I know firsthand the frustration finance managers experience when trying to keep up with and outperform competitors. It happened early last year when AutoNation reported an all-time high of more than $1,500 in F&I gross profit per vehicle retailed (PVR). For many of my close friends in the business, that average represented a nearly impossible 30% increase over the highest producer in their store. It was also significantly higher than their region’s average. Problem was, they weren’t seeing the forest for the trees.
See, while AutoNation’s report made for interesting water-cooler conversation, it did not provide a reasonable benchmark for my friends. What they failed to take into account were a number of factors that resulted in that number, including the fact that the nearest AutoNation store is located more than 300 miles away in a different state and market, with different regional standards and a completely different staff. In fact, that nearest store wasn’t even of the same brand. And without a set of predetermined metrics to use for comparison, they were comparing apples to oranges.
Whether you’re new to the chair or a veteran finance manager seeking continual improvement, using benchmark numbers to evaluate your personal performance can be an important tool. These numbers can also be detrimental to your objectives if used improperly. Regional and demographic differences, store-to-store discrepancies and different manufacturers can all affect our numbers.
So what should we use as our baseline, benchmark and performance goal? And how can we be sure we use that information correctly?
As a baseline, I like to calculate my average PVR, product penetration rates and products sold per unit for the previous six months. And I never want to dip below those averages, no matter the circumstance. By only comparing my current performance against those baselines, I give myself only one way to go: up!
Now we need to determine our benchmark. Keep in mind this metric allows us to compare ourselves to a standard other than our own. In simple terms, it tells you how you stack up against leaders around you. That’s why it’s best to use numbers that are realistically attainable in your current situation. For most, that means comparing yourself against your own store’s numbers. Hey, only producers in your own store have to deal with the same policies, customer base, sales staff and brand. And when it comes to benchmarking, factors that impact performance must be accounted for.
There are times, however, when it is prudent to look outside your store for a benchmark number, such as when you are the only finance manager in your store. In these cases, it is important to find a similar situation from which to compare to make sure the data isn’t skewed. Every store has its own way of calculating PVR. Some finance managers disqualify certain units to reduce the number of retail units into which their total gross is divided, thereby increasing their PVR. Older units and high-mileage vehicles that do not qualify for certain products are also conveniently disqualified. Therefore, if your store includes these units, it wouldn’t be fair to measure yourself against stores that do not factor these in.
Now we need to set our goal. These performance levels should be difficult to achieve but realistically attainable at the same time. Setting unreasonable expectations will only result in frustration. If your baseline is well below your benchmark, the benchmark would be a good goal to use. If you are at or close to the benchmark, I would suggest setting your goal at 10% above benchmark. For example, at $1,200 PVR, a 10% goal would result in a healthy $120 increase in PVR. But remember, our goal needs to change once it’s reached so we’re always aiming higher. It’s that pursuit of improvement that separates professionals from amateurs.
Performance metrics are being used to drive improvements in just about every industry. We even see it in professional football. And if billion-dollar NFL teams are aggressively using analytics to help them become more efficient and win more games, can you imagine what the proper use of analytics could do for a finance manager?
Whether it is the car business or sports, it always pays to set goals, figure out your benchmarks, identify key metrics and measure, measure, measure. The only way to improve is by knowing where you are, where you’ve been and where you want to be.
Ryan Fischer is the store manager for Rochester, N.Y.-based Dorschel Automotive Group. Email him at [email protected]