One of the key investment performance indicators is Return on Investment. For purposes of this article we'll modify that to Gross Return on Inventory Investment. This is a quality measurement indicator and measures the total gross profit return (both retail and wholesale) compared to the total investment in the inventory. The formula for calculating this key indicator is: Total Vehicle Retail Gross Profit plus Total Vehicle Wholesale Gross Profit divided by the Sum of the Cost of Sales plus Current Actual Vehicle Dollar Inventory. This yields a percentage and measures the gross return on the total inventory investment.
This should be a relatively easy number to calculate. It is also relatively easy to compare this indicator for cars and trucks. Unfortunately, that's usually where most stores stop.
Retail gross profit $38,325
Wholesale Gross Profit + -$6,550
Total gross profit $31,775
Cost of retail sales (inventory amount) $365,244
Cost of Wholesale sales (inventory amt) + $82,349
Total cost of sales $447,593
Current inventory amount + $522,325
Total investment = $969,918
Total gross profit generated $31,775
Total investment $969,918
Gross return on inventory
A good target to strive for is 10% per month.
Scott Dreisbach is vice president of ValuInsight. To comment on this article send him an e-mail at firstname.lastname@example.org