Running an auto dealership isn’t easy. If you’re in charge, there are several metrics you can use to evaluate your dealership’s success. One of these metrics is your inventory turnover ratio, which is the number of times in a year that your dealership’s inventory is sold. To calculate your inventory turnover ratio, divide your cost of goods sold by the average value of your inventory.
The inventory turnover ratio will tell you how quickly you are selling your dealership’s existing inventory. Every dealership is unique. But in general, auto dealers should strive for an inventory turnover ratio of 12, which means they are selling through their existing inventory every 30 days, or about 12 times per year.
The higher the inventory turnover ratio, the better. But if your inventory turnover ratio is lower than 12, you may want to put a plan in place to drive more sales at your dealership. Follow these tips to generate more sales and move your dealership’s inventory faster:
GET SALES INVOLVED IN THE RECONDITIONING PROCESS
Auto dealers often purchase used cars from auctions or accept them as trade-ins. Before these vehicles are resold, they typically need to go through the reconditioning process. This process can take anywhere from 48 hours to 10 days depending on staff availability and the condition of the car.
A dealer’s sales team usually does not know about a vehicle until it has gone through the reconditioning process. At this point, the sales team becomes aware that the vehicle has been added to the dealer’s inventory and is ready to sell.
However, if you want to improve your inventory turnover ratio, get your sales team involved earlier on. Let them know what is currently getting reconditioned so they know what vehicles they can expect to get added to the inventory in the days ahead.
Doing this gives your sales team the opportunity to start selling vehicles before they are officially part of your inventory.
For example, say your team is currently reconditioning a Lexus RX SUV that was accepted as a trade-in. Then, a customer visits your dealership looking for this exact vehicle. Because the vehicle is still being reconditioned, your sales team might not know about it. If they knew what vehicles were coming down the reconditioning pipeline, they would be able to tell this customer about the Lexus RX SUV that was about to be added to your inventory.
This example illustrates how failing to keep your sales team informed could cost you sales.
MAKE SURE THE PRICE IS RIGHT
Your pricing strategy can impact how quickly you are able to turn your dealership’s inventory over. Pricing your vehicles too high may make it harder to sell your inventory. Pricing your vehicles too low, however, can improve your inventory turnover ratio but eat into your profits.
It’s important to examine relevant data when pricing vehicles. For example, research how much the vehicle is selling for at other dealerships in your area. This will tell you how you need to price the vehicle in order to stay competitive.
Ideally, auto dealers should only keep a vehicle on their lot for between 30 to 45 days. If a vehicle isn’t selling right away, you may need to reevaluate its pricing. Drop the price to 95-97% of the initial price if the vehicle hasn’t sold in two weeks. If it still hasn’t sold one week later, reduce the price even further.
Adjusting the pricing on older vehicles will help you keep your inventory fresh and improve your inventory turnover ratio.
GET TO KNOW YOUR CUSTOMER BASE
Every business should understand their target audience’s wants and needs, especially auto dealers. If you don’t get to know your local customer base, you won’t know what type of vehicles they prefer, which means you won’t know which vehicles you should sell at your dealership. This can have a major impact on your inventory turnover ratio.
For example, say the customers in your market typically prefer small-sized SUVs. But you didn’t take the time to get to know your local customer base, so you weren’t aware of this preference. You assume your customer base likes full-sized SUVs, so that’s what you sell at your dealership.
Because your customer base isn’t looking for full-sized SUVs, you may struggle to move these off of your lot. If you had only purchased small-sized SUVs, you could have quickly blown through your inventory and drastically improved your inventory turnover ratio.
DON’T FORGET ABOUT SEASONALITY
It’s important to plan for factors that could impact demand for vehicles in your market. One of these factors is seasonality.
Every market is different. However, the automotive industry as a whole tends to see an increase in demand in the spring and fall. In the spring, tax refunds motivate more people to shop for vehicles, whereas in the fall, consumers tend to head to dealerships to see newly released car models. Make sure you have enough inventory to meet the increase in demand during these time periods. If you forget to factor seasonality into your inventory planning, you could miss out on the opportunity to cash in on this increased demand.
Demand is typically the lowest in January and February. During the slow months, make sure you are not overstocking your dealership with inventory. Keep inventory light until sales begin to pick up again in the spring months.
OFFER SPECIAL DEALS
A great way to drive foot traffic–and improve your dealership’s inventory turnover ratio–is to run special deals and discounts on select vehicles.
There are many different ways to sweeten the deal for the consumer. Some dealerships run “cash back” promotions that reward consumers who purchase a specific type of vehicle. The consumers who qualify for this reward receive a lump sum cash payment of several hundred or thousand dollars.
You can also offer 0% financing deals, which may attract consumers who are thinking about financing a vehicle. Many dealerships offer 0% financing for a period of 36, 48, 60, or even 72 months.
You can also attract consumers who want to finance a new vehicle by running a “0% down” promotion. This would allow consumers to qualify for financing without making a down payment.
Offering any of these special deals can help your dealership move more inventory and improve your inventory turnover ratio.
IMPROVE THE ONLINE CAR SHOPPING EXPERIENCE
The process of buying a new car has changed drastically over the years. In the past, auto consumers visited dealerships to explore vehicles, compare their options, and make purchase decisions. But in today’s world, most automotive consumers are completing some or all of the car buying process online rather than at a dealership. If you want to move inventory quickly, you need to cater to these customers by improving the online shopping experience.
There are many ways to create a better online shopping experience for your customers, including:
- Giving customers the option of booking test drives and showroom appointments online.
- Delivering cars to customers’ homes so they can take a test drive on their own time.
- Inviting customers to explore vehicles inside a virtual showroom using their smartphone, tablet, or computer.
- Responding to direct messages, emails, and information requests submitted from your website. You may also want to add a live chat feature to your dealership’s website to ensure you are available to help online shoppers at all times.
- Updating the content on your website to ensure the information about the vehicles in your inventory is accurate.
- Creating online listings with detailed information for every vehicle in your inventory. These listings should be posted on popular third party websites such as Cars.com.
- Using high quality car stock photos of the vehicles in your inventory to make your listings stand out.
- Allowing customers to complete the entire transaction online through your website.
Making these changes can draw more online shoppers to your dealership, which can help you sell more cars and improve your inventory turnover ratio.
REWARD YOUR SALES TEAM
Your sales team can make or break your dealership. Their performance directly impacts your inventory turnover ratio and more importantly, your dealership’s bottom line. For this reason, it’s important to keep them motivated all year long.
The best way to do this is to establish a system of rewards for your sales team. You may want to set monthly, quarterly, or yearly goals for each member of your sales team. Then, reward them with a cash bonus or other valuable gift once they reach their goal.
You can also run sales contests throughout the year. For example, say you want to focus on selling a specific type of vehicle. Tell your sales team whoever sells the greatest number of units of this vehicle will win a cash bonus or another type of prize.
Regardless of which reward system you choose, make sure the rewards you offer are attractive enough to motivate your team to keep selling.
Implementing one or more of these tips can help you generate more sales, improve your inventory turnover ratio, and grow your dealership.