What is the most effective way to measure your dealership's profitability?

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As an automotive sales professional, you know that profitability is the ultimate goal of your dealership. But how do you measure it effectively? There are many different metrics and indicators that can help you assess your dealership's financial performance, but not all of them are equally relevant or accurate. In this article, we will discuss what is the most effective way to measure your dealership's profitability, and why it matters for your success.

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1 Gross Profit Margin

Gross profit margin is the percentage of revenue that remains after deducting the cost of goods sold (COGS) from the sales. COGS includes the invoice price of the vehicles, any discounts or incentives, and any other direct expenses related to the sale. Gross profit margin shows how much money your dealership makes from each sale, before accounting for any overhead costs or taxes. A higher gross profit margin means that your dealership has more room to cover its fixed costs and generate net income. To calculate your gross profit margin, divide your gross profit by your revenue, and multiply by 100.

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Tom G.

General Manager at Lexus of Kendall
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I like net to Gross , it’s easier for managers to understand. Give me 35% net to gross and I’ll have a nice smile on my face . Putting managers on net pay plans for their departments helps too.

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Michael Marvel

National OED/Collison
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How to measure your dealership's profitability. NET Profit to Sales is a great way. 5% net to sales in the Dealership world is pretty good.

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Ariel Velazquez

Area Sales Director at Solera- Tennessee - Puerto Rico - AutoMate DMS | DealerSocket CRM | Inventory+ | AutoPoint: Empowering the automotive industry through purpose and metrics. - Vehicle Life Cycle Expert
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In my experience, I have observed that achieving a common goal among all departments is crucial for success. While the dealers excel in cost cutting and revenue streams, there is room for improvement in time management, inventory management, and calculating the cost of lost opportunities. By focusing on these areas, dealers can enhance their profitability and overall performance.

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Darren Jensen

Account Executive at DrivingIt
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How much it actually costs to bring in a qualified lead. Big difference between a qualified lead and an inquiry. Then it comes down to your sales process. What is your QL to sale closing ratio. Anything under 10% should be unacceptable to a dealer.

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Prashant Kumar

Kirloskar Oil Engines | ISB PGP Co'23 | VIT Vellore'19 | Author | Automotive Enthusiast
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The 4-most effective way to measure your dealership's profitability are:- 1. Gross Profit Margin: Calculate the gross profit margin by subtracting the cost of goods sold (COGS) from the total revenue generated from vehicle sales. 2. Net Profit Margin: Determine the net profit margin by subtracting all operating expenses, including overhead costs, salaries, and marketing expenses, from the gross profit. 3. Inventory Turnover: Measure the efficiency of inventory management by calculating the inventory turnover ratio. 4. Customer Lifetime Value (CLV): Calculate the average profit earned from a customer over the entire duration of their relationship with the dealership.

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2 Net Profit Margin

Net profit margin is the percentage of revenue that remains after deducting all the expenses from the sales. Expenses include COGS, overhead costs, interest, taxes, and any other costs related to running your dealership. Net profit margin shows how much money your dealership makes after paying all its obligations, and how efficient it is at managing its costs. A higher net profit margin means that your dealership has more cash flow and profitability. To calculate your net profit margin, divide your net profit by your revenue, and multiply by 100.

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3 Return on Assets

Return on assets (ROA) is the percentage of net income that is generated by the total assets of your dealership. Assets include cash, inventory, equipment, property, and any other resources that your dealership owns or controls. ROA shows how well your dealership uses its assets to generate profits, and how productive it is at managing its capital. A higher ROA means that your dealership has more earning power and profitability. To calculate your ROA, divide your net income by your total assets, and multiply by 100.

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Kevin Ramirez Dirección, Estrategias, Proyectos, Finanzas.

Gerente general Ramirez Group
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Desde una perspectiva de eficiencia y productividad si considero un ratio de gran relevancia que proporciona información para la toma de decisiones a la hora de invertir ya sea en activos o inventario. Identificar correctamente aquellos activos que generan mayor valor a la organización para continuar en la búsqueda de mejora y mantener las eficiencias de la empresa.

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4 Return on Equity

Return on equity (ROE) is the percentage of net income that is generated by the total equity of your dealership. Equity is the difference between the total assets and the total liabilities of your dealership. It represents the ownership interest of the owners or shareholders in your dealership. ROE shows how well your dealership uses its equity to generate profits, and how profitable it is for the owners or shareholders. A higher ROE means that your dealership has more value and profitability. To calculate your ROE, divide your net income by your total equity, and multiply by 100.

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Kevin Ramirez Dirección, Estrategias, Proyectos, Finanzas.

Gerente general Ramirez Group
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Para crecer se requiere de apalancarnos con los diferentes instrumentos que el mercado nos ofrece, sin dejar de lado la rentabilidad que generamos con los fondos propios. Para obtener un apalancamiento financiero debemos demostrar la capacidad de gestion que tenemos con los fondos propios y la rentabilidad que generamos con ella, de ahi parte la solvencia en poder gestionar o administrar mayor capital. Según como se encuentre el mercado y teniendo en cuenta los objetivos que tenga la organización es mas rentable contar con capital prestado para aumentar la rentabilidad de la empresa.

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5 Break-Even Point

Break-even point is the level of sales that covers all the costs of your dealership, and results in zero net income. It shows how much revenue your dealership needs to generate to avoid losses, and how sensitive it is to changes in sales volume or price. A lower break-even point means that your dealership has lower fixed costs and higher gross profit margin, and can achieve profitability faster. To calculate your break-even point, divide your fixed costs by your contribution margin, which is the difference between the selling price and the variable cost per unit.

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6 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?

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What is the most effective way to measure your dealership's profitability?

1

2

3

4

5

6

1 Gross Profit Margin

2 Net Profit Margin

3 Return on Assets

4 Return on Equity

5 Break-Even Point

6 Here’s what else to consider

Automotive Sales

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What is the most effective way to measure your dealership's profitability?

1

2

3

4

5

6

1 Gross Profit Margin

2 Net Profit Margin

3 Return on Assets

4 Return on Equity

5 Break-Even Point

6 Here’s what else to consider

Automotive Sales

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