Since it’s the holiday season there’s a good chance you will be sitting around chatting and hanging out regardless if you celebrate Christmas, Hanukkah or another holiday. The odds are also that you might take the time to enjoy a cup of coffee.
The first of anything is always the best. Coffee is a great example. I highly anticipate each morning the first taste of my cup of coffee. It’s amazingly the best. Most things are like that. The first time you kissed your wife, husband, girlfriend or boyfriend is far better than the smooches you get today. The first lick of your ice cream cone is better than the last and so on. It’s called the law of stuff tastes better at first. (Yes, I made that up.)
Used cars are that way too. Selling one in the first 10 days tastes a lot better that selling it on day 50. The biggest difference between selling a used car and getting a kiss is that selling a used car is based on math. Kissing is based on kissing. Imagine that?
So, at the risk of boring you let’s go over some numbers on the chart at the bottom of this page. When discussing ROI the sweet spot that you are looking for when analyzing return on investment is somewhere between 110 and 120%. The most accepted practice when calculating ROI is to use only front gross.
In example "A" it’s a car that you have 12,000 tied up in. You make $2500 on it, sell it in 25 days and earn a very respectable 303% ROI. How many of you would like to earn a 303% return on investment of a stock you owned in the stock market? Me too, that’s as strong as goat’s breath.
When looking at the three numbers that calculate the ROI what you should be seeing in example "A" is that all three of the components that create the math lined up nicely. You only had $12,000 tied up, the gross was respectable at $2500 and you only kept the car for 25 days. Sweet!
In example "B", it’s the same car, same numbers except the car stayed in stock for 60 days. When you run the math, the ROI is still a respectable 131%. Can you figure out why it was so good? That’s because you only had $12,000 tied up in the car, and you made a decent gross of $2500. So, let me ask you something…how often are you going to keep a car for 60 days and make $2500? Only when a miracle happens. But, we humans tend to want to remember the miracles.
So, somewhere tucked in the back of your brain, you’re thinking about that one time back in 1902 that you had a car in stock, kept it 90 days, made $2500 and the little voice is going off in the back of your head, "I think I can, I think I can, I think I can." The reality is you can’t, so stop thinking that silliness.
In example "C" you have a car that you have $27,500 tied up in, you make $2500 on it and hold it for 25 days. You earn a respectable 141% ROI. It should be obvious why you did as well as you did and that would be you made a respectable $2500 gross, and you turned the car in 25 days.
So, the question is what hurt the ROI in example "C"? Well, well, well aren’t we smart. Yep, the amount of money you had tied up in the car. So, Einstein, what’s the moral to the story? Yep, you got that right too. If you have a lot of money tied up in a car you gotta turn it FAST!
Look at example "D." The miracle happened. You made $2500 after keeping the car for 60 days, but you still went in the tank with a horrible ROI of 61%!
You can’t fix what you don’t know. You need to know your ROI on every deal. Once the formula is in place all you need is the three numbers mentioned above.
I have an excel spreadsheet that calculates both ROI and GAP. (GAP stands for Give Away Profit, it’s the difference between the Internet asking price and the transaction price.) Just send me an email and I would be glad to send it to you. I also have a website, FixRoi.com, that you can go to, put the three numbers and bingo it calculates ROI.
You need to focus on cars that turn quickly. Keeping a used car around past 30 days or so is like a really bad kiss. You can deal with a bad kiss, but it’s just not as satisfying as a fresh one. That’s all I’m gonna say.