There are a lot of moving parts to managing a car dealership, and if you aren’t tracking your KPIs (key performance indicators) you can’t get a true sense of the success of your business. There are a few key metrics that every dealership should keep a close eye on, because they tell the true story of how operations are going and where the business is headed. They also allow accurate forecasting for future growth or adjustments.
Used to New Inventory
At a dealership who buys and sells both used and new vehicles, an indicator of success lies in the used to new inventory ratio. A ratio of used cars that is equal to or higher than the new inventory is a great sign. A 1:1 is considered a good ratio for dealership standing, while a 1.25:1 is a great ratio. Basically, it all comes down to profitability for a dealership, and more profit comes from the service appointments that come after a vehicle is purchased. Trade-ins and used inventory also bring more profit than new vehicles will bring due to turnaround, trade-ins, and service maintenance.
Gross Return on Investment
The GROI is a number that can track the rapid rate of return on vehicle sales. It takes the gross as a percentage of sales multiplied by the turn rate. For example, a $15,000 sale can make $1,500 of profit, which is 10% gross. Divide that by the turn rate and you will get the GROI, which an ideal result is 120% or higher. The less time that car took to sell, the higher the GROI.
Inventory Turn Rate
The inventory turnover rate can tell a dealership how many times their full inventory turns over in a year. It’s a simple math equation to figure this out. The cost of goods sold divided by the average inventory value equals the inventory turnover rate. As an equation that looks like costs of goods sold / ((beginning inventory + ending inventory) / 2) = inventory turnover rate.
Price to Market / Market Days Supply
Inventory that sits at the dealership unsold for long periods of time, has a window of profitability that shrinks by the day. There is a close balance between the market demand for a vehicle and its price. HyreCar says to try and keep at least 50% of your inventory under 30 days old.
Online Lead Response Time
When a customer sends an online inquiry to the dealership, that is at their peak interest, and that lead should be utilized. Response times should be within minutes, not hours or days. A customer who is shopping around will be far more attracted to responses they received within 15 minutes, instead of the next business day. These response times can be tracked within the sales or customer service team and if response times are not falling within at least an hour, that process needs to be improved. Don’t drop those warm leads simply because you aren’t sending a simple email response back.
Customer Retention Percentage
Considering dealerships make most of their profit from post-purchase activities like service maintenance, trade-ins and warranties, customer retention is incredibly important for business. Studies have shown that a customer retention percentage increase of just 5% can increase profits anywhere from 25-95%, depending on the industry. Figuring out customer retention rate at a dealership may be slightly different than in other industries, but by tracking the time between a customer purchasing a vehicle, and when they come back for maintenance or other activities can be a good indicator. If six months have passed and a customer has not scheduled any service maintenance, like an oil change, it would be time to reach out to them with retention programs.
Social Media Traffic
Tracking how much engagement, and when, is happening on social media accounts can help with marketing strategy. When and how much you post on social media can directly affect traffic. For example, if you are posting too early during the week, when people are likely working and not seeing your posts, can bring traffic down. Facebook, Twitter, and Instagram will allow you to utilize analytics and metrics for your business account that can track all types of social media data from traffic, to engagement, to how long they watch your videos. Use this free data to craft a more effective social media presence, and capitalize on basically FREE marketing!