10 Metrics Dealerships Need to Track

June 7, 2022

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10 Metrics Dealerships Need to Track

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Car dealerships have so many key performance indicators (KPI) options to choose from. But how do you narrow down which KPIs matter most for your dealership? 

Whether you’re new to tracking automotive metrics or an experienced analyst, it’s always good to refresh what you’re tracking. But don’t just take these numbers and file them away. Create S.M.A.R.T. initiatives (specific, measurable, attainable, relevant, and time-bound) around them. Track them for automotive dealership benchmarks, set your S.M.A.R.T. initiatives, and then focus on areas of improvement. 

We’ve compiled a list of ten metrics for car dealers to track for a profitable used car dealership. These KPIs for automotive dealerships give you a more holistic view of where you’re winning and where you can improve beyond just the bottom line. 

1. Inventory Turnover 

Your auto dealership’s inventory turnover rate describes how many times your full inventory turns over in a year.1 These are basically sale cycles. Improving your turnover rate is a great way to increase your profitability. Think about it like this. If you can sell your entire inventory fifteen times instead of ten in a year, that’s a 50% increase.  

Formula: Units sold annually ÷ Number of units in stock = Turnover rate

Example: 600 units sold annually ÷ 50 units in stock = Turnover rate of 12

2. Reconditioning Time 

Whether your automotive dealership is selling used or certified pre-owned vehicles, you’ll need to invest a significant amount of time into reconditioning units. Some dealerships only do light touch-ups, while others do extensive reconditioning. You may get trade-ins or buy used cars from an auto wholesaler. Either way, you’ll want to make sure your automotive reconditioning time is well spent.1

Formula: Cumulative time spent reconditioning vehicles ÷ Number of reconditioned units = Average time spent reconditioning

Example: 500 hours spent reconditioning vehicles ÷ 50 reconditioned units = 10 hours spent reconditioning on average

3. Cost to Market

You want a margin between the costs to acquire, recondition, and sell a vehicle and the actual retail price. This is where it’s important to know how much you’re spending on acquiring, reconditioning, and maintaining vehicles.1 

You’ll want to make a distinction between used and new vehicles to accommodate any reconditioning costs. We’ll give an example of used vehicles. You can use this formula for an individual vehicle to measure its profitability. Or you can use your total costs to see how your entire dealership averages. 

Formula: Acquisition cost + Reconditioning cost + Transportation cost + Maintaining on the showroom floor cost = Cost to market

Example: $8,000 acquisition cost + $1,000 reconditioning cost + $200 transportation cost + $300 maintaining on the lot cost = $9.500 cost to market

4. Gross Return on Investment

The gross return on investment (GROI) evaluates the rate of return as a percentage of the sale multiplied by the turn rate.1 This measurement provides a reflection of how efficiently the current investment inventory is being utilized. 

Formula: (Vehicle gross profit ÷ Cost to market) x (365 days) = GRO 

Example: A $20,300 vehicle sells for 21,700 for a profit of $1,700. That’s 13 percent gross as a percent of sales. If it sold in one month (a 12-turn equivalent), the GROI would be 156. For a vehicle to be financially soluble, it needs a minimum GROI of 156. 

5. Used to New Vehicle Sale Ratio

If your used vehicle sales are equal to or higher than your new vehicle sales, this can be an indicator of a strong used vehicle department. Aim for a 1.5 ratio.1 Did you know there’s an easy way to measure used to new car sales ratio? 

Formula: Used vehicles sold ÷ New vehicles sold = Sale ratio

Example: 60 used vehicles sold ÷ 60 new vehicles sold = 1 

6. Gross Profit (or Loss) Per Vehicle

While you likely measure your overall gross profit, do you split it into categories? Knowing your average profit for new, used, and wholesale units sold can help you identify weaker categories.2 You can then take a deeper look at what you’re stocking and strategize ways to raise the gross profit in a specific category. 

You’ll want to track this metric for new cars, used cars, immediate wholesale cars, and aged wholesale cars. 

Formula: Total gross profit in that category ÷ Number of units sold in that category =  Average gross profit per unit

Example: $500,000 new car profits ÷ 500 new cars sold = $1,000 average gross profit per unit

7. Sales Per Employee

Understanding how many dealership sales each employee brings in on average can help you with staffing decisions. Measuring the average sales per employee against each employee’s actual sales can help identify your high performers. It will also help you identify employees who need to grow.

Formula: Number of units sold ÷ Number of cars salespeople = Average unit sales per person

Example: 300 units sold ÷ 30 cars salespeople = Average 10 unit sales per person

8. Average Unit Value 

Knowing the average value of your stock on hand is a great way to stay on top of your inventory. This number can help you better know if you’re stocking for the demographic you’re most interested in reaching. Take the value and compare it to what your key demographics are spending to ensure you’re stocking units you can sell.2

You’ll want to do this separately for both new and used vehicles. Our example is focused on used vehicles. 

Formula: Value of all units in stock ÷ Number of units in stock = Average unit value

Example: $375,000 value of all units in stock ÷ 25 units in stock = $15,000 average unit value

9. Wholesale Volume

Your wholesale volume is the percentage of vehicles wholesaled. You can sell used vehicles wholesale to an online car auction partner like ACV. 

Dealerships should be handling two types of wholesale stock: Immediate and aged. Immediate wholesale cars are the units that never go to retail. Meanwhile, aged wholesale cars are wholesaled after sitting on the lot. Ideally, auto dealerships will wholesale stock held past a certain time, often 90 days.

You’ll want to know your wholesale volume for both immediate wholesale units and aged wholesale units.

Formula: Number of units wholesaled ÷ Number of units sold (retail and wholesale) = Wholesale volume

Example: 10 units wholesaled ÷ 40 units sold = 0.25 wholesale volume

10. Conversion Rates

How many buyers come from your digital platform?

Your automotive digital retailing platform is just as important to the sales process as your showroom floor. Your KPI strategy should include the online customer experience too.

Find out your conversion rate and brainstorm ways to grow it. Maybe you prioritize your social media or introduce a digital showroom.

Knowing your conversion rate is a great way to measure both what traffic your website brings in, as well as how it impacts your bottom line.

Formula: Number of sales that started online ÷ Number of automotive eCommerce site visitors = Conversion rate

Example: 40 sales that started online ÷ 500 automotive eCommerce site visitors = 0.04 conversion rate

Determine Your KPIs For Dealership Success

Evaluate your dealership to see which KPIs you’re currently tracking. Then consider tracking a few of the metrics discussed above. 

We look forward to helping you achieve great KPIs at ACV Auctions! Start by finding great inventory and register for a free ACV account.

Sources

  1. Cox Automotive. “12 metrics every dealer needs to track” Retrieved June 2022 from https://www.coxautoinc.com/learning-center/used-car-kpis/ 
  2. ProfitFocus. “KPI Guide - Used Vehicle Department” Retrieved June 2022 from https://www.eprofitfocus.com/help-support-centre/kpi-guide/used-vehicle-kpis/