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F&I Profits: Process Trumps People
By: Myril Shaw
First Approval Source, LLC
You want your store to be the best that it can be. But being the best is a journey with a destination that seems to be continually out of reach and always within sight. The path towards excellence is not a flat or straight – it has its fair share of twists and turns.
During your store's journey, you may, at some point, have a feeling that your Finance & Insurance Department is underperforming. Here’s one way it might play out …
The Dreaded Scenario
Yet another deal comes across your desk with no backend and two points of reserve. You aren't just disappointed. You’re angry! Why can't your Finance Manager make you some money? What are you paying him/her for anyway?
How many times have you thought or felt exactly this? What have you done about it? How many Finance Managers have you replaced? Perhaps you are saying, "I have never replaced the Finance Manager… and that is the problem!" On the other hand, you might be saying, "Finance Managers are a dime-a-dozen, and I replace them all the time!"
Regardless of which of these scenarios feels familiar, there is a far more likely issue at hand. The wrong person in the F&I Manager role can spoil your chances at the profits you deserve, but the best F&I Manager in the world will look like a fool and a failure in the face of a bad or ill-conceived F&I environment throughout your store.
Start With Your Process
F&I success may rely less on an individual than on a well-conceived, articulated, and practiced strategy and process that far supersedes one person's skill. One "bad apple" may spoil the batch, but blaming an individual or department for less than stellar performance may be a vast over-simplification and, more dangerously, may lead you to seriously counterproductive actions.
These 10 touch-points are where F&I profitability may be affected, positively or negatively:
What is your F&I strategy/philosophy?
What are your F&I goals/benchmarks?
Are you advertising and promoting financing on your website?
Is your store environment finance friendly?
What interest rate are you suggesting for payments on the signs around your store?
Have you provided your sales team scripts and a process for handling finance and rate related questions?
How have you instructed your sales team to introduce backend products (and backend accessories that may have to be put on the front-end)?
Is your Finance Department fully empowered to maximize backend profit?
Do you provide the maximum pool of available lenders for your F&I department?
Can you describe your strategy for maximizing profit in every profit center of your store?
Let's look briefly at each of these touch-points.
1. What is your F&I strategy/philosophy?
Do you view F&I as a silo in your store? Is it a profit center? Does F&I compete with sales for glory, and, more importantly, commission?
If you don't have an independent profit target for F&I, you are making a huge mistake. If you don't compensate sales people on F&I success, you have created an environment of competition between the two departments that will grossly limit your profits.
F&I success starts with the belief that it is an important and integrated profit center at your store.
2. What are your F&I goals/benchmarks?
If your goals are not specific and are not stretch goals, you will underperform on the F&I potential for your store. Here are some suggestions:
Customers Introduced to your Finance or Delivery Department – 100%
Every customer at your store should be introduced to a Delivery Specialist, who is independent of the sales person, who can walk through financing options as well as backend products.
F&I Penetration – 57% of all deals
Calculate this by taking the number of units sold and dividing that into the number of units that were financed.
Service Contracts – 47% of all deals
Calculate this by taking the number of units sold and dividing that into the number of units on which extended service or other backend products were sold.
F&I Gross Profit as a Percent of Store Sales – 5.5%
Calculate this by taking new and used unit sales dollar volume and dividing that into the total F&I sales volume minus the dealer cost of any backend products.
F&I Net Profit as a Percent of Store Sales – 4.3%
Calculate this by taking new and used unit sales dollar volume and dividing that into the total F&I sales volume minus the dealer cost of any backend products and the real costs of F&I including salary, commission, credit pulls, compliance, etc.
F&I Cost as a Percent of Gross F&I Profit – 21%
Calculate this by taking the real costs of F&I including salary, commission, credit pulls, compliance, etc. and dividing that by the total F&I sales volume minus the dealer cost of any backend products.
These benchmarks are all achievable. How close are you?
3. Are you advertising and promoting financing on your website?
The first contact many of your customers have with you is on your website. Do you promote financing there? Do you have a simple pre-qualification form available on your site? If you don't have information on your website that clearly explains why it is always better to finance, you are losing revenue opportunities.
4. Is your store environment finance friendly?
Finance friendly does not necessarily mean putting up a sign pointing to your Finance Department. The fact is: You may not want a Finance Department at all. You may need a Delivery Coordination Department. Once you start promoting delivery and having delivery experts who can address all the aspects of financing and backend products, you take away a major psychological barrier for your buyers. When you have signs that point out that your delivery experts can address all of your buyers’ concerns, once they have settled on the unit that they want, you have taken a first step to being F&I friendly. You also need highly visible signage that lets buyers know that the best financing terms around are available through your store.
5. What interest rate are you suggesting for payments on the signs around your store?
It is almost a certainty that you have signs hanging on your units advertising not only the price, but also the payment. In today's market, if those signs, in small print, advertise 4.99% (or lower) interest rates, you are killing F&I. The winning dealers today have 6.99%, or even 7.99% on their signs. No buyer will ever be disturbed by coming in at a better rate, and you leave F&I a great opportunity to maximize reserve on good credit customers.
6. Have you provided your sales team scripts and a process for handling finance and rate related questions?
Buyers will always ask finance questions. Salespeople should never answer them. It is not a matter of being rude. It is a matter of deflecting. "You know, rates are based on credit profiles, so I just can't say. Our delivery coordinator will be able to work all that out. Did you have a payment in mind for your budget?"
Beyond that, you have to have a process in place that gets every buyer, cash or credit, in front of your finance/delivery expert. The best dealers ensure that 100 percent of their buyers receive the opportunity to finance and hear about backend products.
7. How have you instructed your sales team to introduce backend products (and backend accessories that may have to be put on the front-end)?
Showing a piece of inventory is not just about describing the benefits of the dashboard or the engine. Salespeople sell the emotion of what all the features will feel like when the buyer is using them. While the customer is in the emotional high of the purchase process, sales people have to be introducing the backend products and injecting them into that emotional high.
It’s about making sure that your buyers know and feel the emotional value of the available backend products.
8. Is your Finance Department fully empowered to maximize backend profit?
Whether called Finance, F&I or Delivery, your F&I team must believe that their job is to maximize profits without being dishonest, disingenuous, or disgusting. Maximizing finance rate is critical to your store. Backend products do, in fact, add great value for the buyer. If you are not enforcing these messages, then you are disempowering your team.
Of course, there is profit in F&I. If you don't make it there, you have to make it on the front end. Frankly, there is more benefit to the buyer on the backend than the frontend. Make sure your backend team knows that.
9. Do you provide the maximum pool of available lenders for your F&I department?
You may have put this issue in your Finance Manager's hands, but the reality is that having more available lenders is better. Ultimately, it is your responsibility to ensure that the maximum number of lender resources is available. If you don't have a great collection of prime and non-prime lenders available, you have tied the hands of your F&I team.
10. Can you describe your strategy for maximizing profit in every profit center of your store?
Your store has several profit centers and many strategies for maximizing profit in each one of them. Are you able to articulate how you intend to maximize profit throughout your store as a team instead of looking at every profit center as a silo? For example, what is the impact of more finance leads on your service profit strategy?
The single most important thing that you can do is to look at the flow of the customer experience, from first contact to lifetime revenue, and be able to articulate your strategy for maximizing value to them and your store through a lifetime relationship.
And remember, 70 percent of customers who finance through your dealership will be back to buy again.
As long as you manage these 10 F&I profit generating items and ensure that your whole store is set to produce F&I success, you’ll start driving profit and repeat business with your customers.
Myril Shaw is COO of First Approval Source, LLC and a frequent presenter at 20 Groups and other dealer organizations. First Approval Source is focused on helping dealers exceed their stretch goals when it comes to profit. The company focuses on maximizing F&I profit through whole-store participation in the process.
For more information, call 678-866-8954, visit www.firstapprovalsource.com, or email email@example.com.