Do You Know Your Residual Flow Factor?
Guest Post By Sean V. Bradley, CEO, Dealer Synergy
Question: What is your Residual Flow Factor?
No idea what I’m talking about? Don’t feel bad. There are thousands of dealerships in this industry that have no idea what I’m talking about when I ask that question. Even worse, they’re not tracking this very important variable of their Internet Sales department.
Residual Flow Factor is the amount of leads that carries over from month to month.
For example, let’s say your dealership generates 500 leads in the month of August. You close 10 percent of those leads and deliver 50 units. How many leads carry over on September 1? That’s right, 450.
The average buying cycle is between 45 and 90 days. So some of these carry-over leads are “dead,” inactive, non-viable opportunities for any of the following reasons:
- Bought elsewhere
- Changed mind
- Can’t afford the vehicle
- Credit challenged
- Upside down on trade
- Unrealistic
- Bad lead
- Etc…
However, dead leads should only account for about 200 out of the remaining 450 leads (about 45%). That means that on September 1, you will have a Residual Flow Factor of 250 leads.
So you’ll start the month of September with a minimum of 250 carry over leads, plus you will have another 500 fresh leads for a total of 750 opportunities for the month of September.
Now for the important part: Dealers need to respect the Residual Flow Factor, because it literally cripples dealers every month. Many dealers do not understand the concept of the Residual Flow Factor and in turn do not plan accordingly. They do not have enough sales consultants or appointment setters to handle all of the total opportunities. So dealerships wind up only doing “the best they can” with the leads. They are not able to put enough attention or focus on the leads. They are simply spread too thin, so they covert only the low hanging fruit and let other opportunities pass by.
Let me share an awesome, easy formula you can use to track your department’s reality:
Create a spreadsheet for all SOLD units. Then create three additional columns:
- Date the lead came in on
- Date the lead closed
- Window period
For example:
- Lead came in: August 5th
- Lead closed on: August 8th
- Window period = 3 days
So, if you sold 50 units in the month of August, you will have 50 “window periods.” Add them all up and divide them by 50. This is your dealership’s “gestation period” (average selling period).
My prediction is that your dealership’s gestation period is between seven to 11 days. And that is NOT GOOD! Remember, the average buying cycle for Internet prospects is 45 to 90 days. If your average selling ratio is only seven to 11 days, it means that your dealership is leaving a lot of money on the table. Chances are you are not maximizing your dealership’s Residual Flow Factor. Armed with this knowledge, you can change this today!
If you have any questions about this article or if you would like me to evaluate your dealership’s Residual Flow Factor, please email me at sean@dealersynergy.com or feel free to give me a call at (267) 319-6776.
Sean V. Bradley is the founder and CEO of Dealer Synergy, a nationally recognized training and consulting company in the automotive industry.
