10 Inventory Metrics Your Dealership Should Track
Just like much of our lives, everything about car buying and selling is shifting significantly into the digital space. Dealers can now rely on a wealth of information at their fingertips to make better-educated decisions about their inventory and competition.
Even if you’re experienced with the analytical side of your dealership, all of the key performance indicators (KPI) can be overwhelming. To provide some respite from data overload, here are several inventory metrics your DMS should be tracking.
- Aged Wholesale Loss Per Vehicle
- Appraisal-To-Trade Ratio
- Cost To Market
- Gross Return On Investment
- Immediate Wholesale Volume
- Immediate Wholesale Profit/Loss Per Vehicles
- Inventory Turn Rate
- Mechanical And Cosmetic Reconditioning Time
- Vehicle Demand VS. Inventory
- Used-To-New Ratio
Aged Wholesale Loss Per Vehicle
Vehicles that get wholesaled after attempted retail create aged wholesale losses. Vehicles that were reconditioned before being wholesaled are more likely to lose money than vehicles that were wholesaled outright.
You want to identify these vehicles, set a KPI, and isolate which ones are costing your dealership. This way, you can focus on getting them off your lot and prevent future losses.
The appraisal-to-trade ratio is the ratio of all vehicles appraised to the number of vehicles traded. For dealerships, your individual appraisers and salespeople are ideal for tracking this metric.
By knowing your appraisal-to-trade ratio, your dealership can measure how your used-car department aids your new-car division. Dealerships that appraise vehicles early in a sale usually show lower ratios as early appraisals invite more trade opportunities.
Cost To Market
Cost to Market compares the retail value of a vehicle to your dealership’s total investment in that vehicle. That means tallying acquisition cost, reconditioning expense, the price of transportation, pack, etc.
Truly efficient dealers minimize costs to empower inventory acquisition. By narrowing (not cutting) costs and bringing in high-value inventory, your dealership can make the most of your inventory.
Gross Return on Investment
Gross Return on Investment (GROI) equates to the percentage of the sale multiplied by turn rate. Cox Automotive shares this example, “a $10,000 vehicle generates a $1,000 profit for a
10 percent gross as a percent of the sale.”
For a vehicle to make financial sense, you want to shoot for a GROI of 120. So, as per the previous example, ideally, you’d want to turn that vehicle over in less than a month (which is why age is such an important metric to keep track of). This example can also be extended to the rest of your inventory. If you want a high GROI, you want to bring in vehicles you can sell fast, and track how they perform on your lot.
Immediate Wholesale Volume
If you’re looking for ways to keep trades, this is where your immediate wholesale inventory comes in. Dealers should discount the recon rates for older inventory with few to no packs. Keeping your wholesale under 33% is ideal.
Immediate Wholesale Profit/Loss Per Vehicle
With that Immediate Wholesale volume, your dealership should strive to keep the profit/loss per vehicle to a minimum — no less than $150. This suggests that appraisers are making accurate assessment and limits pack and inventory adjustments. Keep a close eye on your appraisal-to-trade ratio, as it will imitate your wholesale performance.
Inventory Turn Rate
This is your dealership’s total in-stock inventory compared to your team’s monthly sales. An inventory turn rate of 12 is a worthy goal — 16 is exceptional. The most successful dealerships turn inventory every 20 days.
Improving your dealership’s turn rate rests on the efficiency of the combined dealership departments. Fast turn rates on fresh inventory will improve GROI across your dealership.
Mechanical and Cosmetic Reconditioning Time
When it comes to reconditioning, time is of the essence. The longer a car spends in the shop, the less time it’s on the lot. While reconditioning can increase the value, lose too much time, and it’ll all be for naught.
Pro Tip: Older vehicles usually require the highest reconditioning costs. Try reducing the rates for vehicles five years or older to limit the tension reconditioning time will put on the sale.
Vehicle Demand vs. Inventory
Every vehicle has its ideal window for maximizing its ROI. By tracking a vehicle’s market value and demand, your dealership can calculate the optimal selling window. This data should also inform your appraisal process and inventory sourcing.
Tracking what vehicles receive a lot of attention on your website is a great indicator of demand. These are the vehicles you should be selling and bringing onto your lot.
For used-vehicle departments, a used-to-new vehicle ratio above one is outstanding, especially if the dealership is meeting its goal of new vehicle volume. Managing your inventory and tracking your dealership’s used-to-new ratio is crucial for the success of your dealership.
Thanks to increasing profitability for used vehicles, there’s less pressure to push new vehicles out the door without harming the success of your dealership.
Get Even More Data
Dealers are tasked with managing more data than ever before. By monitoring these inventory metrics, your dealership should be more profitable.
If you’re interested in more inventory data, check out Dealer Specialties’ inventory management software, VinMotion. Otherwise, feel free to share any valuable inventory metrics you think we missed in the comments below.
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