How Important Is F&I? It Could Be "Change Your Life" Important!

By: Myril Shaw, Dealer Profit Services

(Note: This is the first in a series about why F&I is important and how to improve it at your store.)

For many of you, Finance and Insurance (not to be seen as, but often is, Frustrating and Irritating) is somewhere between non-existent and an afterthought.  You don't want to worry about the legal and compliance issues.  You don't want the expense burden associated.  Your customers tend to pay cash.  Why even worry or think about F&I for your store?

Well – what if F&I could double your Net Profit?  Would that make it interesting?  What if F&I represented Fantastic and Inspiring revenue?  Might that change your view of F&I?

Your response is likely, "If F&I could double my Net Profit, I would be interested – but it can't."

IT CAN!!!  Read on.

Let's begin with the most fundamental issue – how well should F&I perform?

The target for F&I profit, on average across all deals, should be 7.5% of the amount financed.  This means that your team should be averaging at least 5% reserve across all deals, from non-prime through super-prime.  Beyond that, they should be selling optional protective products that deliver a profit of 2.5% of the amount financed on average per deal.  (In fairness, these numbers apply to deals where the amount financed is $100,000 or less – once you get above that, the F&I Profit Percentage will decrease, however the dollar value becomes so significant that you still will not want to leave it on the table.)

So, with F&I profit of 7.5% on the amount financed as the baseline, if your units financed represent 50% of your units sold (which means that your total unit sales will be double the amount financed plus 15% added back to the amount financed to account for the down payments) your F&I profit will add 3.5% to your unit sales net profit. 

F&I Profit on Amount Financed		Amt Financed		F&I Profit		% of Total Sales Financed		Total Sales	F&I Profit On Sales
7.50%		$ 250,000.00		$ 18,750.00		50%		$ 537,500.00	3.49%
7.50%		$ 250,000.00		$ 18,750.00		70%		$ 394,642.86	4.75%
7.50%		$ 250,000.00		$ 18,750.00		30%		$ 870,833.33	2.15%
7.50%		$ 250,000.00		$ 18,750.00		50%		$ 537,500.00	3.49%
7.50%		$ 350,000.00		$ 26,250.00		70%		$ 552,500.00	4.75%
7.50%		$ 150,000.00		$ 11,250.00		30%		$ 522,500.00	2.15%

Let's recap, 7.5% F&I profit on the amount financed will add 3.5% to your unit sales profit if you are financing 50% of your units sales.  3.5% is a big number.

If you are financing more, that profit number will go up…if you are financing less, that number will go down and that is completely under your control!

What about the cost of F&I?  It should NEVER be greater than 30% of the profit.  At 30%, your Net F&I profit will contribute 2.45% to your store's Net Profit – to the extent that you can control that F&I cost, your net profit goes up.

You really should never be spending more than 25% of your F&I profit its cost and there are ways to control that further.

According to the 20 Groups, both Spader and Parker, the best stores are adding 2.1% through F&I profit before cost – imagine what your net profit would look like if you could add 2.45%+ to your net profit bottom line.

Stay tuned – this is the first in a series of blogs about how to increase financing at your store.

Once you do F&I will, indeed, represent Fantastic and Inspiring Profit!