We all like to celebrate when a high-grossing pre-owned vehicle rolls off the lot. But do you know how profitable it was really? Here are just a few of the questions you may have forgotten to ask:
- How long was the vehicle in inventory?
- Did the vehicle get appraised too low as a trade-in?
- Did you just write the vehicle down last week?
With almost 4 million lease returns hitting the market in 2017—and even more in 2018—it’s important for dealers to have a rock-solid plan for pre-owned vehicle profits. If you want an ideal key performance indicator (KPI) for your dealership, you should look at your profit per day.
The Profit Per Day Formula
Dealers invest their money in inventory and expect a return—that’s the business. But too often they can’t even calculate what the return is! Some dealers look at gross profit, some look at the number of times they turn their entire inventory. Both of those numbers are important, but neither gives you the full picture.
Wouldn’t it be great to accurately gauge your used-car investment and find out what your actual rate of return is? Here is a simple formula dealers can use to determine profit per day on their pre-owned vehicles:
- Take the front-end gross profit
- Subtract commission from the sale
- Take that amount and divide it by the total days in inventory
Now, profit per day is only part of the calculation dealers should use to determine their total return on investment. If you’d like to get the full picture and really understand how to calculate your total return on investment, come to my presentation at Digital Dealer, where I will be talking to dealers about a better way to look at used-car profits, how to gauge the true ROI on a pre-owned vehicle and more.
The Digital Dealer Conference & Expo runs April 11-13 in Tampa, Florida, at the Tampa Convention Center. I hope to see you there!