Spader: If personnel costs exceed 50%, you’re in trouble

Publish Date: 
Feb 16, 2013
By Arlo Redwine

DEALER EXPO, Indianapolis, Ind. --  Key financial numbers, the “end results,” are what dealers should focus on before worrying about best practices, according to John Spader, president of 20 group facilitator and consultancy Spader Business Management.

 “If you just start doing stuff, you end up with big pile of doo-doo,” he said during his Friday seminar titled “What does a high-performance dealership look like?”

Spader explained which statistics he prefers, along with high, low and average values for these figures based on data from thousands of dealers.

“If I could get only two numbers to look at for your whole dealership, I would want to look at your gross profit per employee and your debt to equity,” Spader said. “You give me those two numbers, and I bet I can get us very close to how everything else is doing in your dealership.”

Dealers performing in the top 20 percent report $148,525 in gross profit per employee. Average dealers report $104,819 per employee. Dealers in the bottom 20 percent are getting just $90,064 per person.

Spader stressed that dealers have two equally viable paths toward healthy profits per employee: high sales volume with lower margins, or low sales volume with higher margins. He explained how dealers use the figure in staff planning: “High-performers ask this: ‘If I hire another person — I don’t care if it’s a sales secretary or a lot person — where is the $150,000 gross profit going to come from to justify it? Because if we hire support people, then our front-line people ought to be able to generate more.’”

To be a high-performer, dealers don’t need to reach quite $150,000. “If they start crossing 120, 125,000 and higher, I don’t find dealers that are having troubles, unless they have a Taj Mahal facility that they built just in time for the market to crash,” Spader said.

For Spader’s other favorite dealership financial number, the debt-to-equity ratio, he divides dealers into Growth, Stability and Survival categories, whose respective ratios are 2.5:1 or less, 3:1 to 4.5:1, and 4.5:1 or higher. (Continued)