Dealer Newsletter - February 2010 |
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Numbers that you need to know!Accounts to Break Even: This is the number of accounts it takes to pay all of your expenses and purchase replacement inventory. If you’re a new startup, this is the number of accounts you want to reach as quickly as possible. If you’re a mature dealer, this would be the number of accounts to stay above. The further above this figure, the quicker you can payoff your debt or fill the coffers for the rainy days. The formula for this important figure is really quite simple. Inventory Replacement + Total Expenses / Average Monthly Payment = Breakeven Accounts To calculate the total for inventory replacement, you would multiply your average CID (cash-in-deal) by the average number of units sold. If your average CID is $2000 and you sell an average of 15 units per month, the total for inventory replacement would be $30,000. The calculation for total expenses is fairly self explanatory. It is the total of all your personnel, fixed and semi-fixed cost, such as rent, payroll, advertising, loan payments, taxes, etc. It does not include cost of sales or charge-off figures. If your total expenses are $15,000 per month and your inventory replacement cost is $30,000, you need to cover $45,000 from your regular car payments (down payments are taken into consideration with the inventory replacement). For the next step, you will need to know your customer’s average payment on a monthly basis. For example, if your customer’s average weekly payment is $85, your monthly equivalent would be 4.33 times $85 or $368 (bi-weekly is 2.17 times and semi monthly is 2 times). Based on this example, the total for Inventory Replacement and Total Expenses equals $45,000. Divide $45,000 by your average monthly payment of $368 and your break even number is 122 accounts. If you don’t know your number of accounts to break even, I strongly encourage you to calculate it now. If you can't inspect it, you can't track it. If you can't track it, there is no accountability. No accountability also means no motivation. No motivation means no reasons to change. Don’t expect what you can't inspect. Your data is like gold. Mine it often. |