Playing Real Moneyball in Automotive Retail
Carvana is playing Moneyball. CarMax is playing Moneyball. All the other publicly traded dealer groups are trying to play Moneyball (and a couple might actually figure it out). If your direct competitors start playing Moneyball, you’ll soon find yourself at a disadvantage you won’t even recognize.
Besides stealing market share from you, competitors playing real Moneyball will also enjoy lower marketing costs per unit sold, less sales team turnover, more dollars per RO, faster inventory turns, higher grosses, more efficient deals, higher closing percentages (of all Up types), better CSI, and more units sold per salesperson (without anyone working more hours).
They’ll be enjoying sustainable success, while you and your team will just keep screaming at your digital marketing partners about website traffic and leads because you mistakenly believe bad marketing is the cause of your lost market share. You’ll have no clue about the real reason you’re losing.
Playing real Moneyball in automotive retail is pure stealth. Unless your competition lays out their entire strategy and tactics in writing, you’ll continue to chase shiny objects while they continue to steal share. (This also means if you start playing real Moneyball first, they’ll never know what hit them!)
It’s time for your dealership to play real Moneyball.
What is Moneyball?
Moneyball refers to the Michael Lewis book (and 2011 movie with Brad Pitt) that chronicled Oakland A’s general manager Billy Beane’s successful attempt at assembling a winning baseball team on a budget. Beane does this by using data and analytics to basically find bargains, if you will.
To be clear, I understand the concept of applying Moneyball tactics to automotive retail is not unique – many others have written and spoken about it before. By my recollection, Jim Flint was the first to apply the Moneyball concept to car dealers when he presented at an industry conference in 2012. Jim’s terrific work was focused (I’m paraphrasing here for brevity) on acquiring buyers at the lowest net marketing cost. While some of the calculations may have changed in the last eight years, the overriding strategy Jim devised is still a strong one.
At its core, Moneyball is about using data and analytics to make better decisions.
However, Moneyball is not the same as letting the accountants run the business. That’s what happens at a lot of large dealer groups: Costs are cut without considering units sold; pay plans are changed without considering turnover; marketing partners are chosen without considering effectiveness.
Evolution of Selling Cars
In case you haven’t noticed, the car business has been evolving over the last couple of decades. The evolution started slow, but it’s picked up steam lately. The greatest impact of this evolution – and the one that should concern dealers not playing Moneyball – is that vehicle buyers are visiting fewer stores before they purchase.
In fact, some buyers aren’t visiting any stores.
This begs the question: If a buyer never visits your store, how can your people sell them a car?
In the past, those who really understood the car business would tell you, “People sell cars!”
Today, those who understand what’s driving market share growth will say, “Process sells cars!”
In the not too distant future, those in the know will confidently (and correctly) tell you, “Data sells cars!” (Of course, for some dealers, the future is now; and it’s data that’s driving their growth. The rest of you just don’t know it yet.)
Eyesight and Gut
By the way, the opposite of playing Moneyball in automotive retail is relying on eyesight and gut. Basically, “What is my perception of the situation and what does my gut tell me we should do?”
“We need more website traffic and leads, dammit!”
When the Up Bus was regular and full, eyesight and gut were enough. When 19-year-old kids were scrambling for work, eyesight and gut were enough. When buyers had zero information in advance of the transaction, eyesight and gut were enough.
Today, those relying on eyesight and gut are wrong more often than they’re right. (Of course, their gut tells them they’re always right.) The problem with trying to reason with those relying on eyesight and gut is they have emotions and feelings on their side. You only have facts and data.
I pity anyone in automotive trying to use facts and data against those employing emotions and feelings. Unless you also control their paycheck, they will almost never see your side.
What Does Moneyball in the Dealership Look Like?
For dealers treading water (rising and falling with their market; still struggling with turnover; etc.), playing Moneyball starts by understanding the controllable levers available to today’s management teams.
Here are just a few examples:
- Dealerships have 100% control over processes and the customer experience.
- Dealerships have 100% control over their own merchandising.
- Dealerships have 100% control over how they spend their marketing dollars.
- Dealerships have near 100% control over turnover. (Though rare, even the best run companies sometimes lose good people.)
- Dealerships have limited control over pricing. (Yes, they control their pricing, but the market determines the market price.)
- Dealerships have no control over their OEM’s products or incentives.
- Dealerships have no control over the competition’s strategies and tactics.
Understanding the levers you control and then taking full control of these by using data and analytics is the key to playing real Moneyball.
Of course, when you hear a sales manager lamenting about a bad month, it seems it’s always some combination of their OEM, their competition, and their marketing partners that hurt their sales. (It’s never people, process, or their own failings.) The one lever where they have control (marketing) ends up getting the greatest scrutiny. Unfortunately, the scrutiny comes in the form of eyesight and gut… never data.
Playing Moneyball is all about understanding and leveraging data. Not Big Data… playing Moneyball means striving for Perfect Data. (I first wrote about the power of perfect data in 2015, and in more detail in my book, Assumptive Selling.)
Moneyball and Marketing
Playing Moneyball with your marketing spend has been the primary focus of most Moneyball-in-the-dealership aficionados – this and used vehicle acquisition and pricing – so regurgitating the marketing data you should be measuring (and acting upon) would be redundant here.
Using Moneyball concepts with your marketing efforts just requires you follow a few simple rules:
- The DISC Test: That is, does it sell cars? If your marketing partner cannot articulate how their solution passes the DISC Test without using a bunch of big words meant to confuse you, then move on.
- Track and Measure: Every penny you spend on marketing should be easily tracked and measured against your goals. However, be sure you’re only tracking those metrics where you have control. (It’s worthless, for example, to look at chart after chart provided by your website company that shows your traffic and page views and bounce rates if you cannot or will not do anything to improve these metrics.)
- Continuous Improvement: Simply put, nothing you ever do in the dealership should be SIAFI. Set-it-and-forget-it is a recipe for disaster in automotive retail; and when employed with marketing, SIAFI often leads to unconscionable levels of waste and fraud. Continuous improvement means never being satisfied; it means constantly setting higher goals as you grow.
Moneyball and Fixed Ops
Today, service revenues and profits look pretty good for most dealers. However, as connected and electric vehicles become more ubiquitous, this revenue stream could be in jeopardy.
While we’re still years away from feeling the effects of this inevitable downturn in fixed operations, getting great at using data and analytics to grow your average RO, reduce mechanic downtime, and build a loyal base of raving service fans today will not only help your dealership better manage through the future changes, but will increase your bottom line now.
Oh, and creating raving fans in your service department builds your future sales business. Plenty of industry studies, including a 2016 study from MaritzCX, reveal that when a sales customer services with you, their sales loyalty skyrockets (versus servicing with a competitor or at an independent shop).
Of course, if you were playing Moneyball at your dealership, you’d already have a strategy in place to ensure sales customers not only service with you, but they overwhelmingly describe the service experience as outstanding.
Moneyball and People
Applying Moneyball principles to marketing, inventory stocking, or fixed operations is where most everyone stops. However, the real value of playing Moneyball for your dealership comes when you apply it the way Billy Beane and his team did. You really start to win when you apply Moneyball concepts with your personnel.
Moneyball and people comes down to understanding, tracking, measuring, and acting upon the inputs and activities that drive the best outcomes. This is where Perfect Data matters most… and, where it’s the hardest to obtain (and maintain).
For example, Perfect Data in Google Analytics is as easy as ensuring everything is set up correctly from the beginning. After that, technology does the heavy lifting. Conversely, achieving Perfect Data with your salespeople requires humans to continuously follow best practices. (Something we’ve struggled with in automotive retail for likely the last hundred years.)
However, without Perfect Data, you’re left with eyesight and gut. Without Perfect Data, your team simply cannot play Moneyball.
Why Does Moneyball Matter?
Playing real Moneyball at your dealership will keep you from making these real-world mistakes I’ve easily uncovered over the years:
- Top salesperson selling about 25 per month is left alone by the managers because of eyesight and gut: “He’s so good; I wish everyone could sell like he does!” Of course, once we convinced the dealership to hire someone to count Ups, they realized he was greeting and then brooming three times more customers than the average salesperson. Suddenly his 25 units paled in comparison to the salespeople selling 15-20.
- I was told at one store not to work with their top internet salesperson because of eyesight and gut: “He’s selling 30 units a month, and we don’t want you to change anything about him.” A quick review of the CRM showed he was receiving 450+ leads per month, making zero phone calls, and just sending a single email with the absolute lowest price and the words “Must present this email to Anthony to receive this special price” in big, bold letters. (I changed his name to protect the guilty.) As I told the general manager, this guy wasn’t selling 30 units per month, he was costing the store at least 60 units per month.
- Eyesight and gut told a GM his BDC was solid! However, their 30% close rate was the result of marking more than half the leads they received as bad. (They were paid a bonus based on close rate, so marking good leads as bad helped them more than double their actual close rate.)
- Finally, a centralized BDC I wrote about in 2015 (BDC – Den of Thieves), was reconciling the group’s sales to the leads they received – even if they never spoke to the prospect or set an appointment. Basically, it was easier to scan the DMS looking for sold customers and magically set, confirm, and complete fake appointments than to actually work and set real ones.
These are just a tiny fraction of the issues that I’ve uncovered with very little digging. Most often, recognizing an issue takes no more than a cursory look in the CRM. However, when you’re relying on eyesight and gut, you only see what’s on the surface.
To be clear, most everyone in your dealership is not intentionally stealing (I consider all four of these examples as some form of stealing), but most of them are unintentionally making it harder and more expensive for you to grow market share. Everything from dismissing important activities, skipping process steps, or simply wasting time is costing you business.
More importantly, it’s making you spend more to achieve less.
Getting Started Playing Moneyball
You need Perfect Data to realize the full benefits of Moneyball with your team, but that doesn’t mean you can’t start reaping rewards right away. For example, it would be great if your team had been properly logging every Up for the past 20 years… they have not.
There’s a Chinese proverb that says, “The best time to plant a tree was 20 years ago. The second-best time is right now.”
It’s the same with Moneyball. Start right now by working in real time… on the living. That is, strive for Perfect Data with today’s Ups, today’s calls, and today’s leads. Make sure everyone follows the processes today… with today’s opportunities. We can worry about yesterday’s opportunities once we’ve maximized the ones we have today.
Not sure what some of this looks like? Here are some free resources to help you along:
- Power of Perfect Data
- Secrets to Growth
- Free Training Cheat Sheet
- Getting More At-Bats in the Dealership
Additionally, you can drop $50 on my 400-page book, Assumptive Selling. But, let me warn you now: it contains over 140,000 words and very few pictures! (And no, there’s not an audio version.)
The best thing about playing real Moneyball is no one outside your organization will ever know exactly how you’re doing it. Of course, this also means if the dealer up the street is doing it, you’ll never know.
Good selling (with data)!