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Is Gross Profit Per Employee-An Important Performance Metric?

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Gross Profit per Employee is a significant metric for evaluating dealership efficiency, yet it is not

a definitive measure that answers all questions about employee performance. While useful, this

metric has limitations and should be considered alongside other factors. For instance, it does

not account for the compensation of employees, which can vary widely and affect overall

profitability. Additionally, it can obscure inefficiencies in different departments because it does

not distinguish employees by their specific duties. Despite these limitations, Gross Profit per

Employee is still a valuable tool for ensuring operational efficiency within a dealership.


Factors Influencing Gross Profit Per Employee


The Gross Profit generated per employee can vary significantly depending on the type of

vehicles sold. For dealerships selling mass appeal vehicles such as Chrysler, Ford, GM, Honda,

Nissan, Subaru, and Kia, the target Gross Profit per Employee the target should be $12,000 or

more. In contrast, dealerships specializing in high-line vehicles like BMW, Mercedes-Benz,

Acura, Genesis, and Lexus aim for a target of $22,000 or more per employee. These targets

include factory income that may be recorded under miscellaneous income to normalize the

figures. It is important to note that these guides were valid in 2022 and are expected to increase

year-over-year.


Verifying Employee Count for Accurate Metrics


If the Gross Profit per Employee is significantly higher than the target, it is crucial to verify the

accuracy of the employee count. For dealerships utilizing outside services for roles such as

porters or parts delivery, it is essential to include the number of people who would be on the

payroll if they were hired directly. Additionally, dealerships that are part of a larger group might

split employees across different locations. For example, a Fixed Operations Director may

oversee multiple stores, or accounting staff might work across several dealerships. In such

cases, it is necessary to prorate the employee count based on the time spent at each store.

Exceeding the target significantly while maintaining excellent service levels is challenging, so

these adjustments help ensure an accurate assessment.


Addressing Low Gross Profit Per Employee


Conversely, if the Gross Profit per Employee is significantly below the target, similar verification

steps are required. Ensure that part-time employees are not counted as full-time employees in

the personnel counts. In dealership groups, some employees, such as an IT Manager or Title

Clerk, might work across multiple locations. Adjust the employee count to reflect the actual time

spent on each dealership. Falling significantly below the targets makes profitability difficult, even

with minimum wage employees, as benefits and other costs can quickly erode profits.


Putting GP per Employee in Perspective


While Gross Profit per Employee is a valuable metric for assessing dealership efficiency, it is not

a standalone solution. It does not account for compensation differences, departmental

inefficiencies, or the specific duties of employees. However, by adjusting for factors like

employee sharing among dealerships and outside services, it can provide a more accurate

picture of operational efficiency. Regularly reviewing and adjusting employee counts and Gross

Profit targets ensures that dealerships can maintain profitability and deliver excellent service.

 

DealersEdge Accounting Guide-

This was adapted from the comprehensive DealersEdge Accounting Guide, which is an

invaluable resource specifically tailored to the unique needs of automotive dealership

accounting. Unlike general accounting sources, this guide delves into the specialized financial

measurement and management tools that are crucial for successful dealerships and auto

groups. Auto dealership accounting is a highly specialized and disciplined field, and the

DealersEdge Accounting Guide for Dealership Controllers and General Managers is crafted to

address the distinct challenges faced by these professionals. It speaks the language of today’s auto dealership management, offering practical solutions and insights. Keeping this guide within arm’s reach provides dealership controllers and general managers with a reliable reference to navigate the myriad challenges they encounter daily, ensuring they can effectively manage and optimize their financial operations. For more information go to www.dealersedge.com/accountingguide .

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