Climbing Beyond The Buy Here-Pay Here Plateau

The point at which a BHPH operation reaches this plateau has much to do with the average length of the contracts on financed sales. It is reasonable to expect that the portfolio will begin to lose its growth momentum as the initial loans reach maturity. So the answer to this BHPH dilemma is a simple one, right? It is a simple answer only if your dealership has reached a point of full market saturation at the same time the original loans paid out, and if your dealership can expect little or no retention of existing customers. The answer is a little more complex if your dealership is failing to reach its full market potential.

I got the attention of many of our clients recently when I began to ask them some difficult questions regarding their apparent lack of growth. Many acknowledged that they did not feel they had reached a saturation point in their market. The question then became, “Why, then, did you stop growing?” Aside from funding, (that’s another article) my analysis revealed that the answers include inadequate staffing, ineffective marketing, inventory mismanagement, and low customer retention. When asked about customer retention, many dealers were unable to produce an exact figure. Most believed that they did a pretty fair job in this area because they felt they treated customers well. I have yet to complete an analysis of customer retention where the dealer did not discover that retention was short of expectations. How long has it been since you measured your own?

Because the focus in BHPH is on cash flow, I suggest identifying only those customers who make another purchase while the original account is active as “retained” customers. Let’s call them “rollover” accounts. A repeat sale to a customer who paid off some time ago is a wonderful thing. It yields gross profit in the same way that the rollover sale does—just at a later date. However, the dealership suffered an interruption in cash flow where this customer is concerned. This is where growth opportunities are most often missed. We also risked losing that customer to a competitor when they left the portfolio, believing that they would “be back” at a later date. An aggressive strategy that increases success in the area of rollover sales will build on the number of accounts and increase cash flow. Perhaps you are one of a lucky few that can generate enough new traffic that you can afford to replace customers that are paying off, rather than retain them. Most dealers cannot.

Inefficiency can lead to decreased sales production, which will contribute to a flat or declining A/R. Dealers who recognize that they are failing to capture business available in their market should examine their efficiency in these common problem areas: staff, marketing and inventory. Failing to properly staff the dealership will impact selling efficiency. This problem is magnified in operations where members of the sales staff also have clerical, collections, and/or inventory responsibilities. Perhaps your marketing efforts are uninspired or missing the mark. And last, but not least, the constant battle for inventory. The right inventory combined with the right inventory process can boost business quickly. When the right marketing campaign is executed and the dealership is staffed sufficiently with well-trained personnel, sales increase. Provided that inventory is replenished in a timely manner, the portfolio grows.

Growing beyond your current BHPH plateau is possible. Once the decision is made to climb higher, all areas of your business need to be examined. As corrective measures are taken, you will be able to punch the throttle with confidence and ascend to new heights.