How Do You Stack Up Against Your Competition? Find Out?

Usually the first thing we think of when we talk about how you stack up against your competition by meeting Industry Targets, are Unit Sales.  At the end of every season you sit down with your manufacturer’s District Sales Manager and go through how many units, and what models, you are going to book for the next year.  Obviously, unit sales are the life blood of your business, but there are other critical industry insider targets that you must meet that will significantly make or break your profitability. Find out what they are.

In my last news letter I revisited the all-important industry salaries/wages target and how to calculate it to compare to the industry.  Judging by your overwhelming response to this issue, this was a very important topic for you.  While wages are the most influential expense on your profitability (because it represents the highest cost to your company), there are three other expense targets you need to be aware of that will significantly impact your bottom line

After spending 30 plus years analyzing dealer financial statements, and accumulating the resulting data, I can tell you without a doubt there were some obvious trends that separated profitable dealers from dealers who struggled.  The following are three more critical industry targets you should know and aim for:

  1. Rent/Mortgage Interest Expense:  Whether you pay rent or are paying down a mortgage for your building and property, this is a key expense that will affect your profitability. To calculate your industry target, take your annual rent or mortgage interest expense and divide it by your gross sales X 100.  This will give you a percentage that should be between 1.0% and 1.5% of gross sales. If you are over this percentage then you are not generating enough sales to pay for your building and land.  If you feel you are maxing out your sales potential and you are well above 1.5% in rent, then you better think about moving to a less expensive facility.  It’s easy to get wrapped up in wanting the best facility in the market to showcase your product, but it has to be one that is capable of generating enough sales to cover the rent or mortgage interest expense.
  2. Advertising: This expense can be very subjective and the cost versus benefit can be argued for ever.  However, a common target for the most profitable dealers is 1.0% of gross sales.  Instead of creating your marketing strategies first, set your overall marketing budget by calculating 1.0% of your business plan gross sales projection so you know what kind of dollars you have to work with for the year.  You can then allocate your budget to the strategies that will best drive your sales, margins and profits.
  3. Bank Charges & Interest Expense:  We usually think about the cost of floor plan financing when we talk about interest expense, however most dealers lump bank charges in with their floor plan interest.  I see a wide range in this calculation, but ideally it should be between 2.0% to 2.5% of gross sales depending on the level of cash sales you process.  First and foremost, if this expense is much higher than the target, you’ll need to carefully review your unit inventory that is bearing floor plan interest expense.  If you have units that are about to have a birthday, you need to move that product immediately through discounts, transfer to other dealers or possibly an arrangement with your manufacturer.  Secondly make sure you are getting the best deal available for your credit machines and merchant fees. 

These are very simple ways of identifying whether you are losing profit to excessive expenses.  These are vital areas within your control, so by hitting these targets you can watch your profits grow!

If you need help analyzing these targets, and to find out more about how else you compare to your competition, contact me for a free consultation.

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