Are You Trying to Save Your Way to Profitability?

Getting profitable. Wow. How cool would that be?

You come into the store the first day of the month, open the door to your office, turn on the lights, sit at your desk and open the drawer that you keep your last months financial statement in and read through it until you come to the page that has the final numbers….and you smile a little self satisfied smile….when you realize “we paid all of our bills before we even opened the door this morning.”

Sounds like a science fiction novel? Or a fairy tale?

Maybe…especially if you are trying to save your way into Profitability.

It can be done…no doubt…that first month or two after you have made the cuts in Personnel, and wages (a favorite of all the employees by the way), and supplies, and vendors (they love that thing you do…you know..”Hey dude, I’m not paying $75.00 a car anymore for ding repair, it’s $50.00 now.”), and weekend meals for the Sales Dept…..you know what I’m talking about…and at the end of the second month…Wala…Profit. Right there on the statement. Just like you thought.

Then….the unthinkable happens…even less Traffic…. which you guessed it…. leads to less Sales and that of course takes us to less Profit because there is less Revenue and less of….well…EVERYTHING!

Now what do you cut? More importantly, how can you remain Profitable?

Maybe the question is not “Are my Expenses too High?”….maybe it’s “Are my Profits too Low?”

If this is you, then you need to start looking at Profit Generation and not Expense Cuts. Let me elaborate.

There is an area in your Dealership that has been known to generate Profit….consistently…if it’s being done correctly….it’s called the Fixed Operations or Service and Parts Department. I know….you can’t believe it either….it’s been there all along. Just waiting to be capitalized on.

Let’s present some facts. Now, I’m not picking on anyone, just discussing. Don’t get offended…I’m just the messenger and the alarm sounder.

The average hardworking Salesperson in the average Dealer selling an average New Vehicle will generate an average of $1450.00 in Gross PUS. If the New Vehicle has a $30000.00 sale price, that equates to .048333 or almost .05% average Gross Profit PUS.

Lets look at the Service Numbers. The average hardworking Advisor writing an average of 12 ROs a day will generate an average of $2754.00 in Sales with an average overall Gross of $1636.00 or 59% Gross Profit, per day.

Compared that to the average hardworking Salesperson overall average monthly Sales of 11 Units generating a total average monthly Gross of $15950.00, the average Advisor, well, has the bigger potential!

The average Advisor will generate $32,720.00 in average Gross Profit for the month!

Ok, what’s your point?

Since Saving our way to Profitability is a short term fix (and one sure to demoralize and in some cases, scare the employees), why not invest and allocate available resources into the Fixed Operations? One thing is for sure, the Sales to Gross ratio is a lot better, and the potential for getting even more is a lot greater.

So, which seems the better course of action?

Saving your way to Profitability or Generating More Profit?