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Advertising Cost per Unit Sold

Money Spent on Advertising ÷ Units Sold

Guideline: Own Policy

Description:

This KPI is useful for ascertaining your advertising budget for retail sales, based on your sales objectives and should not be used to judge advertising effectiveness.

Example:

A) Money Spent on Advertising = R84,201
B) Units sold = 663
C) R Advertising per Unit Sold = R127 (A ÷ B)

Discussion:

This statistic is influenced by many factors, not least of which being the selling skills of your sales team. You could produce a fantastic advertisement that produces lots of enquiries and for one reason or another your sales team fails to convert them into sales.

This result would generate a high advertising spend per unit sold which could lead you to the false conclusion that you are spending too much on advertising

Related Terminology:

Adopted Stock

Fully Paid New Vehicle Stock

Benchmark: 0

Description:

Most new vehicle stock is supplied to a dealer from a franchise manufacturer on a consignment basis. This means that when new vehicles are delivered, the dealer usually pays the interest charges or stocking charges as they are more commonly known.

Example:

After an defined period (typically 120 days) the new vehicles have to be adopted by the dealer, or in other words, the dealer must pay for the vehicles in full.

Discussion:

Before reaching the point of adoption, when a dealer sells a vehicle, the consignment agreement stipulates that the vehicle must be paid for at the point of registration. Therefore new vehicle stock is paid in full in one of two scenarios.

1) When the vehicles are registered
2) When they reach the end of their consignment period

When vehicles reach the end of their consignment period they become Adopted Stock. The worst scenario that can happen is to be adopting vehicles because it absorbs huge amounts of money, which in turn prevents activity in other areas of your business.

Related Terminology:

Annualised Sales

Projected Annual Sales Volume

Guideline: Own Policy

Description:

This is a theoretical figure that provides you with the Sales volume that you will achieve at the end of the financial year, if nothing changed. That means that you will have to maintain your sales performance, thus meaning that environmental factors will not change dramatically, supply rate stays the same, etc.

Example:

The formula uses the year-to-date sales volume figure, multiply it by twelve (months in a year) and divide it by the number of months which the year-to-date figure represents.

Let's say your financial year runs from January, it is now May, and you want to determine the annualised sales volume figure.

You sold the following number of Units in each month:

January = 46

February = 51

March = 57

April = 63

May = 49

Year-to-Date = 266

Multiply by 12 = 3192

Divide by the number of months which the year-to-date figure represents

It is Divide by 5 = 638.4 this year

Discussion:

This number is often used in many KPI calculations. It represents merely a projection of your annual sales based on your current performance, in the current trading conditions.

Related Terminology:

Annualised Sales per Salesperson

% Value of Stock Over 90 Days

Value of Stock Over 90 days ÷ Stock Value (x100)

Benchmark: <10% of Stock Value

Description:

This KPI takes the total value of your used vehicle stock, and then states the collective value of the vehicles that are over 90 days old as a percentage of the total value.

Example:

If you have R250.000 invested in used vehicles, how much of this money is invested in vehicles that have been in stock for more than 90 days?

A) Value of Stock Over 90 Days = R17,500
B) Value of Total Used Stock = R250,500
C) % of Funds Over 90 days = 7% (A ÷ B X 100)

Discussion:

The example above illustrates that 7% of the money that is invested in used vehicle stock is currently invested in used vehicles that have been in stock for more than 90 days. What the KPI does not tell you is how much longer than 90 days has the investment been there.

This is a very useful trend to assess because it measures the ability to manage the money that is invested in used vehicle stock as opposed to the units themselves.

Related Terminology:

Annualised Sales per Salesperson

Annualised Unit Sales ÷ Number of Sales People

Baseline: >150 Units Per Annum

Description:

It is generally accepted that a newcomer to the industry will sell around 150 units per annum and a good, well established Salesperson will sell in excess of 200 units per annum with average performers anywhere between the two.

This KPI simply measures the average numbers of units a Salesperson sells in 1 year.

Example:

A) Annualised Sales = 945
B) Number of Salespeople = 5
C) Sales per Salesperson = 189 (A ÷ B)

Discussion:

This statistic provides you with your average sales team performance and you may wish to conduct the same formula for each member of the team to accurately assess the strengths and weaknesses. To achieve this result, see Annualised Sales, do the calculation for each Salesperson, and there you have it.

Related Terminology:

Average Selling Price

Sales Value of Units Sold ÷ Number of Units Sold

Guideline: Own Policy

Description:

This KPI applies to both new and used vehicles and provides you with your average selling price of the vehicles that you have sold.

This statistic is usually provided for you on your franchise manufacturers composite reports and shows the average selling price for new and used vehicles separately.

Example:

A) Invoice value of vehicles sold = R11,776,590
B) Number of units sold = 945
C) Average Selling Price = R12,462 (A ÷ B)

Discussion:

It is useful for establishing your funding requirements in stock when you are putting together your budgets and business plans.

It is also useful in the assessment of your stock profiling exercises for used vehicles whilst your figures for the new vehicles will be heavily influenced by your fleet sales activity and your customer profile.

Related Terminology:

Cost of Overage Stock (Used Vehicles)

Days in stock ÷ Days Stock Turn x GP per Unit

Benchmark: <Gross Profit per Unit x 2

Description:

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.

Related Terminology:

Days Supply (New Vehicles)

Days in Period ÷ Sales:Stock Ratio

Guideline: Franchise Specific

Description:

This KPI aims to calculate how many days of new vehicle supply you currently have in stock.

Example:

A) Days in Period = 90
B) Units Sold = 39
C) Units in Stock = 21
D) Sales:Stock Ratio = 1.86 (B ÷ C)
E) Days Supply = 48 days (A ÷ D)

This illustration is showing that if you carry on selling at your current Sales:Stock ratio, then you have enough stock to continue trading for 48 days.

Discussion:

Vehicle supply varies considerably between franchise manufacturers, which is the main influence on this KPI.

Related Terminology:

Days Supply (Used Vehicles)

365 ÷ Stock Turn (Annual)

Baseline: <45 Days

Description:

This KPI aims to calculate how many days of vehicle supply you are currently working with.

Example:

A) Number of days in 1 year = 365
B) Annual Stock Turn = 10.4
C) Days Supply = 35 days (A ÷ B)

This illustration is showing that if you carry on selling at your current sales rate, then you have enough stock to continue trading for 35 days.

Obviously, you do not need to carry any more stock than is absolutely necessary because that would be a total waste of your money.

Discussion:

When dealing with used vehicles, you need to read this page in conjunction with Stock Turn to determine the performance that you require.

Related Terminology:

Departmental Expenses (Sales Department)

Departmental Expenses ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Typically, Departmental Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R133,778
B) Semi-Fixed Expenses = R280,326
C) Departmental Expenses = R414,104 (A + B)
D) Department Turnover = R7,432,165
E) Vehicles Sold = 784
F) Total Expenses p/unit = R526 (C ÷ E)
G) Departmental Expense % = 3.7% (C ÷ D X 100)

Discussion:

Keeping control of Departmental Expenses can be a difficult task unless you fully understand the difference between Variable expenses and Semi-Fixed Expenses.

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

Departmental Profit % (Sales Department)

Departmental Profit ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

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

Discussion:

Related Terminology:

Direct Expenses (Sales Department)

Direct Expenses ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Typically, Direct Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Keeping control of Direct Expenses can be a difficult task unless you fully understand the difference between Varaible Expenses and Semi-Fixed Expenses.

Example:

A) Variable Expenses = R133,778
B) Semi-Fixed Expenses = R280,326
C) Direct Expenses = R414,104 (A + B)
D) Department Turnover = R7,432,165
E) Vehicles Sold = 784
F) Total Expenses p/unit = R526 (C ÷ E)
G) Direct Expense % = 3.7% (C ÷ D X 100)

Discussion:

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

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:

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

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:

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)

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:

Lost Opportunity Costs (Used Vehicles)

Days in Stock ÷ Days Stock Turn x GP per Unit

Benchmark: <Gross Profit per Unit x 2

Description:

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.

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.

Example:

A) Actual Days in Stock = 87
B) Current Stock Turn = 35 Days
C) Failed to sell = 2.49 times (A ÷ B)
D) Average Gross Profit = R1,500
E) Lost Opportunity Cost = R3,735 (C X D)

Discussion:

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 therefore the profit opportunity of R3,735 has been lost.

Related Terminology:

New: Used Retail Ratio

New Retail Units Sold ÷ Used Retail Units Sold

Benchmark: <1:1

Description:

This KPI Is specifically for retail vehicles and excludes all fleet sales. The statistic establishes the relationship between the number of new vehicles that you retail and the number of used vehicles that you retail.

The example below shows that for every used vehicle that you retail, you sell 0.57 new retail vehicles. take the time to understand what you are reading on your reports as some manufacturers calculate this ratio in reverse. (Used: New)

Example:

A) New Retail Sales = 548
B) Used Retail Sales = 960
C) New: Used Retail Ratio = 0.57:1 (A ÷ B)

Discussion:

It is not possible to provide an industry benchmark for this performance as it is influenced by the franchise that you operate, your overall trading strategy, the ability of the Sales Manager and the sales team.

Related Terminology:

Operating Profit % (Sales Department)

Operating Profit ÷ Department Turnover (x100)

Guideline: Franchise Specific

Description:

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

Discussion:

Related Terminology:

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