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Welcome to NCM's Up to Speed Blog

The Importance of Proper Self-Evaluation for Dealers

Written By: NCM Associates Staff
Posted on March 12, 2020

If you were to go out and hire an outside consulting firm to look at your dealership, how do you think most would approach your store? From my own experience, the most common method is generally broken down in three parts.

  1. Examine all the expenses

  2. Look at the processes that drive gross production

  3. Scrutinize your marketing efforts

Unfortunately, when most GMs and Dealers want to evaluate their store, most start with number three. Today, I’m going to walk you through how I would evaluate my own store and highlight areas to examine if you want to improve gross.

Self-Evaluate Your Store the Right Way

#1: Expenses

Why start with expenses? Well, if you save a dollar in an expense, you add a dollar to the net. It is a direct one-to-one ratio. Start by breaking out every expense in the store, and gather up your team to look at each expense to determine if the money you're spending has a true benefit to the store’s health.

In particular, look at all the programs and subscriptions you pay monthly. Are any of these redundant, do they overlap, or could you possibly live without them? Are your people even using them? There is no need to cut a software if it delivers value to your store, but many times we are double dipping on software that does the same thing as a product we already use.

Next, determine how much in sales you need to generate to break even on a given expense. If your managers don’t know this formula, I’m happy to help break that down.  

Take the amount of the expense and divide it by your current net-to-sales percentage. This will show you how much you need to generate in total sales to break even on the expense.

Example: The dealership’s current net-to-sales is 2% and I have determined there is an expense of $3,000.

To get our break-even, divide $3,000 by 2% to get $150,000. Meaning, it would take $150,000 in sales to breakeven on a $3,000 expense.

We all know we cannot necessarily expense our way into a profit, but next time your managers are approached by a vendor claiming that the cost of a program is equal to only one car sale, have them do the math. The same goes for things like parts shrink, overtime, and even down to the toilet paper. Your expenses add up quickly if you let them.

#2: Processes That Drive Gross

The second area we want to break out is gross production. Hot or cold product not withstanding gross is always a product of process. Examine every gross producing area in the dealership and evaluate if you have the best process in place. Whether it be the service drive, the showroom, or your website, do you have a process in place for selling your products the way that people want to buy them? Make sure you know how fast you can complete a transaction in your store, how all the products you sell are presented to the customer, and if your staffing and pay plans support your processes.

Take the time to stand in front of a white board with your staff and lay out every process. Give them an opportunity for input, get buy-in on what you want to accomplish and determine how it is going to happen. If you install a new process, make sure you test it, refine it, and always be open to change.

#3: Marketing

Only after you have completed the first two steps can you finally look at your marketing efforts. The first test for marketing refers to step one: how much in sales do I need to generate to break even on this spend? Is this campaign targeted? How are we tracking it? Do I have someone on staff that can deep dive into google analytics? Who makes the decision on pricing? Are we making decisions based on data or feel? How involved are you in the community?

After you complete the first two steps of your evaluation, tackling the marketing piece becomes much easier. That’s why I suggest dealers take the time to look at these three areas in this specific order. It may not guarantee success, but it will at the very least plug up some of the holes in the leaky bucket we call our dealership. 

Success doesn’t always happen alone and finding all the right opportunities for your store can take an outside perspective. If you are in the process of needing a self-evaluation, our automotive experts can help you get started.

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