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When you’re running a dealership, business expenses are always going to be there—but it’s up to you to determine how much you’re willing to spend.
Peter has a reputation around town as a savvy dealership business owner. He’s the top-selling auto dealer in his county, is known for his inventory of high-demand vehicles, and the customer service scores for his employees are off the charts. In addition to that, he spends a pretty penny on all types of advertising and has become a bit of a local legend for his one-of-a-kind television commercials.
From the outside, Peter appears to be doing everything right. He’s the envy of other local dealership owners; they all wonder what he’s doing to make so much money.
The truth? Peter’s profits are abysmal. He wants only the best for his dealership business—the best cars, employees, advertising—and he’s willing to spend big money to make that happen. Unfortunately, he’s spending too much, and his expenses aren’t in sync with his gross profits.
He likes to reason that, “You gotta spend money to make money!” but he has to get a grip on his expenses before his business implodes.
Your situation may not be as dire as Peter’s, but if you think there’s room to trim your dealership costs, you’re probably right. Even if you think your input versus output is a well-oiled machine, it’s certainly worth your time to look at your books and see where you may be able to reduce your expenses–you could be very surprised.
Where to start making your dealership business more profitable
“Someone in your organization has to get into the weeds with your expenses…if not, you are clearly leaving as much as 25% on the table day after day, week after week, month after month, and year after year,” writes Doug Austin, founder and President of StrategicSource, Inc.
First, look at a month-by-month income statement for the last year of business. This spreadsheet will allow you to compare your sales, cost of sales, gross profits, and expenses. Do you notice any trends?
Now, you’re going to want to start digging deep into your expenses. These costs should be separated into two different groups because not all expenses are created equal. You’ll have:
Variable expenses
Expenses directly related to sales and inventory carrying costs. These should change proportionately to your sales and gross profits.
Types of variable expenses may include floor plan interest, demo expense, delivery expense, advertising, personnel, employee benefits, absentee wages.
Fixed expenses
These expenses remain pretty consistent month after month.
Types of fixed expenses include office and shop supplies, credit card interest, legal, postage, repairs and maintenance, insurance, utilities.
Once you’ve narrowed down your expenses for the last year, don’t just skim over the numbers to see if everything “looks good.” You need to take each category, one by one, and evaluate the money that was spent and why. If you’ve never done this before, you’re probably going to find a lot of areas that you could easily reduce without affecting your normal flow of business.
Dealership business expense categories with room to trim
Where you ultimately choose to reduce costs will depend on your individual dealership, but here are some common areas where others may cut back:
Advertising
Advertising is essential when you’re running a dealership, but it needs strategic management. You can’t just throw money into commercials, print ads, and pay-per-click ads without also measuring results and ROI. You love producing your TV commercials, but you may find that the numbers aren’t adding up and they simply aren’t bringing in the amount of business they need to.
Personnel
Don’t go firing anyone, but an easy area to save money is by watching how much overtime your employees are clocking. Have management sign off on all overtime before it goes to payroll. Also, be smart about who you hire. Dealerships tend to have a lot of turnover, and that gets expensive–try to minimize that as much as possible by taking the time to hire the right people.
Office and shop supplies
How can you reduce the cost of supplies if you need them to do business? Two simple ways are to shop around for discounts and keep supplies locked up at all times–appoint specific employees to be keyholders. Employees can sometimes get sticky fingers, especially when it comes to office supplies–“who’s going to miss an envelope?!”–but the costs add up over time and can impact your bottom line.
Inventory
Those used cars sitting on your lot cost you money every single day. A 60-day rule on your lot could help (though it should preferably be 30 days) so your inventory keeps moving, but your money doesn’t.
You’re going to find that by taking the time to review your expenses and tightening the purse strings a little, your dealership business profits will vastly improve without too much effort.
Want turn-by-turn navigation for finding and evaluating an automotive CRM? Download our guide, called Choosing the Right Automotive CRM. It’s full of tips and tricks that you can use to select the right one for your dealership. Written by Howard Leavitt – a former car dealer with over 30 years of industry experience.
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