If asked whether they want to improve their dealership’s financial performance, most owners would enthusiastically answer, “Yes!” After all, better financial performance typically leads to higher profits and more opportunities for everyone in the dealership.
The first step in any performance improvement initiative is determining how you’re doing right now in the areas most critical to your store’s financial success. Doing so will enable you to establish benchmarks against which you can compare future key performance indicators (KPIs) across your dealership.
What are KPIs?
KPIs are quantifiable measurements of your dealership’s financial performance that can be used to gauge progress toward goals. Using KPIs enables your dealership to engage in the practice of “dashboarding” — that is, selecting a handful of KPIs that you’ll continually measure and monitor against your benchmarks.
Your dashboard should include KPIs for the overall dealership as well as those broken out for sales, F&I, parts and service. Some typical dealership KPIs, along with sample industry benchmarks, include:
- Total gross per employee per month ($7,500 – $9,500)
- Total advertising cost as a percentage of gross sales (8% to 10%)
- F&I gross per vehicle sold (more than $850)
- Total service labor sales per repair order (greater than $125)
- Parts department gross as a percentage of dealership sales (more than 35%)
- Used to new vehicle sales ratio (more than 0.7)
- Days supply of new vehicle inventory (less than 60 days)
- Service and maintenance contract penetration (more than 65%)
There are literally dozens of different dealership KPIs, so no two dealership dashboards will look identical. Each dealer needs to determine which KPIs are the most important to his or her success.
Targeting crucial areas
So how do you decide which KPIs to focus on? Start by bringing together your managers and asking them to identify the most important success factors in their respective departments. For instance:
New and used car sales. In sales, components of success might be keeping enough of the right kinds of vehicles in stock, monitoring proper vehicle inventory aging, maintaining a high salesperson retention rate, ensuring adequate advertising exposure, reaching a market share or improving customer satisfaction scores.
F&I. Success factors here might include educating customers about the benefits of F&I products and maximizing the percentage of vehicle sales in which these products are sold.
Parts and service. Keys to success in this department might be improved absorption, reduced parts aging and increased dollars per repair order.
Once you and your managers have identified the critical success factors for each area of your dealership, and your dealership in general, it’ll be easier to choose the KPIs that can best help you gauge your progress.
Compare KPIs to benchmarks
Remember that KPIs have limited value if they’re viewed in isolation. Suppose, for example, that your monthly gross profit per employee (another common dealership KPI) is $6,000. Is this good or bad? You have no way of knowing unless you compare it to benchmarks — either prior performance periods (such as the same month last year) or industry standards.
You can obtain common industry benchmarks from the National Automobile Dealers Association, an automotive dealership 20 group, or state or local dealer associations. Also check with your CPA — he or she also may be able to provide numbers you can use for benchmarking purposes.
Get started now
Take the time now to choose several KPIs you believe are critical to your dealership’s success and then begin to benchmark them. This is the best way to see how your financial performance is improving or declining over time.