360Growth! Learning

Target Related Bonus

Bonuses Received for Target Achievement

Guideline: Franchise Specific

Description:

If your dealership is part of a franchise dealer network, then it is usual business practise for that franchise to set vehicle sales targets. When you achieve these targets, the franschise manufacturer pays a bonus.

The amount of bonus paid by each manufacturer varies considerably, but the thing that you should keep in mind is this. When do you show this bonus payment within your reports?

Some dealers show the bonus in the period within which it has been earned and other dealers show this bonus when they actually receive payment, the difference could be two months apart.

Example:

Discussion:

The variance across this method of accounting causes a sizable distortion in profitability. Some franchise manufacturers are now informing their dealers to enter bonus payments at a specific time so that these distortions are eradicated and composite reports are more meaningful.

When comparing your profitability with another dealer, it is always worth establishing how and when this element of bonus is allocated.

Related Terminology:

Total Parts Stock Turn

Annualised Parts Purchases ÷ Stock Value

Guideline: Franchise Specific

Description:

When you are interested in making your money work for you, then there are two Key Performance Indicators relating to Stock Turn for you to measure: this one and True Parts Stock Turn.

It is vitally important that you understand the difference between the two KPI as they tell you very different things about your business. The calculation for Total Parts Stock Turn is the Annualised Parts Purchases divided by the value of total Parts Stock.

Example:

A) Annualised Parts Purchases = R695,688
B) Parts Stock Value (at cost price) = R115,948
C) Total Parts Stock Turn (per year) = 6 (A ÷ B)

Discussion:

This is a useful trend to measure, but it can be misleading. The assumption is that this KPI tells you how many times that your Parts Stock is turned over each year, whereas in reality this is not the case. This is because the total Parts Sales include sales from parts ordered on V.O.R, which are not sales from stock.

Special note:
Total Parts Stock Turn is the KPI that is shown on most reports. When you want to measure how effectively your parts stock is being utilised then you need to measure True Parts Stock Turn.

Related Terminology:

True Parts Stock Turn (Version 1)

Annualised Stock Purchases ÷ Stock Value

Guideline: Franchise Specific

Description:

This is the KPI that is the most valuable, useful and trustworthy when you want to measure how effective your Parts Stock is being utilised.

The calculation for True Parts Stock Turn only assesses the parts purchases for stock and excludes all parts that are purchased on a V.O.R. or E.O. basis.

This KPI provides you with the true effectiveness of your Parts Stock. Quite simply, the faster your True Parts Stock Turn, the less investment is required in your stock and the more profit you will retain as a result.

Example:

A) Annualised Stock Purchases = R486,982
B) Annualised V.O.R. Purchases = Ignore
C) Parts Stock Value (at cost price) = R115,948
D) True Parts Stock Turn (per year) = 4.2 (A ÷ C)

Discussion:

Your franchise manufacturer usually provides this information to your Parts Department on a monthly basis. However, you may need to calculate the True Parts Stock Turn yourself as this is seldom shown.

Related Terminology:

True Parts Stock Turn (Version 2)

Annualised Sales from stock (at cost price) ÷ Stock Value

Guideline: Franchise Specific

Description:

This version differs from version 1 on the previous page because it measures the parts that have been sold (at purchase price) rather than the parts that have simply been purchased for stock and is therefore a more accurate result.

The calculation still assesses the parts purchases for stock and excludes all parts that are purchased on a V.O.R. or E.O. basis.

Example:

A) Annualised Sales (at cost price) - R706,112
B) Annual V.O.R Sales (at cost price) = Ignore
C) Parts Stock Value (at cost price) = R156,913
D) True Parts Stock Turn (per year) = 4.5 (A ÷ C)

If you are unable to obtain the purchase price of your sales, you could calculate it by using this method:

A) Annualised Sales from stock = R861,456
B) Annualised V.O.R Sales = Ignore
C) GP on Sales from stock = R155,344
D) Cost price of Sales from stock = R706,112 (A - C)
E) Parts Stock Value = R156,913
F) True Parts Stock Turn = 4.5 (D ÷ E)

This example is the most accurate of all as it captures the exact sales and the purchases made for those sales.

Discussion:

Related Terminology: