ProfitTime in Practice: How Days in Inventory, Days to Sell Work Together
One of the biggest benefits the ProfitTime system provides dealers is the ability to manage and price vehicles based on their unique investment values. It’s a more sound and sophisticated approach to inventory management than using a vehicle’s days in inventory, or days on the lot, as the primary basis for critical decisions.
But that’s not to say that days in inventory or days on the lot is completely irrelevant for ProfitTime dealers. The truth is, Days in Inventory has significant merit when it’s used in conjunction with another metric–Days to Sell–to manage the outcomes of vehicles that fall into each of ProfitTime’s precious metal designations.
To better understand how Days in Inventory and Days to Sell can work together to help dealers optimize turn and gross profit across their Platinum, Gold, Silver and Bronze categories, it’s important to know the distinction between the two metrics.
The primary distinction relates to what the individual metrics measure. In the case of Days in Inventory, it’s a metric that measures a present condition–the number of days a vehicle, or a group of vehicles in a ProfitTime investment category, has been on a dealer’s lot. Meanwhile, Days to Sale measures a past condition–the number of days, on average, it typically takes for a dealer to sell vehicles in a specific ProfitTime investment category.
As ProfitTime launched and I’ve worked closely with dealers to optimize the outcomes the system delivers, I’ve come to understand that Days to Sell is perhaps the most-valuable metric for helping dealers slow the turn of their Platinum and Gold investments to maximize gross profit, and speed up the turn of their Silver and Bronze investments to maximize volume. To achieve these outcomes, I’ve coached dealers to achieve higher Days to Sell averages for Platinum and Gold vehicles, and lower Days to Sell averages for Silver and Bronze vehicles.
But I’ve also learned that Days to Sell, and its relationship to Days in Inventory, for a specific ProfitTime investment category also provides valuable insight. Generally speaking, there should be an inverse relationship between Days to Sell and Days in Inventory in each ProfitTime investment category.
For example, if Gold and Platinum vehicles have an average Days in Inventory of 35 and 40, respectively, the corresponding Days to Sell figures should be higher (say, 40 and 45, respectively). Why? Because a higher Days to Sell metric tells us that a dealer is, in fact, giving the Gold and Platinum vehicles the time they deserve and need to deliver maximum gross profit.
There should also be an inverse relationship between Days in Inventory and Days to Sell for Silver and Bronze vehicles. For example, if Silver and Bronze vehicles had an average Days in Inventory of 30 and 25, respectively, we’d want the corresponding Days to Sell figures to be lower (say, 25 and 20 days, respectively). Why? The lower Days to Sell metric tells us the dealer is turning Silver and Bronze vehicles quickly and in accord with their respective ProfitTime investment scores and values.
From what I’ve seen, top-performing ProfitTime dealers who follow the system’s pricing recommendations don’t need to proactively manage the relationship between Days in Inventory and Days to Sell. Why? Because the algorithm that drives the ProfitTime pricing recommendations accounts for each vehicle’s time in inventory and its probability of selling at the recommended price in the next seven days. In effect, when dealers accept the lion’s share of ProfitTime pricing recommendations, the system manages the Days in Inventory and Days to Sell relationship for them.
Of course, the opposite is also true. Inevitably, when I see that the relationship between Days in Inventory and Days to Sell in a ProfitTime investment category is out of whack, the root cause usually rests with a dealer or manager ignoring or rejecting ProfitTime price recommendations. Such discoveries are often valuable teaching moments. They often reflect instances where a dealer is pricing their Gold and Platinum vehicles too cheap and giving up gross. Or, the dealers are asking too much for their Silver and Bronze vehicles and giving up opportunities to grow their sales volumes.