The Truth About PVR

Trainers preach its virtues, dealers fashion pay plans around it and F&I managers brag about it or lament its very existence. What we’re talking about here is profits per vehicle retailed (PVR), that mystical number we get judged by every month. I call it mystical because there seems to be no universal standard by which it’s calculated. I reckon I’ve heard just about every formula there is, yet I’m certain there is another twist in the making.

No matter where I go or who I have a chat with, PVR — also known as profits per retail unit, or PRU — is generally the first topic that comes up while having drinks with fellow F&I managers. We’ve adopted it as our measuring stick — the higher the number, the more clout we have among our peers. We become legendary, right?

I suppose those of you who are averaging above $1,000 may be feeling pretty good and poking out your chest just a bit. Well, not so fast. Let’s dig into what PVR is and try to get a better grip on it.

See, PVR is the total amount of F&I gross divided by retail sales in a given month. This seems simple enough, right? So where does the confusion stem from? Bravado would probably be the short answer.

Some F&I practitioners have a tendency to “disqualify” certain unit sales to reduce the number of retail units their total gross is divided into to increase their PVR. These disqualifiers usually include six-year-old or older units, high-mileage cars (100K miles or more), leases, fleets, yellow or green vehicles sold on Tuesdays, or blue and black trucks sold on Fridays.

Let’s identify the one word in both PVR and PRU that can easily solve how it’s formulated. That word would be “retail.” Let’s face it, there are really only two basic sale types we deal with every day — fleet and retail. Fleet sales are usually made to companies, municipalities or governments. 

Now, few indirect lenders, vehicle service contract or GAP providers will write coverage for fleet vehicles due to the risk exposure. In many cases, these vehicles are sold by the lowest bidder and delivered by a fleet manager or salesperson at the customer’s place of business. For these reasons, fleet sales should be excluded from the total.

The remaining sales are retail, plain and simple. Regardless of whether lenders will finance them due to their age or something else, F&I gross is averaged based on retail sales — not retail financeable units. Converting to this basic formula is like looking at your face in the mirror through a magnifying glass; it’s a sobering moment because the flaws become obvious. 

Including units that we previously tossed out is just as revealing, but it’s necessary because you’re just fooling yourself by tossing out units you should be counting. Yes, your PVR will be lower, but it will help you in the long run because it will force you to stretch and grow by digging deeper into your objection-handling toolbox to increase it.

Now that we’ve mustered the courage to count all retail units, let’s dig a bit deeper to understand the dynamics that impact PVR.

There are two major factors that impact PVR: finance penetration and per finance unit. Finance penetration is important because it puts you in front of more finance customers, thereby increasing your chances of product sales. It also increases your finance reserve. Per finance unit is derived by dividing the number of contracts into the total gross. This reveals what you’re doing every time you sit with a customer. 

Want to raise your PVR? Increase your finance penetration and per finance unit. Conventional wisdom dictates that the more times you get in front of a customer, the greater your PVR will be. It’s simple math.  

Now, you may be bristling at this notion if your pay plan factors in PVR and you’re allowed to discount certain units. I can appreciate the way you feel. However, understanding your true PVR will help you dig deeper to increase the two dynamics that will ultimately result in greater rewards for you and your department.

Marv Eleazer is the finance director at Langdale Ford in Valdosta, Ga. He can be reached at [email protected].