In an industry as dynamic as auto retail, the ability to track and understand key performance indicators (KPIs) is crucial. Whether you’re a seasoned dealership owner or a newcomer to the industry, understanding these automotive metrics will provide you with a holistic view of your operations. From inventory turnover ratio to appraisal-to-trade ratio, each metric offers unique insights into different aspects of your dealership’s functioning.
- Dealer metric #1: Inventory turnover ratio
Inventory turnover is a measure of how quickly your dealership sells its inventory. You can calculate your turnover ratio by dividing your cost of goods sold by the average value of your inventory. You should aim for a target inventory turnover ratio of 12, indicating that you’re selling out of your existing inventory every 30 days.
Formula: Annual units sold ÷ Total units in stock = Inventory turnover rate
Tip: To drive sales, keep your team informed of incoming vehicles so they can sell them before they even go through reconditioning and become a part of your inventory. - Dealer metric #2: Used-to-new ratio
The used-to-new ratio shows the number of used cars sold for every new car sale. The industry gold standard states that a 1:1 ratio is considered ideal for franchise dealerships.
Formula: Used vehicles sold ÷ New vehicles sold = Used-to-new ratio
Tip: Used cars have higher profit margins than new vehicles. Click here to find the best ways to source used inventory. - Dealer metric #3: Reconditioning time
Reconditioning time is the amount of time it takes to get a used car ready for sale. The goal is to minimize this time to speed up inventory turnover.
Formula: Time spent reconditioning vehicles ÷ Total reconditioned units = Reconditioning time
Tip: Reduce reconditioning times by sourcing higher quality vehicles from outside your local market and using M.A.P. to manage transportation. - Dealer metric #4: Gross Return on Investment (GROI)
Gross ROI measures the profitability of each vehicle sold. Remember, the higher your ROI, the higher your dealership’s profits.
Formula: (Gross vehicle profit ÷ Cost to market) x (365) = GROI
Tip: Maximize your GROI by attending online auctions on EDGE Pipeline and manage transportation costs on the same platform. - Dealer metric #5: Cost to market
Cost to market refers to all the expenses incurred to prepare a vehicle for sale, including reconditioning and marketing costs. Lowering this cost can significantly increase your Gross Return on Investment (GROI).
Formula: Acquisition cost + Reconditioning cost + Transportation cost + Maintaining the showroom floor cost = Cost to market
Tip: The Montway Automation Portal (M.A.P.) provides visibility into your transportation costs, helping you identify new ways to reduce them. - Dealer metric #6: Aged wholesale loss per vehicle
Aged wholesale loss per vehicle refers to the loss incurred when an unsold vehicle ages past 90 days and must be sold at a lower price. In these cases, dealerships often wholesale their vehicles before taking a profit loss. Reducing aged wholesale loss can improve your dealership’s bottom line.
Tip: Follow this guide if you’re new to the wholesaling process. - Dealer metric #7: Sales per employee
Sales per employee is an essential productivity metric. It measures the average number of vehicle sales each employee contributes to. Increasing this number means enhanced workforce productivity.
Formula: Company annual sales ÷ Number of employees = Sales per employee
Tip: Read this blog to help your team improve their sales skills. - Dealer metric #8: Lead conversion rate
Lead conversion rate is the percentage of leads that convert into sales. Improving this rate can significantly boost your dealership’s sales numbers. Dealerships see an average 2% lead conversion rate.
Formula: (Number of leads ÷ Total number of visitors) x 100% = Lead conversion rate
Tip: Improve your lead conversion rate by providing your website visitors with a positive digital experience. - Dealer metric #9: Customer retention rate
Customer retention rate (CTR) measures the percentage of customers who return to your dealership for additional purchases or services. A high customer retention rate is indicative of customer satisfaction and loyalty.
Formula: Ending customers – new customers ÷ Beginning customers = CTR
Tip: The service drive is a customer retention secret weapon! Keep it top of mind for your customers by following these 5 steps. - Dealer metric #10: Gross profit
Gross profit is the total sales revenue minus the cost of goods sold. This metric is a direct indicator of your dealership’s profitability and ideally should be around 1-2%.
Formula: Revenue – Cost of vehicles sold = Gross profit
Tip: Improve your dealership’s gross profit by improving the customer experience, leveraging marketing and training your sales staff. - Dealer metric #11: Appraisal to trade ratio
The appraisal-to-trade ratio is the ratio of all vehicles appraised to how many were traded. It varies by market but is usually led by the sales and service teams.
This ratio is typically determined by an inspection of the vehicle’s condition, mileage, features and demand. Car dealerships also gather car sale data to determine the cost that similar vehicles sold for within the same market over the previous 90 days. From there, the appraisal value is compared to the actual market price, reconditioning costs and desired margin.
Tip: Simplify the appraisal process by using AI technology that generates fast and accurate reports in seconds. - Dealer metric #12: Immediate wholesale profit/loss per vehicle
This metric measures the profitability of each vehicle sold, calculating the difference between the wholesale price that your dealership purchases a vehicle for and the price at which you sell it. Monitoring this can help you adjust your buying strategy to maximize profits.
Formula: Immediate wholesale profit ÷ Loss per vehicle = Selling price – Purchase price
Tip: Increase profits on your vehicles by following these inventory management trends. - Dealer metric #13: On-time pickup and delivery
You move units every day, which is why on-time pick up and delivery are critical metrics that impact supply chain efficiency, service quality, customer retention and more. In addition, these metrics provide tangible insights into how well a logistics provider performs in terms of speed and reliability.
Tip: When evaluating logistics partners, use Montway’s metrics of 100% on-time pickup and 98% on-time delivery as a guide. - Dealer metric #14: Transport cost per unit
Car shipping costs are often determined by various factors, including the distance traveled, the method of transport used, the size and condition of the vehicles and more. From there, the cost per unit is calculated by dividing the total transportation costs of a full or half load by the number of units shipped.
Tip: Avoid surprises and receive shipping quotes instantly with M.A.P.—even on weekends!
Improve your dealership’s success
Understanding these KPIs is vital in the ever-evolving auto retail industry. From inventory turnover ratio to immediate wholesale profit/loss per vehicle, these metrics provide a comprehensive view of your dealership’s performance. They not only help identify areas of strength but also spotlight opportunities for improvement.
Implementing strategies such as improving the customer experience, leveraging marketing, training sales staff and incorporating advanced technologies can significantly boost efficiency, profitability and customer satisfaction levels at your dealership. Remember, informed decision-making based on accurate data is the key to driving success in this competitive industry.
About Montway Auto Transport
Montway Auto Transport is one of the nation’s leading logistics providers, arranging shipments for dealerships and auctions nationwide. Whether you’re buying inventory across the state or the country, our expansive carrier network of over 15,000 specializes in the shipment of cars, trucks, SUVs and more. Learn more by visiting Montway.com/Logistics or calling 888-998-4161.
