Dealer Currency Helps Grow Gross Revenue on Every Sale While Retaining Customers

in Oct 19, 2018

I recently had the pleasure to work with a very innovative dealer who implemented the concept of “dealer currency” in his dealership with great success. Dealer currency allows you to eliminate cash discounts on sales (in both Variable & Fixed Ops) by instead issuing a form of “dealer dollars,” redeemable anywhere in the dealership for the future purchase of parts, service, accessories, or towards a future vehicle purchase.  This creates a true “win-win.” It satisfies the customer — as they feel they have received the value of the discount. And the dealer — because it ties the customer to the dealership for future purchases, without having to give away any profit up front in the deal.

For example, instead of discounting a vehicle sale as follows:

Selling Price$20,000$40,000$60,000
Purchase Discount$750$1,500$3,000
Adjusted Selling Price$19,250$38,500$57,000

Dealer currency replaces those cash discounts with a dealer’s own currency instead:

Selling Price$20,000$40,000$60,000
Dealer Currency Issued$750$1,500$3,000
Selling Price Remains at$20,000$40,000$60,000
Dealer Currency Cost of Sale$750$1,500$3,000
Commissionable Gross Based On$19,250$38,500$57,000

With dealer currency, you retain the maximum selling price on a much larger percentage of the sale. Not only does your gross profit increase on each deal — you’ve also now guaranteed yourself hundreds or, in some cases, thousands of dollars in future sales from customers that you have retained to do future business with your dealership.

This program goes beyond the sales floor. Dealer currency can be implemented in any department of a dealership where discounting is commonplace and/or you want to increase retention.  For example, in most dealerships, service advisors give away money every day in the form of cash discounts because they have no other tools at their disposal.   By issuing dealer currency, instead of a cash discount, gross service revenues increase and the odds are much more in the dealership’s favor that the customer will return to do business with the dealership in the foreseeable future.

The dealer dollars will accrue on your balance sheet just like a reserve account. Adding to them on a sale and reducing them on customer redemption. But you don’t have to worry about a negative balance sheet item getting too large because the dealer dollars are only good for the period of time you designate. They can then be written off as expired “dollars” and your gross on the deal just grew because the customer did not redeem the dollars. This raises your adjusted selling price, while reducing the internal actual cost to those dollars.

By using dealer currency, other expenses that dealers have traditionally absorbed 100% of can be reduced by upwards of 70 percent. Dealer currency can be used to resolve any policy issues with sales, service or F& I customers; to help launch and support service enrollment programs; to replace customer referral program cash; and even to supplement or replace promo dollars issued for local events (think golf tournaments) and charities. There are a lot of untapped possibilities here. This is a great alternative to the traditional points based loyalty programs.

What do you think about this? I’d really like to hear any comments or feedback you may have.

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