According to financial advisors, one of the biggest financial advantages that anyone can take advantage of, is compound interest.  The beauty of compounding is that it allows you to earn interest on your savings and then that interest earns interest on itself and this amount is compounded monthly.  To work, compounding requires two things: the reinvestment of the earnings and time.  For example, a 25 year old who invests $880 per month and reinvests the interest he earns would accumulate a million dollars by age 60 (assuming 5% interest).  On the other hand, if this person waits ten years until he is 35 years old to start; he would need to invest almost twice as much, $1,680 per month to reach one million dollars by age 60.  So, what does all of this have to do with selling cars?  By developing loyal customers you can take advantage of compounding.  Let me explain.

First, according to a recent study by Experian Automotive, almost 70% of lease customers and close to 60% of non-lease consumers, stayed loyal to their vehicle brand.  To put it another way, the vast majority of car buyers will purchase the same brand of vehicle that they currently own.  As a sales consultant, your customer loyalty should be at least the same as the brand.  In other blogs, as well as in my book, “Turn Every Transaction into an Experience,” I discuss how to accomplish this. What I would like to show you here is the benefits of taking advantage of what I will refer to as the compounding effect of loyal customers.

Perhaps the worst part of working at a dealership or in any retail business is the long hours that you need to put in.  Since you never know when a customer might arrive, you spend time waiting.  You wait for that customer, who arrives 20 minutes before closing and after spending an hour and half with you buys a car that ends up paying a low commission.  The frustration that results from this causes good people to leave the car business.  However, given the loyalty numbers disclosed earlier, it does not have to be this way.

I developed a spreadsheet (below) that illustrates how much money you can make over time with loyal customers.  For purposes of this illustration, I had to make a few assumptions.  Now, your situation may be different than what I presumed.  If it is and you would like a copy of the spreadsheet (which includes the formulas, in which case you can then change the numbers to reflect your own dealership), please send me an email at doug@wrightautopro.com or a note on LinkedIn.  The assumptions are listed at the bottom of the spreadsheet.

As you can see, the power of compounding means by year 10, you have more than tripled your income and over 50% of your customers are repeat or referrals.  These customers are not only more profitable, but also take less time and are more enjoyable to work with.  If you continue to work hard for the first 20 years in the car business, you can then stop selling to first time customers and still make more than $150,000 per year as you sell over 300 cars per year to repeat and referrals.  If you started selling cars at age 25, you will only be 45 years old.  Even if you decide to take less first time customers earlier, you will still make a great living with time left for your family.  Keep in mind the loyalty numbers I used are what the current loyal rates are for the brands.  Hopefully, by creating a great experience for each of your customers, every time you contact them, you will increase this loyalty rate, leaving you even more time to spend on the activities you enjoy.