Spotlighting Performance: How KPIs Can Keep Your Store on Track
Every dealership owner wants to know how his or her store is doing each month of the year — if not each day of the year. An objective and effective way to measure operational performance is by establishing key performance indicators (KPIs) and following them closely.
Design your dashboard
KPIs are concrete measurements of your dealership’s financial performance that can be used to gauge progress toward goals. Using KPIs enables your dealership to engage in the practice of “dashboarding.” In other words, you’ll select a handful of KPIs that you’ll continually measure and monitor against benchmarks.
Your dashboard should include KPIs for the overall dealership as well as those broken out for sales, F&I, parts and service. Some typical dealership KPIs, along with sample industry benchmarks, include:
• Total gross profits per employee per month ($7,500–$9,500),
• Net advertising per retail unit sold ($220–$275),
• F&I gross per vehicle sold (more than $850),
• Total service labor sales per repair order (greater than $125),
• Parts department gross as a percentage of dealership sales (more than 15%),
• New to used vehicle sales ratio (1:1),
• Days supply of new vehicle inventory (less than 60 days),
• Service and maintenance contract penetration (more than 65%),
• Return on assets (10%–15%), and
• Retail units sold per administrative staff per month (15–20).
There are literally dozens of different dealership KPIs, so no two dealership dashboards will look identical. Each dealer needs to determine which KPIs are the most important to him or her.
Involve your management team
So how do you decide which KPIs to focus on? Start by bringing together your managers and asking them to identify the most important success factors in their respective departments.
For instance, in new and used car sales, components of success might be keeping enough of the right kinds of vehicles in stock and monitoring the aging of your vehicle inventory. You might also want to track how well you’re retaining your sales staff, getting a good return on your advertising dollars, reaching a certain market share or improving customer satisfaction scores.
When it comes to finance and insurance, success factors might include educating customers about the benefits of your products and maximizing the percentage of vehicle sales in which these products are sold. Meanwhile, in parts and service, keys to success might be improved absorption, reduced parts aging and increased dollars per repair order.
Once you and your managers have identified the critical success factors for each area of your dealership, and your dealership in general, it’ll be easier to choose the KPIs that can best help you gauge your progress.
Stack up against your peers
KPIs have limited value if they’re viewed in isolation. Suppose, for example, that your monthly gross profit per employee (another common dealership KPI) is $6,000. Is this good or bad? You have no way of knowing unless you compare it to benchmarks — either prior performance periods (such as the same month last year) or industry standards.
You can obtain common industry benchmarks from the National Automobile Dealers Association, an automotive Dealer 20 group, or state or local dealer associations. Also check with your CPA — he or she also may be able to provide numbers you can use for benchmarking purposes.
An ongoing report card
KPIs provide a snapshot of your dealership at a particular point in time. When gathered regularly, they can become an ongoing report card on its progress, which allows you and your management team to make appropriate decisions to keep your business on track.