Running an auto dealership comes with its unique set of challenges and rewards. Among the endless metrics to keep tabs on, the inventory turnover ratio is a critical indicator of a dealership’s operational performance. This ratio, calculated by dividing the cost of goods sold by the average inventory value, reveals how frequently a dealership cycles through its inventory within a year.
The coveted benchmark for auto dealers is an inventory turnover ratio of 12. This suggests that a dealership sells its entire inventory every 30 days, which is 12 complete turnovers annually. Achieving or surpassing this ratio means strong sales performance and inventory management.
However, an excessively high turn may suggest untapped potential for expanding your inventory and boosting sales volume. On the other side of the spectrum, a low turn rate could point to areas of improvement like merchandising, stocking vehicles better suited to your market or fine-tuning other aspects of your operations for a seamless flow of vehicles in and out of your dealership.
Dealerships should implement these seven proven strategies below to soar beyond average turnover rates and realize maximum Return on Investment (ROI).
How to Calculate Your Inventory Turnover Ratio
To accurately calculate your car dealership inventory turnover ratio, the formula is simple:
Inventory Turnover = 365 days / Average Vehicle Inventory Age (AVIA)
AVIA = Average Monthly Sales / Average Number of Vehicles in Stock
Despite this, there’s still a challenge. Dealerships must accurately determine their average monthly sales and average vehicles in stock, especially factoring in the fluctuations caused by seasonal changes and economic conditions. By harnessing a rolling 30-day turn calculation, Lotlinx Sentinel, the VIN Management Platform, always keeps your turn ratio up-to-date, reflecting the most current data from your dealership.
Optimizing Inventory Turnover with Lotlinx
Lotlinx calculates inventory turnover by integrating specific sales volume data with regional market trends on Lotlinx Sentinel, the VIN Management Platform Dashboard that gives dealers comprehensive control over their inventory with automotive inventory management software.
For example, Lotlinx’s weekly sales results examine new and used inventory percentages, such as an 8.2% turnover for new and 8.6% for used inventory, alongside market performance in various regions (e.g., Jacksonville-Brunswick showing a 25.0% increase). By cross-referencing these detailed sales figures with regional market analyses, Lotlinx can provide a nuanced understanding of inventory performance, enabling dealerships to make more informed VIN-level decisions about pricing, marketing, and stock adjustments to improve dealership inventory turnover. This approach, tailored to the unique dynamics of each dealership’s market and inventory composition, ensures that strategies are data-driven and closely aligned with real-time sales trends and market demands.
Learn More: Common Challenges in Auto Inventory Management
7 Easy Ways To Improve Dealership Inventory Turnover
1. Keep Sales Teams in the Loop During Reconditioning
Involve your sales team early in the reconditioning process. Inform them about vehicles undergoing reconditioning so they can begin promoting these cars before they officially hit your inventory. This approach means your team can instantly match incoming vehicles with customer inquiries, inviting new sales opportunities and accelerating inventory turnover.
2. Price it Right
Adopt a dynamic pricing strategy. Regularly analyze market data and adjust your prices to remain competitive without sacrificing profit margins. If a vehicle hasn’t sold within a specific timeframe, proactively lower its price. This helps maintain fresh inventory and boosts turnover rates.
3. Meet Your Buyers
Learn your local market’s preferences. Tailor your inventory to match the demand for specific vehicle types your community favors. An inventory misaligned with customer preferences can slow sales and negatively affect turnover ratios.
4. Factor in the Seasons
Plan your inventory according to seasonal trends. Increase stock during high-demand seasons and avoid overstocking during slower months. This strategic planning aligns inventory levels with potential sales peaks, unlocking sales opportunities.
5. Deals, Deals, Deals!
Entice buyers with special promotions, such as cash-back offers or 0% financing. These deals can accelerate decision-making for potential buyers and speed up inventory turnover. Adjust these offers according to inventory needs and market response.
6. Give Them a Digital Showroom Experience to Remember
Innovate new ways to enhance the digital customer experience. Offer online booking for test drives and virtual showroom tours, keep your website’s vehicle information accurate, and streamline the online purchase process. A superior online experience attracts more buyers, increasing sales and improving turnover.
7. Don’t Forget To Thank Your Sales Team
Motivate your sales team with incentives for reaching or exceeding sales targets. Reward systems can greatly improve sales team performance, directly impacting your inventory turnover ratio and profitability, too.
Want to learn how to accelerate inventory turnover at the transactional level using the power of VIN-level data? Contact Lotlinx to request a demo.