Beating the ‘new normal’: Measuring performance
Chapter subheading
The right Key Performance Indicators (KPIs) are crucial. For retailers to understand how their business operates and to manage complex operations efficiently. They provide a clear framework for measuring and tracking performance, helping managers to stay on top of various business aspects Importantly they also help distinguish whether business performance is impacted by internal factors or the overall market conditions: is it me or is it the market?
But can you have can you have key performance indicators if you have dozens of them? Mercer’s study identified a list of 30 - 40 KPIs UK retailers are using to track the performance of their respective operational departments, which not only suggested a lack of clarity on what metrics should be measured, but also an imbalance in the ratio of ‘input KPIs’ (measures of activity such as the number of sales calls made this week) and ‘output KPIs’ (measures of outcomes such as profit per unit, sales per head etc). Mercer believes there is too much emphasis on the latter. Getting the balance right, ensures comprehensive performance measurement and management.
So, what KPIs should retailers be measuring? To help identify what makes a profitable retailer and how to measure it, Auto Trader analysed more than a million data points from over 2,500 international retailers, comprising of operating profit, number of units sold, employee numbers, number of salespeople, finance income, finance penetration, gross profit, warranty claims, vehicle service contracts, and service technician hours to name but a few.
Whilst there is no simple set of KPIs to drive profitably, the analysis did reveal many inter-relationships between the different metrics. Although complex, understanding these relationships may offer the key to driving growth.
The analysis revealed that there is no single measure that strongly impacts profitability – most KPIs have no relationship to Gross Profit Margin, and in isolation common metrics have little impact. The analysis highlighted the inter-relationships between the different measures e.g. volume along with margin, finance penetration with contract profit. Ultimately, sales KPIs need to be considered in combination, and as drivers of other profit areas such as aftersales. Insert graph…not much correlation between a single measure impacts retailer profitability on its own.
When we looked at common metrics (30-40 retailers) – many of them don’t impact profitability either. Amazingly the ones you would think impact profitability don’t…we’ll explain.
To illustrate how understanding these relationships may offer the key to driving growth, Auto Trader focused on measuring profitability in the used car department, which Mercer’s research highlighted as an opportunity to recover lost new car profits. The analysis looked at the metrics of three key components of a profitable used car retailer, profitable salespeople, profitable stock and profitable operations.
What makes a profitable salesperson?
Auto Trader studied units, revenues, profitability, finance penetration and contract values by salespeople and the wider teams to understand the impact of people on profit, and how combinations of measures in salespeople and team performance contribute to overall used car profitability. (wanted to understand what impact does that individual person on your profits. So what makes a profitable salesperson.
Volume only tells part of the story: Increasing sales per salesperson can boost profits, but there's a natural limit. The highest sales per salesperson often has the lowest Gross Profit Margin. Instead of just focusing on volume, there's an opportunity to make sales departments and individuals more profitable.
Balancing volume and profit: The more units sold, the lower the margin they are typically sold at. Some retailers have managed to maximise GP per salesperson per unit whilst also achieving relatively high volume, but they’re in the minority. Naturally, the focus of a business determines the strategy. If one department is performing poorly the rest need to step up. Most sales people are doing volume or doing profit, so is it possible to balance?
Summary: Volumes alone don’t drive profit, nor does having a large sales team or big F&I volumes. If these aren’t generating profit, the opportunity is limited. Measuring and making each salesperson profitable provides a broader view. The wider department’s impact is crucial. Adding non-sales employees showed that the ratio of used car employees to salespeople needs to align with the department size. Revenue per employee positively affects profit per salesperson, highlighting the importance of balancing salespeople and other staff.
Profitable salespeople drive margin: Measuring the profit per salesperson per unit is a far stronger guide to overall Gross Profit Margin. However, profit per salesperson was not a KPI that Mercer heard in his interviews. So is profit more important than volume – yes, of course.
Understanding a salesperson’s profitability is one thing, but how do you make a salesperson more profitable?
Auto Trader data shows that margins are lower in 2025 than they were a year ago, down by more than £500 per unit, and despite used car demand outpacing supply, average retail prices continue to trend below trade values, which recovered much faster following the drop in autumn 2023. Used cars are, however, still selling at a more rapid pace than last year.
These market dynamics mean that, across the market, we are seeing a £25 million lost profit opportunity, driven by high-performing vehicles being prices below its true market value. So there is money in the metal, its just not being accessed.
Using a combination of tools and metrics, such as Auto Trader’s Retail Rating (to predict how quickly a vehicle will sell at 100% Price Position when sold from its current location), Performance Rating (to assess the position of your current total retail price relative to your car’s market value), and Price Position (to measure how your adverts are performing on Auto Trader), to make informed decisions about vehicle sourcing and pricing can help drive more profit per unit and, importantly, more per salesperson too. Discounting then should be a last resort, not the default.
The key KPIs driving profits from stock and people
Whilst there is no simple set of KPIs to drive profitably, our analysis did reveal many inter-relationships between the different metrics. Although complex, understanding these relationships may offer the key to driving growth. Examples of this interconnected relationship include:
Finance penetration: Retailers often use finance penetration as a KPI, but it’s insufficient as a standalone metric as the value of each contract is equally crucial e.g. achieving a 50% penetration with low-value contracts is less profitable than a lower penetration with high-value contracts. It’s essential therefore, to balance the penetration rate and the profitability per contract to optimise financial outcomes.
Inventory turn/speed of sale: A critical but often complex KPI. Rapid sales at below-market prices can reduce potential profits, while pricing too high can slow down sales and stock turn, leading to reduced profitability. Retailers need to strike a balance between pricing and speed of sale to maximise profits, thus understanding the relationship between pricing strategies and the pace of sales will help optimise stock turn and overall profitability.
Sales per salesperson: Another key KPI, but the ratio between sales employees and departmental employees needs careful consideration. Fewer salespeople selling 1,000 cars may suggest stronger profits than a much larger team selling the same number of units, but if it requires more back-office workers doing admin tasks than the larger team handling their own, the comparative overheads might be lower. Again, retailers need to get the balance right between the two KPIs to keep costs in check and improve profitability.
The final piece in the profitable retailer puzzle, is profitable organisations. The thread that connects all KPIs is the ability to benchmark them with a similar cohort of retailers; it’s impossible to track true profitability performance based on a broad market figure, or having to rely on either instinct or past performance.
Typically, retailers only get benchmarks at the Group or Brand level. However, we are now working with ASE Global to develop and industry wide set of KPIs that retailers can use to benchmark their performance against the wider industry and understand is it me or is it the market?
To help create these KPIs, we need retailers to share their data to best represent the markets performance. To find out more and be a part of the project, please contact ben.holmes@ase-global.com.
What does all of this mean for the future of automotive retailing? Last year Auto Trader explored the big forces of change that would shape the market for years to come – electric, agency models, and the fact omni-channel killed online - and concluded that within the midst of all this change, the role of the retailer was more important than ever because they’re the closest contact point with the consumer.
What’s going to shape 2025 and beyond for retailers? Market forces haven’t changed significantly: electric remains the future, but it’s about how quick we can embrace the opportunities that come from that transition. It’s also about data AND insights: but how do you distinguish between a key performance indicator, and simply a performance indicator, how do you benchmark? That’s about bringing the best of human intelligence, with the best of data and AI and technology. And rather than omni-channel killed online, we’re now in a world where omni-channel isn’t optional. It’s the consumer journey that all retailers are experiencing to one degree or another, and it’s the industry’s job to support consumers though the retailing journey the best way they possibly can.
In her concluding comments at our The Road Ahead for Automotive Retail conference earlier this year, Auto Trader’s Chief Operating Officer, Catherine Faiers, agreed that to drive profitability businesses must ‘reset the basics’, and drive the metrics that can be controlled – retention, cost reduction, and leveraging the promise of tech. It’s those retailing capabilities that will differentiate in the future:
“It’s not about being the best possible version of a dealer you can be anymore, it’s about evolving from dealing to retailing, and it's retailing excellence that will differentiate how businesses perform in the coming years. There’s no silver bullet or metric, but understanding what you think those measures of success are for your business and measuring them will be key.
“The Road Ahead for Automotive Retail will look different, but with it will come opportunities to redefine and reshape the role of the retailer, to move on from dealing excellence to a world shaped by retailing excellence. So, as well as a decade for change, and evolution it’s also a chance to build businesses we want for the next decade, which will require planning, action, and insights, and we’re here to help you at every step of the journey.”
