The Profit Master
One week every quarter, Dave Denmon packs his bags and heads to the sandy beaches of Oahu, Hawaii.
But this isn’t an ordinary tropical vacation; Denmon uses the time to reflect and take stock on the state of his business, Dave’s Car Care in Phoenix, and chart the course for its future.
“I’m uninterrupted and if I have a train of thought, I can follow it through,” he says.
And it was during one of these beachfront brainstorming sessions that he came up with an idea that would change the tide of his business forever. Denmon devised a customer retention strategy focused primarily on relationship marketing—a strategy that has played a large role in achieving the shop’s remarkable 25 percent net profit margin.
“You need to identify where your revenue is coming from and get rid of the unprofitable ones,” he says.
Starting from Scratch
The road to a 25 percent net profit margin isn’t exactly a straight one, Denmon says.
Denmon opened his first shop in 1980, as part of the Dave’s Big Ole Tire franchise. Four years later, he broke out on his own and renamed the shop Dave’s Tire and Auto Corral.
By the early ’90s, though, the tire and quick service market had changed completely.
“Tires had become a commodity and they had been footballed by everyone,” Denmon says. “Discount Tire in the Phoenix market controls 65 percent of the tire market. So competition was extremely stiff at that point.”
The problem was that Denmon hadn’t yet figured out how to adjust to these changes. In 1995, his shop did $1.15 million in auto repair sales with 9,000 cars and an average ticket of less than $180. And the shop had an anemic net profit margin of just 4 percent.
That figure was “insane,” Denmon says, and it drove him to begin making changes in nearly every aspect of the business, leaving behind the low-margin world of tires and quick lube to focus on a more profitable, full-service business model. But it didn’t happen overnight.
He changed the name to Dave’s Car Care and brought in industry professionals to help document his shop’s management, sales, personnel, marketing and shop operations.
“What happened was once we started documenting those processes, we came up with a way to market the business,” Denmon says. “We truly believe that you can compete on price or you can compete on service. We chose to compete on service by making it a relationship with the clients.”
Identifying the Valuable Customer
Denmon says the most important piece of the puzzle was honing in on his most valuable customers.
“I slowed the machine down,” he says. “I discerned who my valuable customers were, and I got rid of the unprofitable ones.”
That meant forgoing the mass-mailer campaigns from Valpak and Money Mailer for a more personal, direct touch.
“When we were marketing [based on price] with oil changes, there was no loyalty with that consumer,” Denmon says. “They were only interested in redeeming their coupon. It’s not a quality customer.”
Instead, Denmon implemented a marketing plan designed to build a long-term relationship with the client. Using his shop management system, he identified from which customers the top revenue was coming, and sent those customers a hand-addressed letter offering specials and thanking them for their business.
“We figured, what happens when you get home and get the mail?” Denmon says. “You stand by the can and you sort the junk out. If someone sends you a hand-addressed envelope, you’re at least going to open it.” He hired four stay-at-home mothers to send out 5,000 cards at a time, and immediately saw a response.
“The average direct mail response is 1–2 percent,” Denmon says. “We were able to increase our response rate to 5–6 percent just from a hand-addressed envelope.”
That was only the beginning, though.
Hitting the Sweet Spot
Sales and profitability steadily rose until the recession hit in 2007, causing business to plateau. Then Denmon, looking for ways to ramp it up, took his trip to Hawaii.
While there, he completed a direct mail campaign marketing class, and it occurred to him that what his shop had been doing was still the right route to take. He just needed to take it to a whole new level.
He hired a marketing coordinator, Lynda Webber, to handle the hand-addressed thank you cards, which they started stuffing with 12 different coupon offers—things like 10 percent off up to $100 on engine replacement, transmission replacement, air conditioning work and brake service.
“That brings in more sales than you can imagine,” Webber says.
What’s more, if a customer comes in and spends more than the average ticket order of $450, another card is sent out, this time with two movie tickets.
“Things like that make a big difference as far as customer service,” Webber says. “They just feel like we actually care about what’s been going on with their car.”
The shop also implemented “Dave’s VIP Program,” a personalized, price-attractive maintenance program that is offered to the top 3,000 customers. The program includes routine services like oil changes and a courtesy inspection.
Those customers also receive a postcard to use as a referral to a friend. If someone comes in based on a referral and spends more than $200, a free oil change and a 10 percent discount are tossed in. In addition, the one who referred them receives two movie tickets as a thank-you.
Denmon sees these efforts as a way to land life-long customers, but he’s also cautious about how much he gives away. He never lets his marketing budget, which includes the discounts, exceed more than 6 percent of total sales.
“We have so many repeat customers and we know them by face, we know them by name,” Webber says. “We’re trying to make all of those new customers repeat customers too.”
According to Denmon, just as crucial to implementing this marketing campaign is keeping a close eye on the numbers. As soon as he started his customer retention marketing campaign, Denmon also started tracking the success of the campaign by counting the coupons returned, and by using spreadsheets and software.
Denmon says the numbers speak for themselves: Last April, the shop brought in total revenue of $168,000. Of that, the internal marketing campaign brought in $92,000.
“You need to identify [which customers] your revenue is coming from and get rid of the unprofitable ones,” he says. “The consumer in America today is willing to pay a premium price for exceptional customer service.”
Since implementing the campaign, his average ticket order has gone up from $181 to $440, and he has never had a down year, even during the recession and a recent remodel of the facility (which he financed all in cash). Last year, Denmon says his net profit margin hit 25 percent, his highest yet.
“I would attribute that to a statement made to me in 1984,” Denmon says. “Someone said to me, ‘Kid you just don’t get it. You’ve got to get the volume so high that the gross becomes the net.’ There is a certain point in business where if you manage your expenditures properly and you get your volume up high, it truly will become the net profit.”
Finding the New Repeat Customers
Since 2007, Denmon hasn’t missed a quarterly trip to Hawaii.
“That’s where a lot of the inspiration comes from,” he says. “Being still.”
While Denmon’s retention campaign now runs like a well-oiled machine, he has now set his sights on new customers and hopes to create a similarly successful strategy.
“We’ve already laid down a solid foundation with our clientele that we provide value,” he says. “Now we’re looking for the next set of repeat customers.”