Last week’s article was a discussion about the percentages you should be shooting for as a percent of profits to sales dollars. If you are not familiar with the terminology, it is a math formula using the total sales dollars achieved by the dealership vs. the total net profit.
Sales dollars are sometimes referred to as gross sales. The standard in the industry for years has been to try to achieve a 2% profit relative to the sales dollars. If you’re not in the automotive business you would think that’s a really small number. And you would be right; it is a very small margin when you get right down to it, especially when you consider the risk and the amount of effort it takes to make a profit.
What I basically said is that if you are in the 2% range today you are treading on unstable ground. During these good times you need to be more in the 4 to 6% range so that you would be able to maintain the old standard of 2% when the crap hits the fan.
Well, well, well…wouldn’t you know it just as soon as I put those numbers out NADA came out with a study that said something different, or did it? One of my clients emailed me the information and the bottom line is the numbers said that thru April YTD that the dealer average is 2.45% for all dealerships and that for the Best In Class, the top 20%, the numbers were 4.73%.
So, was I out in left field when I said last week you should be in the 4 to 6 range? That would be a big fat no I wasn’t. I was dead on. (Gloating just a bit sitting here.)
The current 2.45% is an average for all dealerships. It includes the best and the worst of dealers. Surely there are some well above 2.45% and some way below. So, can’t we safely assume that some are in the 4 plus range?
The numbers also indicated that the best performers are averaging 4.73%. Same deal here. Some are going to be a bit below and some a bit higher. So it stands to reason that some would be close to the high end of 6%. (I win, I win, I win.)
So, let me cut to the chase for you. One thing I know to be true is that if you are reading my material you are not of the mindset to be average in anything. My newsletters are not about being average. You are not about being average. You are about being the best you can be and doing everything you can to excel and grow your business.
6% may be a stretch and may not be realistic for you for whatever reason. There are always unique sets of circumstances that have to be dealt with. But surely you can move from the number you are sitting on today to some higher plateau?
There are three things you have to ask yourself:
1. Where are you today?
2. Is your number moving north or south?
3. What are you going to do about it if it’s moving south?
I fully realize everyone reading this is not in a position of Dealer, GM or Owner Operator, but everyone reading this is in a position to influence the bottom line of your organization. There are numbers you should be looking at and seeking to improve.
If you don’t know where you’ve been, and if you don’t know where you are, you surely don’t know where you’re going. It doesn’t matter if you’re selling cars, widgets, real estate, insurance, software, advertising, parts or service.
I’m confident my spin on the numbers from last week was correct. But what if they weren’t? Did the fact that I brought it up cause you to at least peek at yours to see where you are? I win, you win, we all win. That’s all I’m gonna say, Tommy Gibbs