This
statistic measures the profitability of the space that a used vehicle
occupies rather than any measurement of the used vehicle itself.
Understanding of this difference is critical to this concept.
Let's assume that your used vehicle Stock Turn is 35 days and your Gross Profit is R1,500 per used vehicle.
If
you have a used vehicle that remains in stock for a period of longer
than 35 days, then the space it occupies is no longer productive at the
average rate and is missing profit opportunities.
Example:
A) Actual Days in Stock = 87 B) Stock Turn = 35 Days C) Failed to sell = 2.49 times (A ÷ B) D) Average Gross Profit = R1,500 E) Cost of Overage Stock = R3,735 (C X D)
This concept accepts the principle that your used vehicles generate R1,500 every 35 days, whereas this vehicle has failed to do so 2.49 times.
Discussion:
In order to establish the value of this lost opportunity you must divide the actual number of days a vehicle has been in stock by your Stock Turn and then multiply this by your average Gross Profit.