If you’ve been paying attention, you may have heard some rumblings in the vAuto world about a paradigm shift in their thinking on used vehicles.
The shift taking place is about changing your thinking of a unit’s age from pure days, which they refer to as “Calendar Time,” into a tool called “ProfitTime,” which is more focused on a unit’s overall investment potential.
To understand this idea a little bit more and how it relates to UpYourGross’ Life Cycle Management, let’s consider Velocity principles and the problem ProfitTime is trying to solve.
Velocity principles would teach us that turning and burning units can boost ROI and allow grosses to accumulate. For many years, total gross vs. average gross has been something many of us have been focused on.
But what if there are some vehicles that we could have made more money on had we allowed ourselves to hold them a little longer and price them with a little extra gross built-in?
Strictly following the Velocity principles would leave these grosses on the table. As a general statement, holding a trade-in a little longer than something you acquired at an auction should make good sense to you.
Rather than applying the exact same turn and burn strategy to every unit, what if we intelligently managed how we priced units based on their investment potential? This would allow us to strike a balance between applying a turn and burn mentality to the vehicles that require it, and seeking more gross for our great investment units.
This is exactly what vAuto has tried to capture with ProfitTime. They give each unit in your inventory an investment score each day. These scores range from 1-12 and segment into precious metal buckets. This allows you to understand each vehicle’s investment potential and execute a strategy that attempts to strike a balance between turn and burn units and hold out on good deal units.
So This Means Days Don’t Matter, Right?
Well sort of, but not so fast. Let’s step back a bit and take a closer look at the factors that drive a vehicle’s investment potential. Once you have a unit in your inventory, its investment potential is based on the gross the vehicle can generate.
Essentially, how well you bought the vehicle (odometer-adjusted cost-to-market) and the market conditions for that particular unit (Like-Mine Day Supply and Market Sales Volume). ProfitTime wraps these data elements together to determine the vehicle’s investment potential.
I’d envision using ProfitTime to understand a unit’s profit potential so that you can price your cars more optimally on day one and so that you can keep them priced right as their profit potential changes. This should allow you to strike a better balance between turn and burn units and staying firm on good deals.
It’s important to note that this investment potential doesn’t care if the unit is one day old or 40 days old. Therefore, from the ProfitTime perspective, how long you’ve owned the car simply does not matter.
However, I would be careful to not generalize and make a blanket statement that days don’t matter at all. If you just sit on a vehicle that was deemed to be Platinum on day one, it won’t look too rosy on day 100. In fact, as the days pass, the unit’s investment score will worsen, as would be expected with any depreciating asset.
Where Do Days Come Into Play Then?
Days still come into play when you are looking at your ROI. This is because ROI is not only based on the gross you’ve made, but also on how long it took you to make that gross. This all starts to come together when you see the bigger picture.
Vehicles with low-profit potential from the get-go will see their ROIs start substantially lower than vehicles with a higher profit potential. This gives you less time to move these units from day one if you expect an investment return. You can think of this as buying a green banana versus a brown banana. The green banana has more time to be useful on day one, while the brown banana is already running out of time.
You can still make money on brown bananas, but you must sell them fast and understand all the pluses that go along with cranking up the volume with brown bananas.
Additionally, vehicles with factors that lead to quicker depreciating market values will see their profit potential decline at a faster rate than vehicles with steadier market conditions.
These units will have pressure to be moved quickly too.
In nearly all cases, each day that ticks off the calendar lowers the vehicle’s ROI, even if its gross doesn’t go down. However, the starting ROI and rate at which the ROI deteriorates each day will vary for different vehicles.
How does ProfitTime fit Into UpYourGross’s Life Cycle Management Philosophy?
At UpYourGross we’ve been preaching a lot about a life cycle management philosophy that is built on the concept of having a unique strategy for every unit. The reason we do this is we recognize that not all vehicles are created equal. When we talk about a concept like setting an auction purchase unit to a shorter life cycle, we are essentially saying this vehicle has less gross potential, therefore, it’s ROI will automatically start lower than that of, say, a customer acquisition unit. Therefore, we need to get rid of it faster.
You can strike similarities between the concept of ProfitTime and Life Cycle as follows. Calendar Time is simply the vehicle’s true time or age in inventory. Intelligently setting a unique Life Cycle to a vehicle means that its expiration date is no longer tied to Calendar Time; rather, it’s tied to its investment potential. An auction purchase might expire at day 45 while a customer acquisition expires at day 60. This philosophy operates on the same fundamentals as ProfitTime.
So if Profit Time and Life Cycle are Similar Why do I need Both?
The truth is each tool offers you a distinct benefit and those benefits increase in value when used together. While you don’t have to have ProfitTime to use the Life Cycle management tool we’ve built with UpYourGross, knowing a vehicles ProfitTime score makes “intelligently” setting the Life Cycle for each unit a bit more analytical rather than purely experience-based.
This isn’t to say that there’s no place for experience, but as many of us know making decisions backed by data is a good foundation for establishing consistent and repeatable processes.
And, you don’t need UpYourGross to use ProfitTime. But when you pair the two together, they put you in the driver’s seat of driving more gross to your bottom line.
Think of it this way, the ProfitTime score will help you select and updated a unit’s life cycle and UpYourGross will help you manage your inventory when you end up with many different units all following distinct life cycles. With UpYourGross, you’ll be able to easily see which units are about to expire and know what units you should be focusing on.
I guess you could build a massive spreadsheet and hire someone to punch data into it all day to help you keep track of it all.
However, we recognized that establishing and managing a unique strategy for every unit could be a daunting task to manage in spreadsheets-the exact reason we created UpYourGross in the first place.
What if I’m not Ready for ProfitTime?
If you’re not ready to make the jump to ProfitTime, I’d still encourage you to stop treating all vehicles the same. Not all vehicles deserve a generic 60 or 90 days just because you find that process and inventory age timeline simple to implement.
Try following a process that sets a unique strategy for every unit and see how easy it is to manage that process with UpYourGross.
You might just be surprised at how your bottom line starts to look when you combine ProfitTime and UpYourGross.
Tommy Gibbs & Jarrod Tanton