smaller market but he dominates that with goodwill to customers, you know, doing the, you know, sponsoring this and sponsoring that and being in Rotary and being in this, you know, this thing. But every time, you know, even dealers in smaller towns can dominate that. And it's huge and it just shows, it gives such goodwill to you. And those super fans whose kids play those baseball games and who participate in swimming events or whatever, they're going to come to you first because it's going to be top of mind.

Yeah, they're going to see their name on the jersey or on the flyer. And I really think that having events where you can bring your super fans together and I don't know what that is for your demographic or your interests, whether that's a barbecue or annual car show or an annual trunk or treat like Luke does or some of these events where you can invite your customer base, people that have purchased from you at any time in the past. But people that are going to show up and that want to interact with you and your sales staff face to face and they want to interact with other superfans face to face face. You need to create those connections inside of you know, the 10ft comfort zone. You know, you got to bring them into you, you've got to be there with them. That's how they're really going to connect with you and your dealership and your salespeople. Again, is to be in a proximity, I don't know, have a. Have a movie night, have a. Whatever the culture is in your neighborhood.

Yeah, for sure. And that's. And that's huge. You know, let's just say, you know, you're lucky enough to be in an area where you can have a big customer appreciation day. And if you're in a small town, if you have something like that, it could be a darn carnival.

Right.

Our trunk or treat is. I think we're in our fourth or fourth year or fifth year. We did it. And, you know, we went from having a little small gathering to we gave away 180 hot dogs the other day. I mean, that's huge. And the weather was horrible. It was raining, it was nasty. But everybody was coming out on a.

Tuesday, and it wasn't even on Halloween.

So a Tuesday afternoon. So these are the things you can do to bring your customers together. They see. They see each other. Oh, well. Oh, you're my cousin. I didn't know you bought cars. Oh, we love them. You know, these are the type things that once they know that someone else is doing business with you that they know and they. They like or respect, all of a sudden they sit there sitting around, let's say, at a family reunion or something, and next thing you know, they're talking you up. So these are things like you're talking about. They're bringing the customers together that I think really can make it make a big difference in what you do.

Yeah, absolutely. We've all had that time where we've had a customer sitting in the showroom, or at least us buy here, pay here, folks. And we've had a client come in to make a car payment, and they see each other and they're high school buddies or they work together. I didn't know you had your car here. Oh, yeah, I buy here all the time. And it's like all of a sudden, this connection and camaraderie and guaranteed that person sitting in your showroom is going to buy the car because they now have, you know, that connection. Any other loops we can do to create those super fans, those evangelism for.

Our dealership, you know, it's all about taking care of the customers. You know, take responsibility for issues that happen, empower your employees to fix problems at the smallest level.

Huge, huge. Talk about that, Luke.

So this is something I got out of reading Taska's book for Taska. It's. Anyway, I can't remember the name right off the top of my head, but he was talking about make sure that if there's a problem with a customer's car, that is pretty simple, right? Let's just say one of your techs got in it to change the oil, and it came back and it was dirty, and maybe he got a little bit of grease stain somewhere. Well, your porter shouldn't have to go ask somebody whether they can take that at a detail bay to take care of it. That person should take care of it. If you're changing someone's oil and you notice that it needs a new drain plug, well, throw the drain plug in there. You know, just these small things. Or if you see a customer that's in making a payment, I mean, this is, you know, this is huge. You see a customer in making a payment, and you notice that their tires low. Well, my porter or anybody that works here should say, hey, you know, you got a low tire. Do you mind if I take that back to the shop and get it taken care of? But things like that just really, really make a big difference. And if a customer walks in and is angry, let's say that they. Let's say there's a collection issue and they're talking to your collector, and they're mad about an issue with their car. And your collector should be able to go, you know what? I've heard you say this before. You need to bring your car in. I'm gonna make sure it gets taken care of. So these little things that can make that customer understand that you care and that you're gonna do what you say, or maybe you didn't say it, but makes them believe in you and in your company, and that's huge.

Yeah. And the thing that pops out stands out to me, Luke, is I hear dealers right now all screaming, I don't have the time for that. I'm just trying to keep the wheels on the bus and keep going down the road. I would say back to the math. That superfan could make you $300,000 over the next five years. Wouldn't it be worth it to find a super outgoing, bubbly customer service coordinator, customer service success person? Maybe one dedicated person that you had to pay, I don't know, $2,000 a month to, I mean, I don't know, $15 an hour maybe, for someone respectable? And their whole job is just to surprise and delight, just to make sure that your service shop follows through, just to make sure your salesman follows through, just to make sure that the complaints get handled timely.

I mean, yeah, you know, I've been.

Pay for itself, right?

Sure. I've been that dealer who did everything themselves. You know, bought the car, made sure the car got detailed, actually put brakes on cars. I've done it all, made the collection calls. You know, what happens in our business is you get. You get to believe in. You can do everything, and you're afraid to hire someone, but if you don't hire someone, you're losing out on a lot of things that you should be doing. Like you said, if you. If you paid someone just a little bit to make sure that everything you told a customer got done. Got done, it'd pay for itself overnight.

Yeah. You think that. You think that's an expense? You think that person would cost you money? No, no, no, no. Because if they convert one person to buy again, or if they convert one person to send in their friend, completely paid for.

Oh, yeah, for sure. Because that one person is going to tell another person and tell another person. So, you know, I just want to go over a couple examples I looked up. I wanted to actually get in the weeds on this because we had this topic. You've been really wanting to talk about this. I said, okay, so I'm just gonna go over four customers that I just pulled up. And one thing, you know, CRMs are so important. And now I said this last week, but CRMs are so important, they can tell you all this information if you've got a good one. So I went into my CRM and I hit the loyalty button. And that loyalty button. Now, my service department is not tied into my CRM, but I hit that loyalty button. Then I went to my service department management system and pulled that up. One of my really good friends, he's bought three cars in four years and spent $86,000 in my dealership. Right. Then he spent another $8,000 in the service department in that amount of time. That's a big number, right? I made pretty good money on him. I went to a customer who I know has bought a couple cars from me, and I hit the loyalty button. Since 2009, she spent $73,500 in my dealership, not including interest. She's a buyer.

Pay here purchase price.

This purchase price. Her original car. And I know she's bought cars from me before 2009. I just don't have those numbers. But her first car in 09 was $9,500. The car I sold her this month was $15,000. So I moved her up from a $9,000 car to a $15,000 car in 10 years, right?

Mm.

That's one two, three, four, five, six cars in 10 years. That's a big number.

Seven points free.

No. Then I went to another customer who I know I've sold probably 20 cars over time, but I had information since 11 on him. Four cars since 2011. $40,100. And that doesn't include interest. Yeah. So on those four cars and interest, you're probably looking at another, you know, $4,500 per transaction. That's another 16,000, $18,000. Man, that's a big number. You can't look at this. And that's not even counting the people they've sent me.

Right, Right.

The last thing I thought was interesting was looking at a fleet customer in my service department, how important those people are.

That's huge.

If you've got a service department, you need to be reaching out to local business owners, you know, trying to get their fleet business. We started doing this, this company's work a year and a half ago. We've done $20,500 in service work, and this is really minor service work. Okay. This is brakes, this is tires. This is oil changes. We. And filters. We really haven't done any more than that to any of his cars. $20,500. And luckily, because he takes cars and trucks out of his fleet, who gets the first option to buy him? I do. I've bought four units that I normally wouldn't have bought. We've sold all four of those units and probably made around $12,000 before interest on those units. So think about ways to leverage the customers you have. You don't need to spend money to buy new customers. You need to take the ones you have, and you need to leverage them.

Yeah. It brings up a point. I don't need to beat this any longer. But we didn't even talk about the fact that they're trading in a car that now is paid for or paid off, or you're able to take it in at a better deal and turn that unit back around and sell it again. I mean, because if that they're not loyal, they're not bringing their trade in back to you.

Yeah, for sure. Like the one I said, who has bought six cars since, oh, nine. She always trades a car in. She just gets tired. She just gets tired of cars. It's the dang. This thing I've ever seen.

I said, yeah, say, chances are she takes care of it.

She takes care of, hopefully such and such. You don't need to trade this car. It's perfectly fine. I don't like it anymore. I'M like, okay, here we go. Let's do it again. I resell the car.

So everybody listening. I hope you get into your CRM, look at those customers, see who your superfans are, calculate what they're making you, and then make a game plan of how to get more of them, how to foster those people, how to bring the people who are just customers, who just left you a good review, who just maybe had a good interaction. How do we create them into raving fans?

And the ones who have purchased a lot that aren't, you know, excited about it, reaching out to them, find out why they aren't. Give them an incentive to work for you. Give them $100 per, you know, per person. Give them a $20 gift card every time they deliver somebody to your front door. Even if they buy or not, do these things to get the customer excited for you, because if you do that enough, it's going to pay off.

Yeah. Make sure you got a strong referral program, Luke. You do. Our referral program is a hundred for the first, 200 for the second, 300 for the third, 4 or 500.

That's awesome.

You know, we have a really strong referral program for our customers, and we want to push them because we know that those are the best custom, best people, friends of our friends, you know, and the sales are easy because they've already built up the trust in us because of what their friends have told us.

You know what's funny? The financing is easier, too, because there's nothing worse in the world than if one of my biggest fan customers brings someone in here. They buy the car, and they don't pay for it, and it gets repossessed because that customer is going to ask that customer, what happened to your car?

Yeah, yeah, yeah. Good skip tracing tool, too. Well.

And it just gives a little more pressure for them to pay for the car.

Awesome, everybody. Thanks for listening. Hope you learned something great today. We're super excited for next week's episode as well. We've got some great stuff lined up coming up in the next few weeks, and we just really appreciate you guys paying attention to us listening in. We really appreciate the reviews that you guys have left on itunes and online. I mean, Luke, it's. It's. It's awesome. It's great that people are paying attention.

I love it. Keep it up, guys.

All right, Talk to everybody next week.

Sam.