What at time to be in business. While I’ve worked through a recession, I can say I’ve never experienced a pandemic before. However, what continues to hold true, is that there are items within our control, and there are situations that are not. For commercial dealerships, we have been focused on controlling Total Absorption, simply based on our knowledge about the New Truck market. Amidst this new economic change, this metric continues to hold our attention. Control what you can control. When we look at Total Absorption, our benchmark is 130%, and the calculation is below.
To calculate Total Absorption Percentage Rate:
(Used Truck Gross Profit + Fixed Ops Gross Profit) / (Total Dealership Expenses-Total New Truck Selling Expenses)
To calculate Total Absorption Dollars:
(Used Truck Gross Profit + Fixed Ops Gross Profit) - (Total Dealership Expenses-Total New Truck Selling Expenses)
While supporting our customers, I’ve been asked multiple times how to improve this calculation (i.e. their Total Absorption). And the answer is like that of any problem. If you control the inputs, you can control the outputs. I have crafted a specific analysis to do just that: the KEA Financial Analysis.
With the KEA Financial Analysis, the Business Intelligence team at KEA Advisors analyzes and looks to understand your Gross Profit across each individual department. Then, and only then, do we look into your expenses. Historically, when times get tough, folks focus on cutting expenses. However, time and again, we find that the true opportunity is in Gross Profit and the processes inside departments that lead to this number. Once addressed, expenses often fall into line with benchmarks.
Once the gross profit and processes have been addressed, we can then look to the line item expenses and areas of opportunity within them. Overall, by addressing both gross profit and expense, in that order, our analysis can help your dealership increase Total Absorption. Once the areas of need are identified in detail, they can be addressed with focused SOPs and action plans designed to improve the inputs of the Total Absorption calculation and overall dealership profitability. We also leverage this detailed analysis to prioritize which steps to take first.
The KEA Financial Analysis allows us to not only calculate the impact to your total absorption metric, but also the bottom line financial impact to improving these areas one step at a time.
Amber Kelzer
Director of Business Intelligence
KEA Advisors
