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Do You Know the Key Metrics for Your Dealership to Succeed?

It’s 2019, competition is at an all time high. Why? Because of the digital world … E-commerce, social media marketing, Superbowl commercial advertising, and the list goes on! In this day and age, it is extremely important for dealerships to define their vision and future strategic direction.

With all of the challenges dealerships are facing, you need business advisors with experience in the industry. The answer is VRAKAS! We can can assist your organization with all of your professional accounting, tax and consulting needs. Our professionals have a deep knowledge of the auto industry and its day-to-day challenges and stay current on tax and compliance issues. Ideally, a car dealership needs to maintain a net profit level of 10 to 20 percent of total dealership gross profits to be successful. The challenge, of course, is reaching that number. Management needs to apply an appropriate cost structure based on the activity volumes of each department, but it helps to break down some of the key performance indicators that may be having an impact on the bottom line. 

The gross profit generated by each employee is extremely important, as a number that’s too low could mean too many employees are working for the dealership, compensation is too high, there are employees who are performing poorly or all three problems are at play. While there are several steps managers need to take to determine what the issue might be in disappointing results, ranking and assessing all employees is a good place to start. That one step may be enough for managers to see where cuts need to be made. Applying a gross-per-employee productivity metric to even high-performing employees will also help to determine who might be getting paid too much for comparatively little return.

Once the metrics have been assessed and employees have been ranked, it’s important to make sure an effective pay plan is in place. This one step ensures that employees are motivated to perform and feel compensation is fair and reflective of their efforts, plus it eliminates the problem of subpar performers skating by on more successful co-workers’ efforts. To come up with a plan, perform a competitive market analysis and review employees every year to ensure the best results.

Another cost that managers may want to reassess is advertising. While it’s important to bring customers to your store, think twice before spending huge amounts on advertising simply to move inventory mistakes off the floor. While this may be a natural impulse, throwing money at a problem like low sales may do nothing to clear your sales floor of inventory but plenty to decimate your budget. Advertising is often a big chunk of a dealership’s monthly budget, and cutting it when it’s not getting the expected results is far easier to do than chopping away at headcount — a move that can have a lasting impact on company morale.

Dealers can also assess the key performance indicators (KPIs) for any spending budgeted for social media. Fan growth, engagement rate, response rate and the number of shares a page receives per day are all measurements that, when compared against any uptick in sales during the same period, can clarify whether or not the expense is worth the cost.

While every dealership needs to keep product on the floor, when it isn’t moving it’s hurting the bottom line. Managers should determine the monthly interest expense so they can then sort out special pricing, in-store incentives or promotion programs to get product out the door, fast.

Monitoring the spending of departmental managers is also critical to staying on budget. Though managers may grumble about having to tighten their budgets, they aren’t the only ones who must do so. Dealers themselves often tend to put off hard decisions, squeezing their eyes shut and hoping for the best. Don’t make that mistake. Taking a hard look at the key metrics affecting your business will make it clear what decisions need to be made and when — no matter how difficult they may be to face.