How to Reach 30% Net Profit

I’ve been asked to work with a dealer group, and when I asked what they would like to cover during the presentation, the response was: “Let’s discuss how we get to 30% net-to-gross.” 

While that may not be your ultimate destination, getting there will separate you from the pack and help you and your organization explore your capabilities.

Having had the opportunity to work with and learn from hundreds of successful dealers, I will share what I’ve witnessed and learned from them. Accountability plays a big part.

If asked to give one common characteristic that 30%-net-to-gross dealers share, it is the fact that their organizations are process-driven. These internal processes are thought-out, consistent and all employees are expected to adhere to them.   

The easy part is that these dealerships consistently produce gross. As simple as this sounds, there certainly is more to it. 

These high-performing organizations generally have a lower-than-industry employee-turnover rate. That equates to higher gross profits.

Ford’s operating report has a section that tracks dealership salesperson and service adviser tenure. Many times in my career, I’ve monitored Ford dealer clients with the longest tenure of employees and, not surprisingly, they also were the most profitable.     

Of course, if we want our bottom line to be 30%, then our expense budget cannot exceed 70% of our total gross. 

If 70% is our expense budget, it is important that each expense category, (variable/selling expenses, semi-fixed/operating and fixed/overhead) is assigned a budget in total. For example, if your selling expense budget is 32% of your total dealership gross, then only 38% remains to cover the other expense categories.  Within these categories, each individual expense, such as salespeople’s compensation, is assigned a budget, which is managed and monitored monthly. 

Since personnel expense, including taxes and benefits, is our largest expense, it is important to structure your dealership for gross while minimizing this expense as a percentage of gross. 

I’m not suggesting you cut your personnel’s pay. Far from it. I don’t care what the dollar amount of your personnel expense is, as long as its percentage remains in line.   

An important measurement is your percentage of your revenue-producing personnel as a percentage of your total personnel count.  At absolute minimum, 55% of your total personnel should be productive. 

Productive personnel are your variable sales personnel, F&I producers, service advisors and body shop estimators, technicians and retail and wholesale parts sales personnel.  In many dealerships, vehicle-detail personnel are classified as productive.

As we all know, our monthly gross is not consistent, but it’s important that our expenses as a percentage of that gross does remain consistent. 

Far too many times, I see cases where dealerships have, for example, increased their gross 5% over the previous years while their expenses may have increased by 6% or 7%. 

The questions then become, where have we dropped the ball and what steps do we take to correct this situation?

Following is a bullet point list of common characteristics I have found 30% net to gross dealers share:

This list is not all-inclusive, but I hope it helps you achieve membership in this elite club.

Good selling!

Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com.