‘Tis the season for a jolly review of your F&I profit

Myril Shaw Dealer Profit Services
The business benefits of belonging to a 20 Group

By Myril Shaw

Well, here we are, the heart of the so-called “slow season.”  Thanksgiving, and Black Friday, have now come and gone.

Now that the craziness of this year has calmed a bit, it is time to evaluate and make decisions about how to be better. This is the season for change – change to make you better. Change to make you jolly!

However, this is just a single blog post. We can’t address everything here.  But we can provide some guidance on your F&I performance.

To begin, let’s put some real numbers around this that will make it easy for you to adjust as they may fit your store or stores.

Let’s say that you sell around $10M in Unit Sales per Year – and let’s say that you finance 50% of those (which is less than you should be financing, but we’ll save that conversation for another time).

So, if you are financing $5M per year, are you delivering at least $400K in F&I gross profit on this?  That means, are you seeing reserve plus F&I net profit on protective products of at least $400K each year?  If you are not, you are missing a significant profit piece for your store.

Now, let’s assume that you are seeing $400K in F&I Gross Profit – once you subtract your F&I salaries, your credit pulls, your storage and disposal costs, your floor space costs and your compliance costs. What’s that? You’re not thinking about compliance? You should be. The costs there could be huge. At any rate, you should be seeing at least $320K in F&I net profit on that $400K gross profit.

If you don’t know those numbers, again, that is a whole different issue. F&I should be a significant individual and individually measured contributor to your bottom line.  If that is not the case, talk to your accountant or controller. F&I profit matters and it matters as it’s own profit center.

So, now that that you are looking at F&I as its own profit contributor, if $5M of financed deals per year is not adding $320K in net profit or 6.4%, you are underperforming. Time to change!

Here are the metrics you need to be seeking…and if you are missing them, you are losing profit and money:

• 8%+ F&I profit on the amount financed

• 4.0%+ F&I profit on unit sales

• 50%+ contracts on finance applications

• 65%+ protective product penetration on contracts

Making this work for your store sales and numbers is easy. Simply take your annual unit sales and divide by $10M then take that result and multiply it by our target results:

• $400K times your result is your target gross F&I profit

• $320K times your result is your target net F&I profit

The odds are that you are not there. Look honestly at your numbers.
This is the season when change is as easy as it is ever going to be. If the time to change your profit for the better is now – make the needed changes and have a happier new year!

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