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Increasing your bottom line: Why I don’t look at the average gross profit?

Increasing your bottom line: Why I don’t look at the average gross profit?

1 minutes 40 seconds read.

You are trying to analyze the performance of your new and Pre-Owned vehicle departments, and you probably have handy the “Average Gross Profit per unit sold”. You know and track this number every month.

How this is useful to improve the profits in your dealership?

It is not usually useful for improving your profit.

Here is why: It is just an average of the profits of each department

(New and Pre-Owned). But in every department there are vehicles that are highly profitable and others that are not profitable (or even produce losses, particularly in the Pre-Owned department).

Tracking the average, just show how your dealership did on average. But it does not help you to improve this situation.

It is like the man with one feet inside a bucket of hot water and the other feet inside a bucket of cold water, when asked how the temperature of the water is. His reply is: “room temperature”

We really need to look at the New and Pre-owned sales log, include the demos, to analyze the profitable units (and focus on these vehicles) particularly useful in the Pre-owned department, where you can choose freely what vehicles to stock. And also on the low profit (or losers) and minimize or avoid future purchases or pricing, reconditioning, whatever caused the loss.

Avoiding this analysis or just using the “Pre-Owned” reserve (if you have one) to cover the losses, will not increase your ability to increase your profit going forward.

A sincere analysis and having a meeting to decide new targets and focuses can start the path to higher profit.

This is what can create more profit in your dealership, and we can help with this.

Have your dealership situation reviewed. We have experience helping dozens of dealerships improving their inventory, floor plan and profit management. Contact us to get your free evaluation.

Gabriel Krozkin, CPA, GGA is a nicknamed “problem solver” specialized in car dealerships. He has experience improving profitability, offering consultation services, accounting and audit services. He can be contacted at info@krozkin.ca

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