Are Profit Centers Hiding in Your Reports?
- Most dealerships only look at half of their accessory profits.
- Use our missing margins calculator to uncover the truth.
There are sneaky profits in your dealership, disguised on paperwork and easily overlooked when you review reports. By continuing to let them go unnoticed, you fail to see their true value and capture more of them. What are these mysterious profits? They’re your accessory sales!
Every dealership knows how difficult selling accessories can be. Every bump in the process can lead to additional costs that make the whole thing seem even less appealing. At the end of the day, your sales manager reports such a slim profit margin on them, you wonder, “why even bother?”
But have you ever taken the time to calculate the dealership-wide profit of accessories? When every department is involved in the accessory sale, the costs and revenues are split up. At the end of the workflow you have to calculate the comprehensive dealership-wide gross, which is the combined value of a transaction for the entire dealership – not by department.
To put this in perspective, let’s look at real examples of how profits for the same accessory are recorded in different areas of the dealership.
As you can see from the two accessory sale examples above, the same transaction is recorded very differently in fixed operations compared to variable operations. Do you notice how the cost in variable operations matches the revenue amount in fixed operations? This is because variable operations’ “costs” for an accessory sale are not going out of the company; they are internal costs to the fixed operations department.
When a transaction is segmented differently, reports give managers a false perception of performance. If the sales manager only looks at their margins, they won’t be motivated to continue selling accessories. It is important to note the positive effect accessory sales have on the entire dealership’s bottom line for the best reports and future plans.
The image on the left for a hitch and bed liner sale exemplifies the importance of calculating the comprehensive profit. $297 in profit is much more impressive (and accurate) than $164 or $133, which is how each department would record it.
Across dealerships, the average dealership-wide comprehensive gross margin on accessory transactions is 57%. This means the true “cash-in-the-pocket” gross margin for the dealer principal is 243% greater than what the typical dealership is recognizing.
Now, let’s compare accessory sale profit to another typical profit center – F&I. Dealerships gross an average profit margin on accessories of 57%, while a study of traditional products, such as 145 extended service contracts, presented a margin of only 45%. This is what makes accessory sales one of the most overlooked profit centers. It has the potential to greatly impact your bottom line, yet dealerships only own a 12% share of the accessory market, according to the 2019 SEMA Market Report.
Accessories are not only a more significant revenue driver than many dealers notice, but they may offer increased durability for your F&I profits. Accessories increase the value of the vehicle, unlike most insurance products. This leaves more room for higher loans, and the potential to grow and maintain margins for financed deals.
While traditional F&I products will continue to be a staple for variable operations profitability, there is more money than you may realize in other profit centers. The true impact on the dealership’s bottom line is more important than what shows up on just a single departmental report or revenue sheet, and recognizing the comprehensive dealership-wide gross can lead to better decision making and profitability.
Find out what your comprehensive dealership-wide gross profit is with the Missing Margins Calculator to uncover your true profit margin of aftermarket products, and to realize how much accessories are worth.
Industry experts are predicting that used vehicle demand (and prices) likely won’t start coming down until spring 2022 at the earliest.