Calculate the True Value of a Potential Customer

Learn the dollar value attached to each potential customer who walks through your door with this formula.

Weyers Customer 10986540

At GIE+EXPO 2014 in Louisville, KY, I had the opportunity to speak to several hundred owners about the importance of numbers in the dealership—and the value of managing them. If you have read my articles or heard my talks, you know that I am nuts about knowing the numbers in your dealership and then managing to those numbers to improve profitability. In service, we measure recovery rate and tech efficiency. In parts, it’s about measuring the size, value and time it takes to make a transaction happen. The most important measurement in sales has to do with the value of a contact—a person who walks into your dealership looking specifically at equipment.

Calculate closing ratio

It all starts off with some basic calculations, the first being your closing ratio. Let's say that you kept track for a two-week period of time and found that 70 people had come into your dealership to look at equipment. Out of that group of 70, 20 ended up buying some type of equipment. The type of equipment doesn’t matter, the important part is knowing the numbers of people who came in versus the number who purchased. In this example, if you divided the 20 people who purchased by the 70 who came in, you would have sold to 29% of them.

Find average sale value

Now that we know we are selling to about 30% of everyone who comes in looking for equipment, we can do another calculation to determine what the average value of each sale is. If you take your total wholegoods sales for last year and divide it by the number of transactions those sales represented, you would find the value of your average wholegoods sale. In my workshops I used an example of selling $2,500,000 in wholegoods in 300 transactions. If you divide the $2,500,000 by the 300 transactions, you will find that each sale had an average value of $8,333.

Uncover the value of the individual

Now that we have that number, I can go back to my original closing ratio calculation and do a little multiplication and division to determine the average value of each person who walked into the dealership to look at equipment. 

In my initial calculation I had 20 sales that came from 70 people walking into the dealership. We now know that each sale had an average value of $8,333. Taking (20 x $8,333)/70 it shows me that each person who walks into the dealership to look at equipment—regardless of whether they buy or not—generates $2,380 in gross sales. Let’s assume that you average 10% in gross profit on every sale, so each person who walks into your dealership generates you $238 in gross profit. 

Push to gain customers, grow numbers

With those numbers I can have a little fun and calculate what would happen in a dealership that had just one extra person each day walk in to look at equipment. In one year—assuming you are only open five days a week for 50 weeks—you would get 250 new people in your store. Each of those has a value of $2,380 in gross sales. So by the end of the year, you would generate an additional $595,000 in equipment sales.

Think about that for a minute. How hard would it be for you to generate one more person per day into your store? Not only could you improve your sales by bringing in more people, but if you improve your closing ratio from 29% to 39% it would increase the value of each to $3,280 and those same 250 people would generate $820,000 in new sales. 

I would encourage you to work your numbers. Determine the value of a contact in your store and focus this slow season on ways to drive more contacts into your store and improve your selling skills.