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Pump the Brakes! Analyze and Strategize by Determining Your Breakeven Point

Have you calculated your breakeven point for your various dealership departments?

Your dealership can make informed decisions regarding sales and pricing strategies, cost management analysis and allocation of capital by calculating your dealership’s breakeven point for each of the various departments.   These departments include new and used vehicle sales, parts and service sales, body shop sales (if applicable) and finance and insurance sales (if evaluated separately from the new and used sales departments).

A breakeven calculation by department provides for an analysis of the amount of department revenue a dealership must generate to make a profit.  It is a simple calculation that provides many insights into each department’s financial operations.

The breakeven point is determined by taking the fixed costs (gross margin less variable costs) for each department.  Fixed costs are expenses that do not change due to department sales volume. Fixed costs include salaries, insurance, depreciation, utilities, telephone, etc.  Variable expenses are expenses that change based on the department sales volume.  They include sales commissions, supplies, advertising, policy work, etc.

In addition to the calculation for the breakeven point in dollars, the calculation can be enhanced to determine the breakeven point for the number of vehicles needed to be sold per month.  This is determined by taking the breakeven point calculated in dollars and dividing this by the average selling price of a vehicle.

These simple calculations can enhance the dealerships strategies and allow dealerships to analyze their expenses and gross profit margins at the same time.  It also provides an opportunity to focus on departments that are generating profit margins that are less than the industry trends.

Do you need help calculating your departmental breakeven points?

Please contact us and a member of our Automotive Dealership services team will be happy to assist you.

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