When Do I Start Making Money?
Throughout my career in the automotive business, there have always been consistencies at every dealership across the nation. Every dealer wants to grow their business and be more profitable, and every dealer also wants to find new ways to keep their team motivated and productive. Recently, a dealer friend of mine asked if there was a way to calculate which day of the month he started putting profit on the bottom line. The reasoning for this question was his desire to give his team a different way of tracking and measuring dealership profitability. This idea piqued my interest, and together, we got to work on generating this metric for the store. Eventually, we settled on the following methodology. By calculating a store's fixed net loss, and reviewing your average gross in any given month, you can determine the day of the month the store started writing black ink.
How to Calculate What Day You Start Making Money
Step 1. First, start with the total expenses less variable (sales commission, policy, delivery, etc.) incurred by the store for the month. Then, subtract the gross generated by your fixed operations. Your remainder is your fixed net loss.
Step 2. Next, calculate your average gross (front and back) for your new and used vehicle sales. Of course, there are expenses incurred each time you sell a vehicle. So, we need to subtract your variable expense average (sales commission, policy, and delivery) from this number. This provides us with your average gross per copy minus variable expenses.
Step 3. Finally, divide your fixed net loss by your average gross per copy minus variable expenses. You now know how many units it took to cover all store expenses. The day of the month that you reached that unit volume in sales, is the day of the month that you started making money.
How To Use This Metric
After figuring out exactly how many units, and average days, it took to start making money for his store, my dealer friend then challenged his team. Their new goal was start making money earlier than the previous month. If the breakeven day was the 22nd the previous month, and they were able to accomplish the challenge by the 21st this month, periodically he would spiff them a “fast start” bonus for their efforts.
I get to speak with dealers all the time, and we are always looking for different ways to motivate and measure our people. I found this approach to be a unique measure, and one that worked very well for this dealership. Now, I would challenge you to find out what day of the month did you start making money last month?