How do you calculate car sales gross profit from invoice price and MSRP?

1 Invoice price vs MSRP

The invoice price is the amount that the dealer pays to the manufacturer for a vehicle, before any discounts, rebates, or incentives. The MSRP is the suggested price that the manufacturer recommends the dealer to sell the vehicle for, before any negotiations, fees, or taxes. The difference between the invoice price and the MSRP is called the dealer markup, which is the potential profit margin for the dealer.

2 How to find invoice price and MSRP

You can find the invoice price and the MSRP of a vehicle by using online resources, such as Edmunds, Kelley Blue Book, or NADA Guides. These websites provide information on the invoice price, the MSRP, and the average selling price of different models and trims of vehicles in your area. You can also ask the dealer to show you the invoice price of a vehicle, but they may not be willing to do so or may include additional fees or charges that are not part of the invoice price.

3 How to calculate gross profit percentage

The gross profit percentage is the ratio of the gross profit to the selling price of a vehicle, expressed as a percentage. To calculate the gross profit percentage, you need to subtract the invoice price from the selling price, and then divide the result by the selling price. For example, if you sell a vehicle for $25,000 that has an invoice price of $23,000, your gross profit percentage is ($25,000 - $23,000) / $25,000 x 100% = 8%.

4 How to calculate gross profit amount

The gross profit amount is the difference between the selling price and the invoice price of a vehicle, expressed as a dollar amount. To calculate the gross profit amount, you simply need to subtract the invoice price from the selling price. For example, if you sell a vehicle for $25,000 that has an invoice price of $23,000, your gross profit amount is $25,000 - $23,000 = $2,000.

5 How to increase gross profit

Increasing your gross profit on each car sale can be achieved in several ways, such as negotiating a higher selling price with the customer and a lower invoice price with the manufacturer. You can also sell additional products or services, such as warranties or accessories, that have a higher profit margin than the vehicle itself. Additionally, reducing overhead costs like inventory, advertising, or labor expenses, can help to increase your net profit.

6 How to track gross profit

To track your gross profit over time, you need to keep a record of the invoice price, the selling price, and the gross profit percentage and amount of each car sale. You can use a spreadsheet, a software program, or a mobile app to store and analyze this data. By tracking your gross profit, you can identify your strengths and weaknesses, set realistic goals, and improve your sales skills and strategies.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?