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

investment                                                               3.27%

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 sdrize@valuinsight.com