Key performance indicators (KPIs) are concrete measurements of your dealership’s financial performance that can be used to gauge progress toward goals. In the wake of the novel coronavirus (COVID-19) crisis, keeping accurate relevant metrics on aspects of your dealership’s performance is more important than ever.
Customize your metrics
Using KPIs enables your dealership to engage in the practice of “dashboarding.” In other words, you’ll select a handful of KPIs that you’ll continually measure and monitor against benchmarks at least monthly. They’ll let you see, at a glance, how your store (or stores) is progressing.
Your dashboard should include KPIs for the overall dealership as well as those broken out for new and used vehicle sales, finance and insurance (F&I), parts and service. Some tried-and-true dealership KPIs and historical industry benchmarks include:
• Monthly gross profit per employee ($7,500–$9,500),
• Net advertising per retail unit sold ($220–$275),
• F&I gross per vehicle sold (more than $850),
• Total service labor sales per repair order (greater than $125),
• Parts department gross profit as a percentage of parts sales (more than 33%),
• New to used vehicle sales ratio (1:1),
• Days supply of new vehicle inventory (less than 60 days), and
• Return on assets (10%–15%).
Important: The benchmark ranges above are based on historical results from 2019. Extraordinary external events — such as the COVID-19 crisis or a natural disaster — may temporarily affect industry benchmarks and your dealership’s performance.
Something to keep in mind: There are dozens of different KPIs, so no two dealerships’ dashboards will look identical. Each dealer needs to determine which KPIs are the most important to him or her.
Get key players’ opinions
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, in new and used vehicle sales, components of success might be keeping enough of the right kinds of vehicles in stock and monitoring the aging of your inventory. You might also want to track how well you’re retaining your sales staff, getting a good return on your advertising dollars, reaching a certain market share or improving customer satisfaction scores.
When it comes to F&I, success factors might include educating customers about the benefits of your products and maximizing the percentage of vehicle sales in which these products are sold. Meanwhile, in parts and service, keys to success 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.
Find a meaningful basis of comparison
KPIs have limited value if they’re viewed in isolation. Suppose, for example, that your service technicians have an average effective labor rate of $67 per hour. 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.
For more targeted benchmarks, you can obtain current industry benchmarks from the National Automobile Dealers Association, an automotive Dealer 20 group, or state or local dealer associations. Also check with your CPA — he or she may be able to provide numbers you can use for benchmarking purposes.
Back to speed
Thanks to stay-at-home orders and lackluster consumer demand, your dealership likely took a major “hit” during the COVID-19 pandemic. This summer, as nonessential business operations begin to recover, it’s critical to get a grip on performance. Contact us to create a set of KPIs that’s right for your dealership.