These days there are a million numbers we can manage in a dealership. Front-end average gross, back-end average gross, turn time, days’ supply, VDPs, SRPs, click-through rate … and the list goes on.
These are all important metrics that can definitely tell a lot about the success of a dealership. But what if I told you there was one number to focus on above all else? That number we refer to as, “retail sales efficiency,” or what percentage of your inventory sells between zero and 60 days.
This is the sweet spot where you make almost every penny of your front-end gross profit. Working with the top dealers and dealer groups around the country has taught us that focusing on this number is the most important factor to driving success in the dealership.
Now a lot of people will tell you to “have a good turn.” That’s not all this is about. It is about being efficient and making intelligent decisions to maximize gross profit while limiting your risk.
Any monkey can stand in front of a room and tell you to drop all your prices to 98 percent of market and they will sell faster. The key is to make the right moves to maintain your gross while still moving a high percentage in the retail sales efficiency window.
The benchmark to shoot for is 85 percent. Now, that number is not easy to hit, but after years of working with the top retailers in the used-car world, this is what we have found to be the formula for success.
So how do you achieve this?
- The No. 1 key is to have the data to help you identify the opportunities in your store. Every dealer has a unique DNA that makes up who they are. Digging into this and extracting the opportunities specific to that dealer are critical success factors.
- Then it really boils down to a few key action areas based on what you find :
I. Acquisition: Having the right mix of inventory based on your unique make-up as a dealer is extremely important. This means using data to assess what you need and where the best place to acquire it is.
Trades: We all know that Trade-In vehicles are more profitable than purchases. Using tools like Make-A-Deal to close more trades, targeting your service lane, or developing a CarMax-like program are strategies to employ.
Auction: Targeting a wide array of online and live auctions is necessary to find the unique pieces. Relying strictly on rental ride or fleet vehicles that are current model year will make it more difficult to achieve your goals.
II. Market Pricing: The great news is if you have an opportunity here the impact is immediate! In an Internet world changes made to my pricing strategy hit the Web tomorrow and begin to make my operation more retail sales efficient immediately.
Each used car is like a snow flake and has a uniqueness to it, so contrary to what some will tell you, they are not all commodities. Use the data available to identify which cars are the commodity type thus being very price sensitive, and which ones are the gross vehicles that are extremely unique and can command a higher price.
III. Merchandising: With more than 50 million ads online as we speak being relevant in the content I put online is more important than ever. Again changes made here affect you right away.
The bottom line is, the dealership is full of different numbers and targets. However, I guarantee you that focusing on the retail sales efficiency percentage will make you more gross if done the right way.
Even if you sell the exact same amount of vehicles you do today, you will make more money by focusing on retail sales efficiency. This is because you are limiting the loss from aged retail and aged wholesale units. Time to start aiming for that 85 percent and make yourself a world-class retailer in 2013.
Editor's Note: Steve Miner is the director of FirstLook operations. The complete blog entry can also be read at www.driveyournumbers.com/best-practices/the-most-important-number-to-your-dealership.