Tried-and-True Metrics are Always of Value

April 19, 2019

The use of metrics is an objective way to measure your dealership’s performance. Well-devised, and accurately collected, analytics can reveal the realities of your business in black and white. The following are three established metrics that can be a useful record of your dealership’s health.

1. Return on assets

A quick litmus test of performance is your dealership’s return on assets (ROA). It’s made up of two components. First, operating efficiency is measured with the profit margin ratio. This equals net income divided by sales. To improve profits — and, therefore, ROA — dealers can either increase sales or decrease costs.

Another way to try to improve ROA is to generate more sales for each dollar invested in assets without increasing expenses. Asset utilization is measured in terms of the total asset turnover ratio, which equals sales divided by total assets. For example, a total asset turnover of 1.3 means that, for each dollar invested in assets, the dealer generates $1.30 of sales. Assuming the additional sales are higher than the expenses needed to generate the sales, your ROA will increase.

In general, there’s a tradeoff between operating efficiency and asset utilization. To illustrate, luxury dealers might earn a higher profit margin per vehicle, but they generally turn inventory slower than economy car dealers.

DuPont analysis, developed by the DuPont Corporation in the 1920s, provides a methodical approach to improving ROA. Dealers who think in these terms are better able to brainstorm specific action plans.

Cost cutting isn’t the only way to make more money. Other options include selling more cars, carrying less parts and vehicle inventory, adding service hours, or divesting underused equipment and facilities.

2. Customer service index

No dealership’s self-evaluation would be complete without addressing the customer service index (CSI). Successful dealers value their customers. High service ratings equate with goodwill and repeat business.

Industry analysts evaluate customer satisfaction. For example, J.D. Power and Associates computes CSI by surveying five measures during the first three years of vehicle ownership: service quality, service initiation, service advisor, service facility and vehicle pick-up. Scores are reported on a 1,000-point scale (the higher the score, the better).

Manufacturers pay close attention to CSI — and will let you know if you receive an unfavorable survey. Find out where your dealership stands. If you’re not an industry leader, train your staff on ways to cater to customer needs. Make customer satisfaction a top priority.

3. Employee productivity levels

If employees are an asset, what’s your return on hiring and retaining them? You invest a lot of money on each employee — salaries, benefits and training — and everyone should contribute to the bottom line.

For example, each salesperson should have a minimum monthly sales goal, and every technician should achieve a certain number of chargeable hours. Even the F&I manager should have, say, an extended warranty sales goal each week. And these goals should be monitored.

Communicate your expectations and help rookies learn the ropes. Those who fail to carry their weight after sufficient training and performance feedback may not be worth their expense. No one wants to hand out pink slips, but it’s an unavoidable part of running a successful business.

Making the grade

Here’s an idea to spotlight your dealership’s performance. After you collect the above metrics at three-month intervals, distribute quarterly “report cards” to your management team. These reports can serve as the springboard for continuous-improvement discussions.

Have each department set and monitor specific goals aimed at improving ROA, customer satisfaction and productivity. Include both short- and long-term expectations in your action plan. Reward strong performance and encourage teamwork.

Share the news

Traditional metrics can let your managers, and all employees, know how their departments, and your dealership in general, have performed. Spread that information and act accordingly.

© 2019