F&I Profit – Where Enough Is Enough and Too Much is Just Right!!! (How does an extra $300K per year sound?)

                   By: Myril Shaw - Dealer Profit Services

Of course, it would be generally correct to assume that it is impossible to have too much profit.  That being said, when it comes to F&I Profit as a percentage of unit sales, there are definitely factors that can limit F&I Profit.

Depending on the dealerships customer demographic, is the number of near-prime or non-prime customers is disproportionate, F&I Profit can definitely be affected.  Financing of non-prime and near-prime customers will carry lower reserves, often in the 2% - 3% range, versus prime customers where reserves can run in the 6% to 8% range.

A further impact coupled with the lower reserves are the higher interest rates, which make it more difficult to sell protective products.  If the units are lower price $30,000 or less, retail protective product sales will be capped in $4,500 to $6,000 range – limiting profit on those products  to something in the area of $1,000 - $2,000 or 3% - 4%...making it very hard to achieve the 8% profit target.

The flip side of the coin is high priced units, generally $100,000 dollars or more.  While carrying 6% reserve is fairly common, even just 2%  protective product profit will be $2,000 of profit, which could mean protective product retail prices of $5,000 - $6,000 – meaning a payment increase $50 - $60 per month – not necessarily an easy sale.

F&I Profit %           2%                                             8.5%                                           4%

                          Weak Credit                                 Prime---------------------------------->

                          Low Price (<$30K)                         $50K Average                         $125K+

What does all of this mean to you? 

If you sell predominantly lower end units, you may want to consider adding some mid-range line of products.  If you are getting disproportionately  weak credit customers, you may want to adjust your some of your marketing to attract a more balanced demographic.

On the other hand, if you are selling the high end, 4% profit on a $125K unit is still $5,000 – so maybe that is not too bad.

The other consideration in driving profit is your cost of F&I.  There is NO CIRCUMSTANCE where your "all-in" F&I cost (salaries, space, equipment, materials, bureau pulls, etc.) should ever exceed 25% of your profit (and it should be much closer to 20%). 

The target Net Profit for F&I as a percentage of unit sales is 4%.  If your cost is 25%, you will need to be averaging 5.33%.  If your cost is 20%, you will need to average 5%.

At a store financing $7.5M per year, these numbers will contribute $300,000 annually directly to your bottom line – what is you could raise your Net F&I Profit to 4.5%, your bottom line increase becomes $337,500 – now, what could you do with that?

Dealer Profit Services - Driving Profit Through Fun and Inspiration

Dealer Profit Services, LLC can help you achieve F&I excellence - no matter where you are in the development and/or maturity of your store or stores F&I success model.  As the industry's best Finance Solutions Provider and the only one to take your customer to Fun and Inspiration with a Free and Idyllic lifestyle through F&I, thus driving industry-leading levels of F&I profit, Dealer Profit Services can and will equip you with what you need to take that next step in your F&I success - regardless of what that next step might be.  Whether you want someone to help you take over take over your F&I and with our experienced personnel just help you drive profit to your store, provide help to you some of the time, need some quick advice, or just provide F&I Training/Consulting, we are here to help you.  If you are not fully equipped with all of your Compliance Manuals and Training, Dealer Profit Services can do that too.  Contact us anytime at info@dealerprofit.com or give us a call at (470) 326-0966.