DealersEdge Professional Forums

Chuck,

We're a Ford Dealership with an operating profit line on the financial statement. I shudder to think what goes on below that line as far as fixed expense assignments.

Around 45 to 50 percent of our sales are generated through wholesale. We have 20 people in the department generating an avg of around $34,000 in sales each month individually. This is calculated by taking the total sales and deviding total number of employees.

What is considered a good figure to shoot for? Someone at Ford indicated around $27,000 back some 6 years ago.

Also thoughts on operating profits as a percentage of total gross in a parts dept would be helpful. Keeping in mind that with unemployement at an all time low it's virtually impossible to find people without throwing dollars at them.

Thanks in advance for any input.


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Chris Bledsoe
Pts Mgr
Pulliam Ford
Columbia, SC
sysop@clynx.com

Hi Chris,

I read your post, and perhaps this will help.

Operating profit usually refers to "net profit" before taxes. Its derived from your gross margin or gross profit minus total operating expenses. Below the operating profit line is generally reserved for other or non-operating income and expenses. Depending on the type of business non-operating income and expenses can be associated with discounts earned, discounts allowed, interest earned, and interest expense. The sum of net profit before taxes (operating profit) and the total of all other income and expense items is the tax base. In other words, the figure on which taxes owed will be calculated.

If operating profit you refer to on your statement is net profit before taxes, which I believe it is, then you should only concern yourself with that measure of performance. You have very little to no control over what occurs after the operating profit. Nevertheless, it does not hurt to be familiar with what goes on beyond operating profit.

As for sales per employee $35,000 per person does not sound too shabby. I believe NADA recommends around $25,000 to $30,000. In addition to sales per employee also take a look at gross per employee. Sales figures are a good measure, but gross profit pays the bills and provides the net profit. Depending on the parts department activity I usually recommend a gross per employee of between $6,500 and $8,000.

On the operating profit side 20 percent to 30 percent net to gross is desireable. However, rather than just shooting for an arbitrary figure or some type of benchmark, has there ever been any actual planning done in the dealership to create a net profit objective? This is something that I've been addressing in articles that I have written. Individual departmental objectives should be derived from what is required to meet the total dealership or corporate profit objective. Once this is known then you can determine all other departmental objectives such as net profit, and the total sales, gross profit, and expense controls necessary to get you there.

When the extent of your departments net profit obligation to the total dealership objective is met everything else is icing on the cake.

Gary J. Naples

Hi Chris,

Ditto to what Gary has to offer here. Gary has a great point about the difference between gross sales generated per employee and gross profit generated per employee. See the thread on "PROFIT OR WASTE OF TIME".

When it comes to expenses, I actually like the way Ford has it broken down into your Fixed Overhead Expenses and your Variable Expenses. Basically, variable expenses are something you, as a parts manager can basically control. The fixed overhead is whatever the dealer, general manager, or CPA decide is a proper percentage of overhead for the parts department to absorb.

If it is done properly by NADA guidelines, if you make a buck after all expenses you are 100% absorbed. In essence, you could run as a stand alone business. Again, just to throw caution in, many dealers differ on the percentage and it can change from time to time.

Net to gross is about where Gary pinpointed it. Twenty percent net to gross would be way too low. You should see somewhere between 28-32% net to gross if your wholesale is around 45-50% of your parts operation. What can really drag this down is the percentage of profit you are earning on wholesale. You should be somewhere around 18-21% gross profit when your throw in your purchase discounts and compensation into the equation.

Chuck Hartle'

Gary, Chuck,

Thanks for your response and input. We are constantly looking for new benchmarks and methods of tweaking to squeeze productivity and profits. I especially enjoyed your redirect of looking at gross profit per employee.

Most of the bench mark data I've accrued over the years has become dated with the advent of new technology, procedures and such.

Naturally the Dealer comes back fresh from a few days of golf and a 20 group meeting and wants to know why we aren't at this level or are at that level. My first thought is "Oh he's just back from the liers club". But when a dealer is selling a million a month with $3,200 in freight expense, I have to scratch my head and look for some rationale. What is his market area, what percentage of his total is wholesale, is he dumping discounts into freight. I'm sure you guys know the game as well as anybody.

Which, by the way, I did want to convey that I have found this forum extremely interesting and enlightening and I thank you for the time you have devoted.



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Chris Bledsoe
Pts Mgr
Pulliam Ford
Columbia, SC
sysop@clynx.com