12 May

3 Questions to Help You Understand Your Dealership’s Health

Dealership health header

How do you measure whether your dealership is healthy?

Is it based on your inventory levels, the appearance of your dealership, or how your employees are doing? These are all good indicators of your dealership’s health. But, the most important factor is if your dealership is balanced.

1. What numbers should I be looking at for my dealership’s health?

The numbers that indicate your dealership’s health are found in your profit/loss or income statement. They can also be found in your business management software. The numbers we want to look at then are referred to as “balance” – is your dealership in balance?

Other industries talk about this in terms of absorption. They want to know that 100% of the dealership’s expenses can be taken care of by the parts and service department. This is effective for dealerships that have consistent seasonality. But, in the OPE world, seasonality is a real thing and we can’t keep every department busy all the time.

2. How do I know if my dealership is “in balance”?

First, look at your profit and loss or income statement from the last year. You want to find out what percentage of revenue is coming from each department. Based on the information, you can find out if your dealership is in balance.

Here’s the breakdown of revenue for most dealerships:

revenue breakdown for most dealerships

3. What revenue numbers should my dealership aim for?

This is a good strategy if you can get inventory consistently. However, you must make sure that even if one of the departments fail to produce any revenue for any reason, such as supply chain issues, the other two departments can still sustain the dealership.

The revenue goals for your dealership’s departments are as follows:

revenue breakdown for dealership balance

When you’re in this range, the same amount of gross revenue, on average, comes from each department. That means that if suddenly you were to lose all 25% of your parts, you would still have the same gross revenue coming from both service and whole goods.

The same is true if you were to lose all your whole goods inventory and you could only rely on your parts and service. If you are in balance, you can rely just on those two – parts and service – to generate the revenue you need.

True dealership health takes time

The balance doesn’t happen by accident, and it doesn’t happen quickly. But, it is an effective way of understanding your dealership’s health. In fact, most dealerships that move from a place of imbalance to balance can take two to three years to truly get there – even with a lot of strategic planning.

But once you’re in a place of balance, you know that regardless of what happens in and around your dealership, you will be able to withstand just about anything.

Want more expert tips from Sara on how to increase revenue and grow your dealership? Check out her vlog series: Earn More Revenue Using Your Dealership Management Software