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D

Direct Profit

Direct Profit

Gross Profit ÷ All Departmental Expenses

Baseline: > 12% of turnover

Description:

The mathematical formula for Direct Profit is simply Gross Profit minus Departmental Expenses.

Example:

A) Departmental Gross Profit = R107,539
B) All Departmental Expenses = R82,722
C) Departmental Profit = R24,817 (A - B)

Discussion:

Direct profit is usually seen as the last line or the bottom line of your financial reports for the Parts Department, hence its colloquial name, "the bottom line".

However, having this figure reported as a monetary value is very nice to see, but in terms of plotting its trend, it is more useful to measure this as a percentage of Turnover.

Most financial reports now show Direct Profit as a monetary value as well as a percentage of Turnover.

Example:

A) Departmental Profit = R24,817
B) Turnover = R165,446
C) Departmental Profit % = 15% (A ÷ B X 100)

Related Terminology:

This line is sometimes called Departmental Profit, Operating Profit and of course "the bottom line".


Direct Profit % (Bodyshop)

Direct Profit % (Bodyshop)

Direct Profit ÷ Turnover (x100)

Baseline: > 30%

Description:

Direct Profit is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Direct Profit = R183,389
B) Departmental Turnover = R573,088
C) Direct Profit % = 32% (A ÷ B X 100)

Discussion:

Related Terminology:

The Direct Profit of the Bodyshop is also called many other things such as, Departmental Profit, Operating Profit and of course the bottom line.

Direct Profit % (Sales Department)

Direct Profit % (Sales Department)

Direct Profit ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Direct Profit is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Direct Profit = R97,208
B) Departmental Turnover = R3,240,233
C) Direct Profit % = 3% (A ÷ B X 100)

Discussion:

Related Terminology:

The Direct Profit of the Sales Department is also called many other things such as, Departmental Profit, Operating Profit and of course the bottom line.

Direct Profit % (Service Department)

Direct Profit % (Service Department)

Direct Profit ÷ Turnover (x100)

Baseline: > 35%

Description:

Direct Profit is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Direct Profit = R57,907
B) Departmental Turnover = R165,446
C) Direct Profit % = 35% (A ÷ B X 100)

Discussion:

Related Terminology:

The Direct Profit of the Service Department is also called many other things such as, Departmental Profit, Operating Profit and of course the bottom line.

Diverted Time (Bodyshop)

Diverted Time (Bodyshop)

Hours Attended x Hours Worked

Guideline: See Utilisation

Description:

Diverted Time means that the Productives have been diverted onto tasks that cannot be charged out to the customer. Typically this could be time spent locating a vehicle, waiting for parts and other such issues.

Example:

A) Hours Attended = 320
B) Hours Worked = 304
C) Hours Diverted = 16 (A - B)
D) Prime labour Cost = R10
E) Diverted Time = R160 (C X D)

Discussion:

The mathematical formula is simply Hours Attended minus Hours Worked and this is always shown as a monetary value, which can usually be found within the Variable Expenses of the Bodyshop.

In addition to this some financial reports might show the monetary value of Diverted Time as a percentage of the Departmental Gross Profit.

Related Terminology:

This term is also known as Unrecovered Time, Idle Time or Lost Time.

(Also see Hours Attended and Hours Worked)

Diverted Time (Service Department)

Diverted Time (Service Department)

Hours Attended X Hours Worked

Guideline: See Utilisation

Description:

Diverted Time means that the Technicians have been diverted onto tasks that cannot be charged out to the customer. Typically this could be time spent locating a vehicle, waiting for parts and other such issues.

Example:

A) Hours Attended = 320
B) Hours Worked = 304
C) Hours Diverted = 16 (A - B)
D) Prime labour Cost = R8,50
E) Diverted Time = R136 (C X D)

Discussion:

The mathematical formula is simply Hours Attended minus Hours Worked and this is always shown as a monetary value, which can usually be found within the Variable Expenses of the Service Department.

In addition to this some financial reports might show the monetary value of Diverted Time as a percentage of the Departmental Gross Profit.

Related Terminology:

This term is also known as Unrecovered Time, Idle Time or Lost Time.

(Also see Hours Attended and Hours Worked)


E

Emergency Order %

Emergency Order %

Purchases on E.O. ÷ Total Purchases (x100)

Benchmark: < 30% of purchases

Description:

E.O. is an abbreviation for Emergency Order. E.O. sales occur when a vehicle is being repaired in the workshop and the parts that are required to repair it are not currently held within your parts stock.

In this instance, the required parts are ordered from your franchise manufacturer on an emergency basis and the parts are usually delivered the next day.

This KPI measures the percentage of your parts purchases that have been ordered on an emergency basis.

Example:

A) Purchases on E.O. = R17,977
B) Total parts purchases = R79,894
C) E.O. % = 22.5% (A ÷ B X 100)

Discussion:

In most cases, parts that are ordered on E.O carry a financial penalty, which reduces your overall Buying Margin. therefore it is your interest to maintain a balance between your True Stock Turn and E.O.%

Related Terminology:

Equity %

Equity %

Net Worth ÷ Total Liabilities (x100)

Benchmark: 35%

Description:

In simplistic terms this KPI tells you how much Equity you have in the business, or in other words, how much of the company belongs to the owners.

This statistic is used to measure the financial stability of a company and is sometimes used as a measure of the business's ability to borrow money.

Example:

A) Net Worth = R1,869,932
B) Total Liabilities = R5,342,663
C) Equity % = 35% (A ÷ B X 100)

Discussion:

If you own your home you will no doubt have heard the term Equity. Let's say that your house is worth R100,000 and you have a mortgage of R75,000. The remaining R25,000 represents the money that you put in to buy your house. This is the part of your house that belongs to you, or in other words this is your Equity.

To calculate your Equity % you simply divide your share (R25,000) by the total value of the house (R100,000) and express this as a percentage (x 100). In this example the Equity that you have in your house would be 25%.

The meaning of Equity in your business is exactly the same and you can find the components for the calculation on your Balance Sheet.

Related Terminology:

Estimate Conversion Ration

Estimate Conversion Ration

# of Jobs from Estimates ÷ # of Estimates (x100)

Baseline: > 80%

Description:

This KPI assesses how many jobs you have gained from the estimates that you have given.

Example:

A) # of jobs from estimates = 262
B) # of estimates given = 304
C) Estimates Conversion Ratio = 0.86:1 (A ÷ B)

More often than not, this KPI is referred to as a ratio, but in terms of reporting format it is usually displayed as a percentage.

The measurement is exactly the same the only difference is that you multiply the result by 100 to convert the ratio into a percentage. It's really a matter of preference.

Example:

A) # of jobs from estimates = 262
B) # of estimates given = 304
C) Estimates Conversion Ratio = 86% (A ÷ B X 100)

Discussion:

In simplistic terms these examples show that for every estimate that you have provided, you have successfully converted 86% of them into jobs for your business.

Related Terminology:

F

Finance Commission per Unit

Finance Commission per Unit

Finance Commission Earned ÷ Units Sold on Finance

Guideline: Own Policy

Description:

This KPI establishes the average amount of finance commission that you have earned on each unit that you have sold on finance.

The value of commission earned varies significantly between new and used vehicles due to the special subsidised rates offered by franchised manufacturers therefore this KPI is more useful when new and used finance commission is shown separately.

Another factor of high influence is of course a Business manager, who in many instances will be selling Protected Payment Plans and Gap Insurance to produce much higher levels of finance commission.

Example:

A) Finance Commission earned = R120,782
B) Units sold on Finance = 461
C) Finance Commission per Unit = R262 (A ÷ B)

Discussion:

You should check your own statistics to ascertain whether or not volume bonus is included in this figure along with the profit generated from warranty as these two factors often cause distortion.

You should also ascertain the units by which the commission is divided. The example shows only the units sold on finance, whereas some reports may divide the commission by every unit sold.

Related Terminology:

Finance Penetration

Finance Penetration

Units Sold on Finance ÷ Total Units Sold (x100)

Baseline: >30%

Description:

This KPI establishes the percentage of vehicles that you have sold that have been purchased on finance that has been supplied by your dealership.

If this statistic is to have any real meaning, then it is only retail sales that should be counted and any fleet sales should be excluded. Before you jump to any conclusions, be certain of the formula of your own KPI.

Example:

A) Units Sold on Finance = 461
B) Total Units Sold = 960
C) Finance penetration = 48.02% (A ÷ B X 100)

This example shows that 48% of the vehicles sold were purchased on finance. However, the important thing to note here is the classification of total vehicles sold.

Discussion:

Results also vary between new and used vehicles due to franchise manufacturers sub-vented finance schemes or other attractive offers for new vehicles, therefore this KPI is more useful when new and used finance penetration is shown separately.

This suggested baseline of 30% should be increased to a minimum of 60% were a Business Manager is employed.

Related Terminology:

Fixed Asset %

Fixed Asset %

Total Fixed Assets ÷ Total Assets (x100)

Benchmark: 45% to 55%

Description:

The primary function of this KPI is to measure the balance between the investment in the facility of the company (land and building etc.) and the investment in the day-to-day business that operates within it. In other words, it assesses the balance between long-term and short-term investment.

This example below shows that of all the money that has been spent in your dealership, 48% of the investment is in the facility, and the remaining 52% is invested in stock and all the other things from which you hope to earn profit.

The calculation is taken from the Balance Sheet and is generally shown within the company summary.

Example:

A) Total Fixed Assets = R2,564,478
B) Total assets = R5,342,663
C) Fixed Asset % = 48% (A ÷ B X 100)

Discussion:

The reason for the 10% tolerance in the benchmark is because of the fluctuation in property prices around the country. Therefore an area with high property prices would generate a higher Fixed Asset %.

This KPI is only really valid when the land and buildings are shown on the Balance Sheet.

Related Terminology:

Funds Employed

Funds Employed

Net Worth ÷ Interest-Bearing Borrowings

Guideline: See Circulation of Funds Employed

Description:

This term refers to all of the money that is invested in the company (or nearly all of it).

The total investment is all of the funds that are employed within the company to enable it to operate on a day-to-day basis.

Its constituent parts are Net Worth (the owners funds) and all interest-bearing borrowings. Items such as Creditors, Accruals and the like are excluded from this figure, as they do not attract interest payments.

The value of Funds Employed informs you of how much money is invested into the company to enable it to function on a daily basis and although by itself it is not a KPI it is used in the calculation of many other KPI's.

Example:

Discussion:

Funds Employed is always shown as a monetary value and is usually shown on the summary page of your financial information. If the value of your Funds Employed is not shown on your summary page you can calculate it for yourself from the balance sheet.

Please keep in mind that the value of the Funds Employed is not the same value as the Total Liabilities.

Related Terminology:

Funds employed is sometimes called Investment or Capital Employed.


G

Gearing %

Gearing %

Interest-Bearing Borrowings ÷ Funds Employed x100

Benchmark: < 60%

Description:

This version of Gearing measures the relationship between how much of the Funds Employed are owed in interest-bearing borrowings.

Generally speaking, a bank manager is relatively happy to maintain Gearing at 50%. This means that for every R1 that you have invested in the business, the Bank manager will also invest R1.

Both of these versions of Gearing generate the same answer, albeit in a different way. However, the net result is the same.

Example:

A) Interest-Bearing Borrowings = R4,541,263
B) Funds Employed = R9,883,926
C) Gearing Percentage = 46% (A ÷ B X 100)

Discussion:

The example above is stating that 46% of the money invested in the business is from loans and therefore the remaining 54% is the owner's funds.

Related Terminology:

Gearing Ratio

Gearing Ratio

Interest-Bearing Borrowings ÷ Net Worth

Benchmark: < 1.4:1

Description:

The term gearing is all about the relationship between the level of Equity in a business and the amount of money that is currently being borrowed.

Generally speaking, a bank manager is relatively happy to maintain Gearing at 1:1. This means that for every R1 that you have interested in the business, the bank manager will also invest R1.

When Gearing goes over and above 1:1 this is the time when you may experience increasing pressure from the bank to replay some of your loans. After all, the bank does not want to put more money into your business than you have invested yourself.

Example:

A) Interest - Bearing Borrowings = R4,541,263
B) Net Worth = R5,342,663
C) Gearing Ratio = 0.8:1 (A ÷ B)

Discussion:

There are two different ways of expressing Gearing, this method provides you with a Gearing Ratio; the other provides you with the Gearing%. Although both KPI are called Gearing, they do measure slightly differently.

Related Terminology:

Gross Profit (New Vehicles)

Gross Profit (New Vehicles)

Invoice Price of Vehicle x Cost Price of Vehicle

Guideline: Franchise Specific

Description:

The basic understanding of Gross profit is simply sales less the cost of those sales. Within the Sales Department there are many things that are sold that are all contained on the sales invoice such as accessories, warranty and of course the vehicle itself.

Take care to understand exactly what your reports are including and excluding from this equation. Generally speaking, most reports will show all of these items separately, especially the Gross Profit in the vehicle.

Example:

A) Vehicle Sale Price = R18,268
B) Vehicle Cost Price = R17,719
C) Vehicle Gross Profit = R549 (A X B)
D) Gross Profit % = 3% (C ÷ A X 100)

Discussion:

There is no benchmark for this KPI because profit retention is very different in all vehicle marques. There is however, one item that needs to be quantified.

When your franchise manufacturer provides you with a tactical bonus payment, is this bonus included or excluded from the vehicle Gross Profit? Also see Target Related Bonus.

The reality is that there is no hard and fast rule for this one and therefore you will need to research your own reports before you draw any conclusion on your results.

Related Terminology:

Gross Profit (Used Vehicles)

Gross Profit (Used Vehicles)

Invoice Price of Vehicle X S.I.V. of Vehicle

Baseline: >10% of Invoice Price

Description:

This KPI establishes the amount of Gross Profit that you retain in your used vehicles, this is usually after the deduction of V.A.T. where applicable and before any expenses such as Reconditioning Costs and Sales Commission payments are taken into account.

Example:

A) Vehicle Sale Price = R14,500
B) Vehicle S.I.V. = R12,679
C) *Vehicle Gross Profit = R1,821 (A X B)
D) Gross Profit % = 12.56% (C ÷ A X 100)

Discussion:

The price that you paid for the vehicle may not be the same as the stand in value (S.I.V) due to the Write Down and write back policies and procedures of your business.

In any event, the value of Gross Profit that you retain from your used vehicles should be greater than 10% of the invoice price. (Not to be confused with the display price on the windscreen)

You need to retain sufficient margin here to pay for all of the Variable and Semi-Fixed Expenses and still have enough left over to make a contribution to Direct Profit.

Related Terminology:

Gross Profit % (Bodyshop)

Gross Profit % (Bodyshop)

Gross Profit ÷ Turnover (x100)

Baseline: >45%

Description:

Within the Bodyshop there are two levels of Gross Profit that are measured; be sure that you are measuring the results that you really want.

The basic concept of Gross Profit is simply sale less cost of sale, therefore the following example relates to the Bodyshop as a whole.

The trading strategy of your Bodyshop will have an impact upon the suggested baseline of 45% and will vary according to the level of insurance work that your business undertakes.

Example:

A) Total Gross Profit = R107,540
B) Turnover = R165,446
C) Gross Profit % = 65% (A ÷ B X 100)

Discussion:

Financial reports for the Bodyshop show Gross Profit on Labour Sales before they show the total Departmental Gross Profit; this page is explaining the overall Departmental Gross Profit within which Labour Gross profit is included.

The Gross Profit% of a Bodyshop has a tendency to be lower than that of the Service Department because of lower Recovery Rates and higher Productive Labour costs.

Related Terminology:

(Also see Labour Gross Profit)

Gross Profit % (Servive Department)

Gross Profit % (Servive Department)

Gross Profit ÷ Turnover (x100)

Baseline: >65%

Description:

Within the Service Department there are two levels of Gross Profit that are measured; be sure that you are measuring the results that you really want.

The basic concept of Gross Profit is simply sale less cost of sale, therefore the following example relates to the service department as a whole.

The trading strategy of your Service Department will have an impact upon the suggested baseline of 65% and will vary according to the level of discount that you give, Sub Contract work and oil sales that your business conducts.

Example:

A) Total Gross Profit = R107,540
B) Turnover = R165,446
C) Gross Profit % = 65% (A ÷ B X 100)

Discussion:

Financial reports for the service Department show Labour Gross profit before they show the total Departmental Gross Profit; this page is explaining the overall Departmental Gross Profit within which Labour Gross profit is included.

Related Terminology:

(Also see Labour Gross Profit)


H

Hours Attended (Bodyshop)

Hours Attended (Bodyshop)

Total Number of Productive Hours Available

Guideline: See Hours Bought

Description:

This term represents the total number of hours that the Productive staff are available to work, or in other words, the total number of hours that the Productives are clocked-in at the dealership.

The number of Hours Attended is the statistic that is used in the calculation of Utilisation and Overall Efficiency.

It is important to note that this does not give you the total number of Hours Worked; it provides you with the total number of hours that are available to work.

As well as collating the total number of Hours Attended, it is also recommended that you calculate the hours attended for each individual Productive so that their own individual Utilisation can be ascertained.

Example:

Discussion:

Factors that will influence the number of Hours Attended is time spent on training courses, time off on holiday, and sickness.

Related Terminology:

(Also see Hours Bought)



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