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Mike Gorun

Mike Gorun Managing Partner/CEO

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Retention vs. Revenue: Today’s Prepaid Maintenance Plans

 

Prepaid Maintenance Plans (PPMs) have traditionally been used as a customer retention tool by dealers, and rightfully so. Paying up front for services is a guaranteed way to get customers back into the service lane. But the pricing and structure of many PPMs administered by third parties did not make the plans very profitable for the dealerships, and even more important, for the customers.

 

The new generation of self-administered, self-managed PPM plans offer many benefits beyond customer retention—mainly, more revenue. PPM customers frequently purchase additional customer-pay retail parts and labor services that boost profitability.

 

Boosting PPM repair orders by upselling an additional $150 to $350 of retail customer-pay business adds serious money to the bottom line. A dealer who plugs a basic three-product PPM plan into every one of the 600 used units he or she sells each year can expect to generate more than $1.3 million in total incremental service revenue, even after factoring in a 55 percent utilization rate and plan costs.

So, given these upsell profit opportunities, why are some dealers' prior experiences with PPMs disappointing? Many have said that customers simply won't buy these plans. However, this may not tell the entire story. When those programs are examined, it is clear why customers wouldn't be interested — they were loaded with services of low value to the customer yet priced quite profitably for the dealership. This is unfortunate, as the nature of these plans and dealers' inability to sell the plans cost dealers much lost service business.

Newer, redesigned PPM programs help to eliminate this downside. Today's programs offer a wide range of products and services and are completely customizable to each dealership. They are also software-driven, handling once time-consuming chores like plan registration, service claim and premium submission. Because dealers control these programs, any reserve or forfeiture is immediate and goes directly to their bottom line.

Retention vs. revenue? A PPM should deliver both.

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