‘Retail Sales Effectiveness’ The Key To Dealer Performance Measurement

‘Performance to Target’ as a measure of new vehicle sales in dealerships has never been an ideal measure on its own.

Most car companies have realised this (particularly if their targets are out of reach) and have sought a more focused approach. There are several variations on this method, but arguably the best form of performance measurement is a concept known as ‘Retail Sales Effectiveness’ or RSE.

This is a good thing for Dealers as it overcomes many of the distortions associated with other techniques and provides a fair system of judgment. Indeed, it is having a profound impact and will no doubt continue to gain rapid momentum as a Dealer management tool.

Targets are about the future, so accuracy is inherently difficult. When it comes to measuring performance, the focus is on the past, and so we can be far more assured. RSE is measured by taking the Dealer’s actual sales for a particular historical time period and dividing that number by the expected sales for the same time period. It produces a percentage where 100% is the pass mark.

Unlike target calculation, we are measuring the past, not predicting the future and have actual data to use in calculating the Dealer’s expected sales. To work out expected sales, you take your brand’s national market share in each segment (confined to retail and small business sales types) for a period: ‘National Market Share’.

You then look at how many sales were achieved in the Dealer’s territory by all brands in this same time period in each segment (‘Territory Sales’). The expected is the National Market Share of the Territory Sales.

For example, if a brand’s National Market Share was 7% for a particular vehicle and 10,000 vehicles in that segment were sold by all the brands combined in the Dealer’s territory, the Dealer was expected to sell 700 of these vehicles. 700 actual vehicle sales by this Dealer would result in 100% RSE.

RSE will be welcome news to any Dealer who has large fleet companies in their territory, because only retail and small business sales are counted. Car companies are reluctant to disregard large fleet sales when calculating targets because they want these sales captured by Dealers, however with performance measurement, this is not an issue.

A decision will be required as to whether all of a Dealer’s sales in the segment will be counted. Certain sales, such as those to customers outside the territory and/or fleet customers can be excluded. If these are counted however, Dealers who focus on fleet business would potentially skew their RSE percentage.

The true beauty of RSE lies in the way it removes age old arguments such as ‘this type of car doesn’t sell in my area’ and ‘this car doesn’t sell at all’ as the local sales of vehicles in the segment  and the national sales achievement for the vehicle in question are nicely built into the equation.

If you are a Dealer and RSE has not found its way into monthly, quarterly and annual performance assessment in your network, it might be time to raise the question.

Steve Crea
Principal – Crea Legal

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