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Periodically, we receive an email or a phone call from an ISM wanting to know how to increase their closing ratio from 30% to 40%. I often have to bite my lip in order to prevent myself from laughing hysterically. Invariably, I start to ask how that dealership is measuring its closing ratio. However, as I am asking that question, I am always asking myself why isn't there a standard equation for measuring closing ratio?

Let's think about other forms of measurement, for a second. Although arbitrarily determined, units of measurement have been defined, agreed upon, and accepted for almost everything you can think of. Temperature, length, weight, sound pressure, luminescence, even spiciness, can all be measured. Why? Among many reasons, it's a way of replicating a result. Imagine Shaq's "pinch" of salt vs. your grandmother's, and you'll get the point. Without using standard units of measure, we can't replicate the results that another has experienced.

If we can't replicate the results of another's success, how can we improve upon it? We've all been to conferences where one ISM tells another ISM that he's closing at a 17.48% closing ratio, while another ISM is stating that they are closing at a 103% closing ratio, while another ISM walks up to them, and quizzically mutters that they are only closing 4%. Who's right? They all are. Why? Because every ISM seems to have their own equation for calculating their closing ratio.

The simplest measure of closing ratio is sales divided by opportunities (leads) in a given time-frame. I refer to this as a Gross Closing Ratio (GCR). Many times, this simplest of closing ratios, yields a result that isn't good for one's self esteem (given the traditions of bigger is better bragging rights in the car business). Self esteem can be further battered by going to a conference, or from reading the different forums, where people can endlessly brag about their closing ratios without the substantiation of results and equations, or divulging their lead-source mix. So ISMs the world-around create complex equations to measure closing ratios that show impressive results so that they can fee llike they can offer comparable results.

I have totally been guilty of this. When I first started in the business (before the magazines and forums), I came up with a formula to measure my monthly performance. I copied and pasted the data from the lead buckets in CarPoint (then AVV, and then BzTrack) onto a spreadsheet. I created an equation that netted out all of the leads that were not true opportunities that month (i.e., bogus contact information, people searching for credit approval, people who were 30+ days out, etc.). In my mind, I wanted measure myself against the guys on the lot, and I figured that they didn't get the same "riffraff" I did. I would divide this number by sales, and miraculously, I closed as well as the most seasoned lot-guy we had. It also gave me a 11-13% bump compared to my GCR. Too bad I didn't have an Internet forum to share my triumphs on.

However, as I moved on to corporate Internet process development, and then on to technology, I came to realize what the lack of standards really means. When I began to start reading the emerging automotive Internet sales forums, and especially after I started attending the conferences, it didn't take long to realize that there were no hard-and-fast rules on how to calculate closing ratio. At the risk of causing a stir, I'd go as far as to say it borders on urban legend for some. Given the fact that I've analyzed data for well over 400 franchises, just counting the corporates, I'd say often times retail personnel and their management are presented the statistical outliers, as opposed to the norm. Since there is no universally recognized or sanctioned equation to measure automotive Internet sales closing ratio, everyone is right. This is tantamount to declaring myself the tallest person in the world, but not using feet or meters as a measurement, or offering any mathematical equivalent. Without agreeing on the math, we cannot objectively compare anyone's results, let alone replicate them.

The automotive Internet sales closing ratio is just one measurement that could use standardization. I am hoping that at some point in my lifetime, or before the Yellowstone volcano erupts, we will have a sanctioning body to govern our automotive Internet sales standards. If you honestly want to help someone get better, be more transparent with your calculations so that they can better measure themselves against your success. If we all use the same math, and you're still on top, then you can shout it from the rooftops. In the meantime, keep asking questions about how your peers are calculating closing ratio; what leads to include or exclude; what time-frames to consider. It's OK to call BS. Let's come up with an equation that everyone can agree upon.

What say you?

Views: 89

Tags: asking, bill, consulting, dealer, dealerknows, good, internet, metrics, playford, questions, More…sales, training, virtual

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Comment by Stan Sher on March 8, 2012 at 3:12pm

Awesome article. 

Comment by Matthew Smolik on February 20, 2012 at 9:55am
I think it dependson their role n the dealership and how the GM andor Dealer view the Internet operation overall.Wewant 2 know the real number,however wwewant2 know how we do with the guests we bring in just from leads but we also want to know the # that just come in with no appt those who didn't submit a leadthis way wee can measure our effectiveness across all our channels. I'm sorry but I'm not able to rightly judge how my peers measure
Comment by Bill Playford on February 20, 2012 at 7:39am

Matthew, how do you think this compares with your peers?

Comment by Matthew Smolik on February 19, 2012 at 11:06am
I use the GCR. However I will also measure the number of leads that end up in the store compared to gross leads andbreak the figures down from there.
Comment by Joe Webb on February 17, 2012 at 10:11am

Great article, Bill.  (Love the Shaquille O'Neill reference).

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