Automotive dealers use a variety of metrics to measure their dealership’s efficiency and profitability. Of course, some of those metrics include overall revenue and the number of sales made in a particular month. However, there are often other metrics that a dealer should monitor, especially in respect to a dealer’s floor plan financing.
Dealership Turn Time
Turn time refers to the average amount of time a vehicle spends on a dealer’s lot. Yearly turn time refers to the number of times in a year a dealer can sell all the inventory on their lot. For example, vehicles on a dealer’s lot spend an average of 40 days there. From that estimation, a dealer could calculate their yearly turn time. In this example, a dealer has 9 turns yearly. How long are vehicles staying on your dealership’s lot? What’s your dealership’s yearly turn time? Keeping tabs on these numbers can help dealers monitor their dealership’s inventory turn health.
Aged inventory is a problem for each and every dealership. Inventory that stays around too long is not only depreciating, but it can also tie up dealership cash flow. How many vehicles on your dealership’s lot have been there for longer than three months? For cars that have been on a dealer’s lot too long, consider developing an aged inventory exit strategy.
Holding Cost Per Day
Whether a dealer realizes it or not, it costs money to have a vehicle on their lot. Determining how much it costs for a dealer to keep a vehicle on their lot can be an important metric for dealers looking to keep costs low and improve dealership profitability. In order to establish a dealer’s holding cost per day a dealer will need to have an idea of their monthly expenses and holding costs. From there, a dealer can divide the holding cost by the number of units in stock for the month. Once that’s determined, divide that number by the number of selling days available in a month, and a dealer should have their holding cost per unit per day. Walk through this equation by using the formulas from our post on three floor plan financing formulas every dealer should know.
Using these key metrics can help automotive dealers get a better understanding of how efficiently they are managing inventory, cash flow and their floor plan financing solution. Once those metrics are benchmarked, dealers can set realistic goals to optimize dealership operations and profitability.