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When bogged down with the daily challenges of running a dealership, management will inevitably lose track of long-term objectives from time to time. Addressing customer concerns, checking inventory, reviewing floor plans, and running team meetings are just a few of the countless tasks that can consume workdays.
However, management must allocate time to step back, assess performance, and refine strategies to meet financial goals. Accomplishing this requires management to establish benchmarking for auto dealers, which involves identifying and monitoring metrics that uncover dealership performance vis-a-vis nearby competitors.
This article discusses seven metrics dealers should consider for benchmarking.
Benchmarking for Auto Dealers: 7 Metrics to Follow
1. Cost to Market
Cost to Market compares the retail price of a car to its entire investment by the dealership. This calculation entails summing the acquisition cost, reconditioning, transportation, and packing.
The most efficient dealerships cut expenses to facilitate inventory acquisition, maximizing that inventory by bringing in high-value vehicles and reducing costs.
2. Price to Market
This metric reveals how the dealer’s vehicle costs compare to other models on the market. Many dealers adhere strictly to the price-to-market ratio when determining how to position and price a vehicle in their market.
The measure can determine a dealer’s pricing strategy when viewed at the inventory level. For example, suppose a dealer’s total inventory price to market is more than 100%. In that case, the dealer might sell vehicles that warrant an asking price above the market or use the price to increase the front-end gross.
3. Average Sales Per Person
This performance indicator measures the average number of cars sold per sales team member. A high ratio often implies missed sales opportunities, meaning management must add staff to handle showroom traffic.
It can also lead to lower gross profits, as salespeople need more time with customers to sell vehicles at higher margins. A short staff can also produce extraordinarily long customer wait times in the showroom, negatively impacting the customer service index (CSI) score.
Conversely, a low average sales-per-person ratio could indicate too much free time for salespeople, meaning management pays excess wages on specific days.
4. Market Days’ Supply
This performance indicator measures the supply and demand of vehicles based on how many competing models are available and sales over a predetermined period, typically 45 days. Successful dealers analyze this metric car-by-car basis as they make appraising and pricing decisions.
They might also review it on a total inventory basis as they measure the demand for makes and models currently in inventory. In both cases, dealers look for vehicles and maintain inventories with a lower market days’ supply, implying fewer competing cars and increased chances of faster sales.
5. Inventory Turn Rate
The ratio of inventory that is currently on hand to monthly sales is known as the inventory turn rate. All dealership departments must be committed to maximizing efficiency, which includes age intolerance, to achieve quick turn rates. Quick inventory turnovers maximize the high-gross potential linked to new inventory and boost sales in other dealership divisions.
6. Aged Wholesale Loss Per Vehicle
Vehicles wholesaled following a failed retail attempt account for aged wholesale losses. The top-performing dealerships understand that refurbished cars put up for sale unsuccessfully will likely lose money. As such, they set a KPI for the typical wholesale loss on these particular vehicles and segregate them from those wholesaled successfully.
These successful dealers also do not consider pack adjustments to compensate for these losses. Instead, they pinpoint the financial losers and explore modifications to prevent further losses.
7. Appraisal-to-Trade Ratio
The ratio of all vehicles appraised to all cars traded is known as the appraisal-to-trade ratio, which helps dealerships gauge how well the used-car division supports the new-car business. Successful dealers appraise vehicles early in the sales process, resulting in lower ratios and more trade opportunities.
Proper Benchmarking Requires the Best Tracking Tools
All management teams should adopt benchmarking for auto dealers to measure and track specific performance indicators and closely monitor their finances and business operations. By doing this, dealers can identify trends that could negatively affect performance and act immediately.
However, effectively monitoring and tracking these metrics requires the best data-driven technologies. Your dealership needs a digital solution that offers a complete picture of your business activities to generate more revenue.
Contact us today and discover how Affinitiv’s DealerLens can help you find and benchmark the metrics that will identify opportunities to boost dealership profitability.
All | September 19, 2023