Your parts department has a lot of untapped potentials. If you want to run a profitable parts department and be a hero at your dealership, you will need to be sure you measure the right Key Performance Indicators (KPIs) to ensure the success of your department.
KPIs help you understand how well your parts department is performing and show where you can make improvements. By measuring the right KPIs, you will be able to grow your parts department faster and exceed goals. Here are the top KPIs that every parts manager should be measuring to ensure their department is performing at its best.
- Days Supply
- Sales Mix
- Gross Profit
- Employee Effectiveness
- Retail/Wholesale vs. Internal Revenue
Calculating Days Supply
How well your inventory is stocked is probably one of your most important KPIs, and it can help you improve your month-end reconciliation. It is crucial that you are able to calculate the supply needed for 30, 90, and 360 days.
Knowing your days supply and having a deep understanding of your inventory needs, you can get ahead of any issues that would otherwise occur, such as high seasonal demand and keeping ancillary products in stock. Without knowing your days supply, your inventory can be out of balance, leading to inadequate inventory and obsolescence.
Letting your inventory get out of hand can become a problem for your parts department. If your stock levels are too low, customers cannot buy the parts they need, leading to dissatisfied customers who may not return. This can also cause issues with your service department if they cannot provide timely repairs and services.
Knowing Your Annual Stock Turns
Once you know your days supply, you can calculate your annual sock turns or how often your inventory turns over in a given year. This can help you keep track of your inventory costs vs. how much it is being sold for. A low turnover rate may lead to overstocking, while a high turnover rate can impact your ability to meet demands.
Are Your Obsolescence Levels in Check?
Do you have parts that have been taking up space on your shelves just collecting dust? If so, they cost you money every day they sit there. Knowing your obsolescence levels is a key measurement in how well your parts department is doing.
High levels of obsolescence mean your inventory may not be as well regulated as it should be, or perhaps you have custom orders that a customer never picked up. If you don’t know your obsolescence levels, you may not realize there is a problem until your department is over-stocked with obsolete parts.
What is Your Sales Mix?
Your sales mix is a calculation of the different types of parts you sell. Not all auto parts are sold equally, and some will have higher profit margins than others. On the other hand, some parts will sell in more volume than others and result in high profits. Either way, you need to be sure your inventory is stocked with the right balance to meet demand.
If your sales mix changes, your profits can change. By measuring your sales mix, you can keep a good balance of parts that have high-profit margins and parts that have high profit volume.
Keep Track of Your Gross Profit
Unsurprisingly, your gross profit is a very important KPI. Your gross profit is the difference between the cost of a part and the markup you set to sell it at. You should know the gross profit of your parts department and the profit of each type of part being sold.
This will tell you how much you are making before your expenses. It is important to note that your gross profit does not determine how much profit your department is making but rather how much profit you are bringing in before payroll, taxes, and overhead.
While this will not determine how much profit your department is making at the end of the day (this is Net Profit Margin), it will tell you whether your parts department is efficient and where you are making money. This will help you make better financial decisions in the future.
How Effective Are Your Employees?
As with most investments, your employees cost money, but how do you know if that investment is paying off? It is important to track how effective your employees are. To determine how efficient your employees are, here are three things you should look at:
- How many parts are being sold by each employee
- How much profit is each employee bringing in every month
- What are the total sales per salary being paid to each employee
If an employee is ineffective, they could be costing your department more money than they are bringing into the department. Having more insight into your employees can tell you where improvements need to be made.
Measure Retail/Wholesale vs. Internal Revenue
Do you know what percentage of parts revenue comes from retail/wholesale vs. internal? By measuring this, you will be able to determine how well your parts department is penetrating the outside parts market. For most parts departments, the retail business is severely lacking, especially for those relying on foot traffic and a simple parts form on the dealer website.
Today, people are no longer settling for buying parts in person and instead are shopping online for their auto parts. If your parts department is not taking advantage of eCommerce, your retail and wholesale business is suffering.
Increase Profits and Performance of Your Parts Department
Now that you know what KPIs you should be targeting, let us show you how to exceed your goals without increasing staff. Download our FREE guide to learn how you can HULK SMASH your KPIs in one easy step.