car dealership high inventory turn benefits

#CAR DEALERSHIP HIGH INVENTORY TURN BENEFITS HOW TO#

Deepen Your Knowledge of Your Customer Base If you’re seeking inspiration and creative approaches, these tips will serve you well in improving your car dealership inventory turnover ratio. Accomplishing this involves many tactics and best practices. Your primary objective is to increase sales and enhance the customer experience. Tips to Improve Your Inventory Turnover Ratio If your inventory turn rate is lower than this benchmark, you should develop a strategy to drive more sales with innovative and fresh ideas. The gold standard is 12 turns, which translates to holding 30 days of inventory. Finding your ideal number will depend on this and other factors–sales staff, current demand, and pricing. For example, specialty, high-end vehicles have a longer sales cycle than regular, high-volume ones. In looking at the average inventory turnover for the automotive industry, keep in mind that different markets have different rates of sale. If you don’t measure it, you can’t improve it. When you emphasize it as a KPI of success, you’ll be able to perfect it. It’s something you should look at as part of determining and optimizing profitability. There are many questions about what is a good inventory turnover for the automotive industry. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Value What is a Good Inventory Turnover Ratio for the Automobile Industry? Take these inputs and divide them with this formula. With the COGs and average inventory value numbers ready, it’s time to calculate the car dealership inventory turnover ratio. Use this formula to calculate the average inventory value.Īverage Inventory Value = (Sum of Inventory Values for Time Period / Time Period) Step 3: Divide The Two Metrics The higher it is, the better opportunity for greater margins. It’s an essential metric that tells you how much stock you’ll need to sell to reach your sales goals. Your inventory levels will fluctuate based on seasonality, availability, and turn rates. The next step in computing inventory turnover is average inventory value. If not, you can use these formulas to find COGs or Cost of Sales.ĬOGS/Cost of Sales = Total Retail Sales – Front-End Retail GrossĬOGS/Cost of Sales = Beginning Inventory Value + Value of Any Inventory Purchased During the Period – Ending Inventory Value Step 2: Calculate Your Average Inventory Value Sometimes, this may calculate automatically based on your income statement. Instead of COGS, you might use a Cost of Goods Sold calculation. In reviewing this number, you may find areas of cost to examine that are inefficient and wasteful. This number is critical to watch, as it illustrates what your entire inventory is costing you across all expenses. This number is the total value of all your inventory sold over a defined period of time, and can be found using your financial statements. The first step is to determine the cost of goods sold (COGS).

Regular measurement enables you to maintain data accuracy and projections. You should calculate this metric consistently, at least monthly.

#CAR DEALERSHIP HIGH INVENTORY TURN BENEFITS HOW TO#

Understanding how to compute inventory turnover requires three simple steps. 3 Steps for Calculating Your Car Dealership Inventory Turnover Ratio Cars stagnating on your lot tie up capital, so improving it is a high priority.

If the ratio becomes too high, you move further away from profitability. Your turnover ratio reflects how efficient you are at managing your inventory.

Enriching customer satisfaction: With data-driven insights, you can align inventory with consumer preferences, decreasing turnover times and propelling sales and satisfaction.

Minimizing depreciation risk: Extended lot times lead to inventory depreciation, lower market value, and wear and tear, which triggers price reductions.Reducing holding costs: Increasing your inventory turnover ratio helps you cut expenses related to financing, insurance, warehousing, and depreciation.Improvements in cash flow: The quicker you turn, the more capital you have for reinvestment and reducing unsold inventory carrying costs.Accelerating the inventory turnover for car dealerships yields many benefits, including: When it sits too long, costs rise while profitability wanes. Why is Car Dealership Inventory Turnover Important?Īs with any organization, moving inventory has many implications. Based on this analysis, you can make more data-driven decisions, resulting in greater dealership profitability. This ratio offers insight into your effectiveness at moving existing inventory. One of the most crucial numbers to calculate and use as a KPI (key performance indicator) is the auto industry inventory turnover ratio. The buying process isn’t linear any longer, as the digital age has transformed buyer behaviors, influencing changes in how you sell and market vehicles. Measuring the success of your auto dealership includes many metrics to track. How to Calculate Your Car Dealership Inventory Turnover Ratio

Car dealership high inventory turn benefits