Driving profitability – counting the true cost of sale
There's more to running a successful used car business than selling cars. Understanding the true cost of a sale is essential to generating a sustainable profit.
We explore the unavoidable costs of every sale and guide on how to mitigate them. From the moment the hammer goes down or a handshake is completed on part exchange, so begins the process of making the most from the sale of that vehicle.
In order to maximise the opportunity, a forensic understanding of all the costs tied up in each individual vehicle unit is essential to ensuring a good profit is achieved.
Repairs and refurbishment rank the highest
The prepping of a vehicle to get it retail ready, including paint, bodywork repair and mechanical fixes, will always take high rank in a dealer’s list of costs.
It’s a view reinforced by our latest sentiment survey with over half of the dealers asked identifying vehicle repairs and refurbishment as the most significant cost when calculating profitability on a used car sale.
Retail ready stock available for buyers is crucial for a fast and efficient sale, it’s a cost that all dealers must factor in. The quicker a car is prepped and ready to put on the forecourt, the better the opportunity for the dealer to get it sold.
Every car that sits on a forecourt for more than 30 days increases the risk for a dealer to lose money. Increases in days to sell results in depreciation in vehicle value, staff spending more chasing a sale and advertising costs incurred in marketing the vehicle successfully.
The ’hidden costs’ of marketing and advertising
Advertising costs links us back to one of the most intriguing findings of the sentiment survey. In an interesting anomaly, one in ten dealers reported advertising costs having an impact on overall profitability despite no dealers admitting to factoring advertising into their initial calculations.
The results suggest that dealers may be either underestimating or failing to account for the expenditure on marketing and advertising in their true cost of sale. This may likely be due to dealers not incorporating marketing and advertising costs into the individual unit sale, but instead including it in the overall annual marketing spend.
By not factoring advertising and marketing costs into the original profitability calculation for a single-vehicle unit, they end up becoming a ‘hidden cost’ – one that resurfaces once the vehicle has been sold and overall margin for that unit is calculated. It’s a good example of the importance of factoring in all costs to produce a true cost of sale.
Stocking plan solution to auction and transport fees
For one in five dealers surveyed, the costs involved in the sourcing and transporting of vehicles where those that featured most prominently when considering true costs of sale. For one in ten dealers, expenditure on valeting and vehicle preparation was deemed most likely to hit profits the hardest.
For those dealers looking to minimise the initial upfront costs of auction and transport fees, a Stocking Plan can provide the ideal solution. With all associated buying costs settled on the sale of the vehicle rather than its initial purchase, it helps save time on labour-intensive admin and more importantly helps to free up cash flow.
The easing of cash flow can also go a long way to mitigating other unavoidable vehicle costs. With funds available to spend on vehicle prep, repairs, advertising and marketing, dealers can buy and sell stock more quickly and efficiently, enabling them to map out a clearer route to sustainable profit.
As outlined, there are a multitude of costs beyond the vehicle itself and if not fully factored into the final sale, they can seriously erode a dealer’s profits. Ultimately, when considering the profitability of a used car transaction, those dealers factoring in every tangible cost are best placed to calculate the true cost of sale and achieve the best margin.